UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities
Exchange Act of 1934 (Amendment No.
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Filed by the Registrant
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Preliminary
Proxy Statement
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Confidential,
for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive
Proxy Statement
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Definitive
Additional Materials
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Soliciting
Material Pursuant to §240.14a-12
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LUMINEX CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if
other than the Registrant)
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transaction computed pursuant to Exchange Act Rule 0-11
(set forth the amount on which the filing fee is calculated and
state how it was determined):
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TABLE OF CONTENTS
LUMINEX CORPORATION
12212 Technology Boulevard
Austin, Texas 78727
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 25, 2006
Luminex Corporation (the Company) will hold its 2006 annual meeting of stockholders (the
Meeting) on Thursday, May 25, 2006, at 12:00 p.m., local time, at the Hilton Austin Airport
Hotel, 9515 New Airport Drive, Austin, Texas 78719. At the Meeting, stockholders will act on the
following matters:
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(1)
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election of four members to the Board of Directors to serve for three-year
terms as Class III Directors (designated as Proposal 1 in the accompanying proxy
statement);
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(2)
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approval of the Companys 2006 Equity Incentive Plan (designated as Proposal 2
in the accompanying proxy statement);
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(3)
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approval of the Companys 2006 Management Stock Purchase Plan (designated as
Proposal 3 in the accompanying proxy statement);
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(4)
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ratification of the appointment by the Companys Audit Committee of Ernst &
Young LLP as the Companys independent registered public accounting firm for fiscal
2006 (designated as Proposal 4 in the accompanying proxy statement); and
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(5)
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such other business as may properly come before the Meeting or any adjournment
or postponement thereof.
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The Board of Directors has fixed the close of business on April 6, 2006, as the record date
for the determination of stockholders entitled to notice of and to vote at the Meeting or any
adjournment or postponement thereof. A complete list of such stockholders will be available for
examination at our offices in Austin, Texas, during normal business hours for a period of ten days
prior to the Meeting.
Your attention is directed to the proxy statement accompanying this notice for a more complete
statement regarding the matters to be acted upon at the Meeting. Our annual report to stockholders
is being mailed with this notice and proxy statement, but it is not part of the proxy solicitation
materials. All stockholders are cordially invited to attend the Meeting.
However, stockholders
are urged, whether or not they plan to attend the Meeting, to either sign, date and mail the
enclosed proxy in the postage-paid envelope provided, or to vote by telephone or electronically
pursuant to the instructions included with the proxy.
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By Order of the Board of Directors,
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David S. Reiter
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Vice President, General
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Counsel and Corporate Secretary
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Austin, Texas
April 24, 2006
LUMINEX CORPORATION
12212 Technology Boulevard
Austin, Texas 78727
PROXY STATEMENT
For Annual Meeting of Stockholders
To Be Held May 25, 2006
This proxy statement is being furnished to the stockholders of Luminex Corporation (the
Company, Luminex, we or us) in connection with the solicitation by the Board of Directors
of proxies for use at the 2006 annual meeting of stockholders (the Meeting) to be held at the
time and place and for the purposes set forth in the accompanying notice, and at any and all
adjournments or postponements thereof. The approximate date of mailing of this proxy statement and
the accompanying proxy card is April 24, 2006.
Voting Procedures; General Information
Proposals 1, 2, 3 and 4 will be presented by management at the Meeting. With regard to
Proposal 1, the form of proxy permits votes for or withholding of votes as to all nominees for
director or for withholding votes for any specific nominee, and permits votes for, against, or
abstention with regard to Proposal 2, 3 and 4. If the enclosed form of proxy is properly executed,
returned, and not revoked, it will be voted in accordance with the specifications, if any, made by
the stockholder and, if specifications are not made, will be voted
FOR
the nominees named in this
proxy statement to the Companys Board of Directors,
FOR
the approval of the Companys 2006 Equity
Incentive Plan,
FOR
the approval of the Companys Management Stock Purchase Plan and
FOR
the
ratification of the appointment of Ernst & Young LLP as the Companys independent registered public
accounting firm for fiscal 2006.
If your shares are held by your broker or other nominee, often referred to as in street
name, you will receive a form from your broker seeking instructions as to how your shares should
be voted. If you are a registered stockholder you may vote by telephone or electronically through
the Internet by following the instructions included with your proxy card. If your shares are held
in street name, you should contact your broker or nominee to determine whether you will be able to
vote by telephone or electronically. If your shares are held in street name and you do not issue
instructions to your broker, your broker, under the rules of The Nasdaq Stock Market, may vote your
shares in its discretion on routine matters, but may not vote your shares on non-routine
matters. The election of directors and the ratification of Ernst & Young LLP as our independent
registered public accounting firm for fiscal 2006 (Proposals 1 and 4) are deemed routine matters.
Therefore, your broker has discretionary authority to vote your shares on such matters absent
specific instructions from you. If your broker turns in a proxy card expressly stating that the
broker is not voting on a non-routine matter (Proposals 2 or 3) as a result of your failure to
provide specific instructions, such action is referred to as a broker non-vote.
It is not expected that any matter not referred to herein will be presented for action at the
Meeting. If any other matters are properly brought before the Meeting, including, without
limitation, a motion to adjourn the Meeting to another time and/or place for the purpose of, among
other things, permitting dissemination of information regarding material developments relating to
any of the Proposals, or soliciting additional proxies in favor of the approval of any of the
Proposals, the persons named on the accompanying proxy card will vote the shares represented by
such proxy upon such matters in their discretion. Should the Meeting be reconvened, all proxies
will be voted in the same manner as such proxies would have been voted when the Meeting was
originally convened, except for the proxies effectively revoked or withdrawn prior to the time
proxies are voted at such reconvened meeting.
Any stockholder giving a proxy may revoke it at any time before it is voted by communicating
such revocation in writing to our Corporate Secretary at the address indicated above, by executing
and delivering a later-dated proxy or by voting in person at the Meeting.
Quorum; Required Votes and Recommendations
Our only outstanding voting security is our common stock. Holders of record of common stock
at the close of business on April 6, 2006, the record date for the Meeting, are entitled to notice
of and to vote at the Meeting. On the record date for the Meeting, there were 31,946,185 shares of
common stock outstanding and entitled to vote at the Meeting. In deciding all matters, a holder of
common stock on the record date shall be entitled to cast one vote for each share of common stock
then registered in such holders name.
The holders of a majority of the outstanding shares of the Companys common stock as of the
record date must be present in person or be represented by proxy to constitute a quorum and act
upon the proposed business. Failure of a quorum to be represented at the Meeting will necessitate
an adjournment or postponement and will subject the Company to additional expense. Votes withheld
from any nominee for director, abstentions and broker non-votes are counted as present or
represented for purposes of determining the presence or absence of a quorum.
Proposal 1 discussed in this Proxy Statement requires the affirmative vote of a plurality of
the votes cast at the Meeting. Accordingly, the four nominees receiving the highest number of
affirmative votes of the shares present or represented and entitled to vote at the Meeting shall be
elected as directors. Proposals 2, 3 and 4 require the affirmative vote of the holders of a
majority of the outstanding shares represented at the Meeting and entitled to vote thereon. Votes
will be counted by the Companys transfer agent. Under Delaware law, neither abstentions nor
broker non-votes are counted as voting for or against a particular matter. However, while
abstentions and broker non-votes are included in the number of shares present or represented at the
Meeting, broker non-votes are not considered entitled to vote. Accordingly, for purposes of
Proposals 2, 3 and 4, broker non-votes have the effect of reducing the number of affirmative votes
required to achieve a majority of the shares present and entitled to vote for such matter by
reducing the total number of shares from which such majority is calculated. On the other hand,
abstentions will have the same effect as a vote cast against Proposal 2, 3 or 4. Abstentions,
withhold votes and broker non-votes will have no effect on the outcome of Proposal 1.
The Board of Directors recommends that you vote:
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FOR
the Class III Director nominees named in this proxy statement;
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FOR
the approval of the Companys 2006 Equity Incentive Plan;
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FOR
the approval of the Companys Management Stock Purchase Plan; and
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FOR
the ratification of the appointment of Ernst & Young LLP as the Companys
independent registered public accounting firm for fiscal 2006.
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CORPORATE GOVERNANCE
We believe that effective corporate governance is critical to our long-term health and ability
to create value for our stockholders. During 2005, we continued to review our corporate governance
policies and practices, as well as related provisions of the Sarbanes-Oxley Act of 2002, current
and proposed rules of the Securities and Exchange Commission, and the corporate governance
requirements of The Nasdaq Stock Market. Based on this assessment, we recently adopted
comprehensive corporate governance guidelines, including meaningful stock ownership and retention
guidelines, that can be viewed at the Investor Relations section of our website at
www.luminexcorp.com. Our Board of Directors believes that we have in place appropriate charters,
policies, procedures and controls which promote and enhance corporate governance, accountability
and responsibility with respect to the Company and a culture of honesty and integrity. We will
continue to monitor emerging developments and best practices in corporate governance and augment
these charters, policies, procedures and controls when required or when our Board determines it
would benefit the Company and our stockholders.
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Director Independence
The Board of Directors has determined that each of the following directors is an independent
director under the applicable rules of The Nasdaq Stock Market, and that such persons do not
otherwise have any relationship that, in the opinion of the Board of Directors, would interfere
with the exercise of such persons independent judgment in carrying out the responsibilities of a
director:
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Robert J. Cresci
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Jim D. Kever
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Fred C. Goad, Jr.
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Jay B. Johnston
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Gerard Vaillant
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Kevin M. McNamara
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J. Stark Thompson
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Director Qualifications
The Nominating and Corporate Governance Committee may consider whatever factors it deems
appropriate in its assessment of a candidate for board membership; however, candidates nominated to
serve as directors will, at a minimum, in the committees judgment:
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be able to represent the interests of the Company and all of its stockholders and not be
disposed by affiliation or interest to favor any individual, group or class of stockholders
or other constituency; and
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possess the background and demonstrated ability to contribute to the Boards performance
of its collective responsibilities, through senior executive management experience,
relevant professional or academic distinction, and/or a record of relevant civic and
community leadership.
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The consideration of a candidate for director will include the Nominating and Corporate
Governance Committees assessment of the individuals background, skills and abilities, and whether
such characteristics fulfill the needs of the Board of Directors at that time. As part of the
Nominating and Corporate Governance Committees consideration of a candidate, the committee also
believes that the candidate must:
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be of high ethical character and share the core values of Luminex as reflected in our
Code of Compliance;
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have a reputation, both personal and professional, consistent with the image and reputation of Luminex;
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be highly accomplished in the candidates field;
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be an active or former chief executive officer of a public company or a biotechnology
company or an active or former leader of another complex organization;
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otherwise have relevant expertise and experience, and be able to offer advice and
guidance to the chief executive officer based on that expertise and experience; or
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have the ability to exercise sound business judgment.
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Process for Identifying Candidates
The Nominating and Corporate Governance Committee may utilize a variety of methods for
identifying nominees for director. Candidates may come to the attention of the Nominating and
Corporate Governance Committee through current Board members, professional search firms,
stockholders or other persons. The Nominating and Corporate Governance Committee considers
nominees proposed by the Companys stockholders in accordance with the provisions contained in our
bylaws. Pursuant to the our bylaws, any stockholder may nominate a person for election to our
Board of Directors, provided that the nomination is received by the Secretary of the Company not
less than 30 days nor more than 90 days prior to the first anniversary of the preceding years
Meeting. Each nomination submitted in this manner shall include the name and address of the
nominee(s) and all other information with respect to the nominee as required to be disclosed in the
proxy statement for the election of directors under applicable rules of the Securities and Exchange
Commission, including the nominees consent to being named as a nominee and to serving as a
director, if elected. Additionally, the nominating stockholder must provide his or her name and
address as it appears in the stock records of the Company and the number of shares of common stock
beneficially owned by the stockholder.
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Evaluation of Candidates
The chair of the Nominating and Corporate Governance Committee will preliminarily assess a
candidates qualifications and suitability, working with management support and seeking board
input, and report such assessment to the Nominating and Corporate Governance Committee members.
When feasible, the chair of the Nominating and Corporate Governance Committee will interview
candidates whom the chair believes are likely to meet the criteria for board membership as part of
the preliminary assessment process. The report may be made to the Nominating and Corporate
Governance Committee at a meeting of the committee or informally to each committee member between
meetings.
If it is the consensus of the Nominating and Corporate Governance Committee that a candidate
is likely to meet the criteria for board membership, the chair of the committee will advise the
candidate of the committees preliminary interest and, if the candidate expresses sufficient
interest, with the assistance of the Corporate Secretarys office, will arrange interviews of the
candidate with one or more members of the committee, and request such additional information from
the candidate as the committee deems appropriate. The Nominating and Corporate Governance
Committee will consider the candidates qualifications, background, skills and abilities, and
whether such characteristics fulfill the needs of the board at that time, and confer and reach a
collective assessment as to the qualifications and suitability of the candidate for board
membership.
If the Nominating and Corporate Governance Committee determines that the candidate is suitable
and meets the criteria for board membership, the candidate will be invited to meet with senior
management of the Company and other members of the Board of Directors, both to allow the candidate
to obtain further information about the Company and to give management and the other directors a
basis for input to the Nominating and Corporate Governance Committee regarding the candidate. On
the basis of its assessment, and taking into consideration input from other Board members and
senior management, the Nominating and Corporate Governance Committee will formally consider whether
to recommend the candidates nomination for election to the Board of Directors.
Corporate Governance Guidelines
The Company has recently adopted corporate governance guidelines, the current version of which
may be viewed at the Investor Relations section of our website at www.luminexcorp.com. These
guidelines reflect our commitment to a system of governance which enhances corporate responsibility
and accountability.
Code of Compliance
We have a Code of Compliance that applies to all of the Companys employees, officers and
directors. The purpose of our Code of Compliance is to provide written standards that are
reasonably designed to deter wrongdoing and to promote honest and ethical conduct; full, fair,
accurate, timely and understandable disclosure in reports and documents that the Company files with
the Securities and Exchange Commission and other public communications by the Company; compliance
with applicable governmental laws, rules and regulations; prompt internal reporting of violations
of the Code of Compliance; and accountability for adherence to the Code of Compliance. Each
director, officer and employee is required to read and certify that he or she has read, understands
and will comply with the Code of Compliance.
Under the Sarbanes-Oxley Act of 2002 and the Securities and Exchange Commissions related
rules, the Company is required to disclose whether it has adopted a code of ethics that applies to
the Companys principal executive officer, principal financial officer, principal accounting
officer or controller or persons performing similar functions. The Nasdaq Stock Market rules
require the Company to adopt a code of conduct applicable to the Companys directors, officers
and employees that meets the Securities and Exchange Commissions definition of code of ethics.
Our Code of Compliance meets the Securities and Exchange Commissions definition of code of
ethics. The Companys employees, including our Chief Executive Officer and senior financial
officers, are bound by our Code of Compliance.
A copy of our Code of Compliance can be obtained from the Investor Relations section of our
website at www.luminexcorp.com. We intend to disclose amendments to, or waivers from, the Code of
Compliance (to the
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extent applicable to our directors, Chief Executive Officer, principal financial officer,
principal accounting officer or persons performing similar functions) on our website.
Communications with Members of the Board
Our Board of Directors has established procedures for the Companys stockholders to
communicate with members of the Board of Directors. Stockholders may communicate with any of the
Companys directors, including the chairperson of any of the committees of the Board of Directors
or the presiding director, if any, by writing to a director care of Corporate Secretary, Luminex
Corporation, 12212 Technology Boulevard, Austin, Texas 78727. Appropriate communications will be
forwarded to such director(s) by the Corporate Secretary.
Communications expressing concerns or complaints relating to accounting matters, internal
disclosure controls or controls over financial reporting, or auditing matters are handled in
accordance with procedures established by the Audit Committee, including, without limitation, a
dedicated hot line and email address. Under those procedures, concerns having to do with
accounting matters, internal disclosure controls or controls over financial reporting, or auditing
matters are presented by the Companys compliance officer to the Audit Committee for consideration
and, if appropriate, corrective action. The Companys compliance officer maintains a log of
correspondence addressed to directors and provides periodic summary reports thereof for the Audit
Committee.
Board Member Attendance at Annual Meeting of Stockholders
The Company strongly encourages each member of the Board of Directors to attend each annual
meeting of stockholders. Accordingly, we expect most, if not all, of the Companys directors to be
in attendance at the Meeting. All of our directors attended the 2005 annual meeting of
stockholders.
Meetings and Committees of the Board of Directors
The Board of Directors and its committees meet periodically during the year as deemed
appropriate. During 2005, the Board of Directors met five times. No director attended fewer than
75% of all the 2005 meetings of the Board of Directors and its committees on which he served.
The Board of Directors currently has four standing committees: Audit Committee, Compensation
Committee, Nominating and Corporate Governance Committee and Executive Committee. It is the policy
of the Board and each committee to periodically review its performance and the effectiveness of its
charter and policies, as applicable.
The Audit Committee, which met nine times in 2005, currently consists of Mr. Kever, who serves
as Chairman, Mr. Cresci and Mr. Johnston. The Board of Directors has determined that each member
of the Audit Committee meets the heightened independence requirements of the applicable rules of
the The Nasdaq Stock Market and has a basic understanding of finance and accounting and is able to
read and understand fundamental financial statements. The Board of Directors has further
determined that Jim D. Kever is an audit committee financial expert as such term is defined in
Item 401(h) of Regulation S-K promulgated by the Securities and Exchange Commission. The Audit
Committees primary duties and responsibilities are to oversee the Companys accounting and
financial reporting processes and audits of the Companys financial statements; oversee the
integrity of the Companys systems of internal controls regarding finance, accounting and legal
compliance, including the oversight of the Companys internal audit function; oversee the
independence and performance of the Companys independent registered public accounting firm;
pre-approve all audit and permitted non-audit services to be performed by such firm; and provide an
avenue of free and open communication among the independent registered public accountants,
management and the Board of Directors. It is the function of the Audit Committee to help ensure
the Companys financial statements accurately reflect the Companys financial position and results
of operations. In addition, the Audit Committee, following its review of the audited financial
statements, is charged with recommending the audited financial statements to the Board of Directors
for inclusion in the Companys annual reports. The Audit Committee operates pursuant to the terms
of a Charter adopted by the Board of Directors (as amended to date, the Restated Audit Committee
Charter). A copy of the Restated Audit Committee Charter is available on the Investor Relations
section of the Companys website at www.luminexcorp.com. Additional information regarding the
purpose and functions of the Audit Committee is set forth in the Report of the Audit Committee
provided below.
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The Compensation Committee, which met four times in 2005, currently consists of Mr. Goad, who
serves as Chairman, Mr. Kever and Mr. Vaillant. The Board of Directors has determined that each
member of the Compensation Committee is independent for purposes of the applicable rules of the The
Nasdaq Stock Market, the Securities and Exchange Commission and the Internal Revenue Service. The
Compensation Committees function is to establish and apply our compensation policies to assure
that the executive officers, directors and other officers and key employees are compensated in a
manner consistent with the compensation policies adopted by the Compensation Committee, competitive
practice and the requirements of the appropriate regulatory bodies. The Compensation Committee
also administers our equity incentive plans. A copy of the Charter of the Compensation Committee
is available on the Investor Relations section of the Companys website at www.luminexcorp.com.
Additional information regarding the functions performed by the Compensation Committee and the
determination of management compensation is included in the Report of the Compensation Committee
provided below.
The Nominating and Corporate Governance Committee, which met four times in 2005, currently
consists of Mr. Cresci, who serves as Chairman, and Mr. Kever. The Board of Directors has
determined that each member of the Nominating and Corporate Governance Committee is independent as
that term is defined by the applicable rules of the The Nasdaq Stock Market. The Nominating and
Corporate Governance Committee provides assistance to the Board of Directors in identifying and
recommending individuals qualified to serve as directors of the Company, reviews the composition of
the Board of Directors, periodically evaluates the performance of the Board of Directors and its
committees, and reviews and recommends corporate governance policies for the Company. A copy of
the Charter of the Nominating and Corporate Governance Committee is available on the Investor
Relations section of the Companys website at www.luminexcorp.com.
The Executive Committee, which met four times in 2005, currently consists of Mr. Erickson, who
serves as Chairman, Mr. Loewenbaum and Mr. Balthrop. The Executive Committees function is to act
on behalf of the Board of Directors as a whole, to the extent delegated to the committee and
otherwise permitted by law.
Generally, an executive session of non-employee directors is held in conjunction with each
regularly scheduled Board meeting and other times as deemed appropriate. The executive sessions
are generally led by Mr. Loewenbaum or the presiding director. At least two meetings per year are
also held by solely our independent directors, led by the presiding director. The presiding
director is the then chair of the Nominating and Corporate Governance Committee (currently Mr.
Cresci), as further described in our corporate governance guidelines.
Scientific Advisory Board
The Scientific Advisory Board (the Advisory Board) was created in 2005 to, among other
responsibilities, provide strategic advice regarding the Companys research and development efforts
and to evaluate and provide new scientific and technological perspectives relating to the current
and future application of the Companys technologies. Our former director, Dr. C. Thomas Caskey,
was the initial member of the Advisory Board and the Advisory Board also includes Dr. Ronald
Bowsher, Dr. Andrea Ferreira-Gonzalez, Dr. Thomas Joos and Dr. Gary Procop. Dr. James Jacobson
also serves on the Advisory Board as a management representative. It is expected that each member
of our Advisory Board will be qualified and experienced in the markets and/or industries in which
our products are or may be utilized and, with the exception of Dr. Jacobson or a successor
management representative, are neither employees nor directors of our Company. Additionally, the
Company may invite members of our Board of Directors to serve on the Advisory Board in their
capacity as members of our Board of Directors in order to help oversee and direct the Advisory
Board and help communicate the Advisory Boards conclusions and recommendations to our Board of
Directors. The Advisory Board operates at the discretion of the Board of Directors.
Compensation of Directors
The compensation policy for our non-employee directors for 2005 was as follows:
Each non-employee board member (other than the Chairman of the Board) serving on the Board of
Directors after the 2005 annual stockholder meeting was paid an annual retainer of $18,000 (payable
quarterly in arrears). Each member of the Audit Committee (other than the Chair) received an
additional annual retainer of $10,000 (payable quarterly in arrears). The Chairman of the Board of
Directors was paid a monthly retainer of $10,000. The Chairs of the Audit Committee and Executive
Committee of the Board of Directors were paid an
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additional annual retainer of $20,000 (payable quarterly in arrears). The Chairs of the
Compensation and Nominating and Corporate Governance Committees of the Board of Directors were paid
an additional annual retainer of $10,000 (payable quarterly in arrears).
Each non-employee board member additionally received the following fees for attendance at
Board and committee meetings, as applicable: (i) $2,000 for each board meeting attended in person
or via telephone; (ii) $500 for each committee meeting (other than an Audit Committee or Executive
Committee meeting) attended in person or via telephone, to the extent not held in conjunction with
a full Board meeting; and (iii) $1,000 for each Audit Committee meeting attended in person or via
telephone, to the extent not held in conjunction with a full Board meeting.
Non-employee board members received annual restricted stock grants as follows. Each Board
member (other than the Chairman of the Board, the Audit Committee members and the Chair of the
Executive Committee) received an annual grant of 4,500 shares of restricted common stock. The
Chairman of the Board received an annual grant of 18,000 shares of restricted common stock. Each
Audit Committee Member (other than the Chair) received an annual grant of 6,500 shares of
restricted common stock. The Chair of the Audit Committee received an annual grant of 8,500 shares
of restricted common stock. The Chair of the Executive Committee received an annual grant of 8,500
shares of restricted common stock. The restricted shares were issued pursuant and subject to the
terms of the Companys 2000 Long-Term Incentive Plan and the form of award agreement previously
filed with the Securities and Exchange Commission and vest one year from the date of grant.
Messrs. Johnston and Vaillant each also received, prior to the adoption of our 2005 non-employee
director compensation policy and in accordance with our 2004 policy, an initial option grant of
15,000 shares upon their initial election to the Board in February 2005, which options vested over
the one year period from the date of grant.
Our directors who are also employees received no additional compensation for their services as
a director for 2005. The foregoing compensation for our non-employee directors will continue to
apply for 2006.
Compensation Committee Interlocks and Insider Participation
During 2005, the Compensation Committee of the Board of Directors consisted of Mr. Goad, who
serves as Chairman, Mr. Kever and Mr. Vaillant, none of whom has ever been an officer or employee
of the Company or its subsidiaries. No interlocking relationship exists between any officer,
member of our Board of Directors or the Compensation Committee and any officer, member of the Board
of Directors or compensation committee of any other company, nor has such an interlocking
relationship existed in the past.
PROPOSAL 1 ELECTION OF CLASS III DIRECTORS
The number of directors on our Board of Directors is currently fixed at ten. Our certificate
of incorporation divides our Board of Directors into three classes which serve staggered three-year
terms. The terms of the Class I, Class II and Class III directors will expire upon the election
and qualification of directors at the annual meeting of stockholders to be held in 2007, 2008 and
2006, respectively.
Currently, our Board of Directors is composed of three Class I directors (consisting of Robert
J. Cresci, Thomas W. Erickson and Gerard Vaillant), three Class II directors (consisting of Fred C.
Goad, Jr., Jim D. Kever and Jay B. Johnston) and four Class III directors (consisting of Patrick J.
Balthrop, Sr., G. Walter Loewenbaum II, J. Stark Thompson, and Kevin M. McNamara). The Companys
Nominating and Corporate Governance Committee, in conjunction with management and the full Board of
Directors, intends to evaluate new independent candidates from time to time in accordance with its
established procedures and policies.
At the Meeting, the stockholders will elect four Class III directors. Each of these directors
is to serve a three-year term until the 2009 annual meeting of stockholders and until a successor
is elected and qualified or until the directors earlier resignation or removal. The Board of
Directors and its Nominating and Corporate Governance Committee, pursuant to and consistent with
the nomination procedures described below, have nominated Messrs. Balthrop, Loewenbaum, McNamara
and Thompson for election as Class III directors. It is the intention of the persons named in the
proxy to vote the proxies for the election of the aforementioned nominees. Proxies may not be
voted for persons other than those, or for more persons than, named in the proxy. If any nominee
should be
7
unwilling or become unavailable to serve as a director for any reason, the persons named as
proxies reserve full discretion to vote for such other person or persons as may be properly
nominated. The Board of Directors has no reason to believe that any of the nominees will be unable
or unwilling to serve as a director if elected.
Certain information about the nominees for the Board of Directors, and those directors whose
terms do not expire at the Meeting, is furnished below.
Class III Director Nominees
Patrick J. Balthrop
,
Sr., age 49.
Mr. Balthrop has served as our President and Chief
Executive Officer since May 2004 and has served as a member of the Board of Directors and the
Executive Committee since September 2004. Prior to joining us, he was employed by Fisher
Scientific International Inc. where, since 2002, he served as President of Fisher Healthcare, a
Fisher Scientific company. Prior to Fisher Scientific International, Balthrop served in a number
of leadership positions for over 20 years with Abbott Laboratories, primarily in Abbotts
Diagnostics Division. Balthrops most recent positions at Abbott were as head of worldwide
commercial diagnostics operations and as head of Abbott Vascular. His experience at Abbott and
Fischer included sales, marketing, manufacturing operations, international experience, research and
development and senior management. Balthrop holds an MBA from the Kellogg Graduate School of
Management of Northwestern University, and a B.S. in Biology from Spring Hill College.
G. Walter Loewenbaum II, age 61.
Mr. Loewenbaum has served as a member of the Board of
Directors since May 1995 and as Chairman of the Board of Directors since September 2002. He served
as Vice Chairman of the Board of Directors from April 1998 until January 2000. Since mid-2001, Mr.
Loewenbaum has provided advice and assistance to our senior management team on a regular basis with
respect to financial and strategic matters and general business operations of the Company. Mr.
Loewenbaum currently serves as President and Chief Executive Officer of Finetooth Corp.
Additionally, since July 1999, he has served as a Member of LeCorgne Loewenbaum & Co., LLC, an
investment banking firm. From April 1990 until June 1999, he served as the President, Chairman and
Chief Executive Officer of Loewenbaum & Company, Inc., an investment management company. Mr.
Loewenbaum also has served as Chairman of the Board of Directors of 3D Systems Corporation since
September 1999. He received a B.A. from the University of North Carolina.
Kevin M. McNamara
,
age 50
. Mr. McNamara has served as a member of the Board of Directors
since May 2003. In addition, he provided financial and strategic consulting services to the
Company from October 2001 through December 2002. Mr. McNamara has served as Executive Vice
President and Chief Financial Officer of HealthSpring, Inc., a managed care company focused on
Medicare Advantage, since April 2005. Mr. McNamara also served as non-executive chairman from
April 2005 through January 2006 of ProxyMed, Inc., a provider of automated healthcare business and
cost containment solutions for financial, administrative and clinical transactions in the
healthcare payments marketplace, and served as interim chief executive officer of ProxyMed, Inc.
from December 2004 through June 2005. Mr. McNamara previously served as Chief Financial Officer of
HCCA International, Inc., a healthcare management and recruitment company since October 2002. From
November 1999 until February 2001, Mr. McNamara served as Chief Executive Officer and a director of
Private Business, Inc., a provider of electronic commerce solutions that help community banks
provide accounts receivable financing to their small business customers. From 1996 to 1999, Mr.
McNamara served as Senior Vice President and Chief Financial Officer of Envoy Corporation
(Envoy). Mr. McNamara also serves on the Board of Directors of Comsys IT Partners, Inc. and
several private companies. Mr. McNamara is a Certified Public Accountant (inactive) and holds a
B.S. in Accounting from Virginia Commonwealth University and a M.B.A. from the University of
Richmond.
J. Stark Thompson, age 64.
Mr. Thompson has served as a member of the Board of Directors
since June 2005. Mr. Thompson has served as Non-Executive Chairman of the Board of Directors of
Gene Logic, Inc. since November 2004 and as a director since February 2002. Mr. Thompson is the
sole proprietor of Black Horse Yachts, LLC, manufacturer of semi-custom yachts. Mr. Thompson most
recently served as President, Chief Executive Officer and Director of Life Technologies, Inc., a
developer, manufacturer and supplier of products and services for life science researchers and
biotechnology companies, from 1988 until his retirement in 2000. He previously held a number of
research, sales, product development, operations and other positions over a 21 year career with the
E. I. Du Pont Nemours and Company. He also serves on the board of various private and civic
organizations. Mr. Thompson has a Bachelor of Science degree from Muskingum College and a Masters
of Science and PhD in Physiological Chemistry from the Ohio State University.
8
Class I Directors (Term Expires in 2007)
Robert J. Cresci, age 62.
Mr. Cresci has served as a member of the Board of Directors since
December 1996. He has been a Managing Director of Pecks Management Partners Ltd., an investment
management firm, since September 1990. Mr. Cresci currently serves on the Boards of Directors of
Sepracor Inc., j2 Global Communications, Inc., ContinuCare Corporation, SeraCare Life Sciences,
Inc. and several private companies. Mr. Cresci received his undergraduate degree from the United
States Military Academy at West Point and received his M.B.A. in Finance from the Columbia
University Graduate School of Business.
Thomas W. Erickson, age 55.
Mr. Erickson has served as a member of the Board of Directors
since May 2004. Mr. Erickson served as the Companys Interim President and Chief Executive Officer
from September 2002 until our hiring of Mr. Balthrop in May 2004. Prior to joining Luminex, he was
Interim President and Chief Executive Officer and a management consultant to Omega Healthcare
Investors, Inc., a company that provides financing and capital to the long-term healthcare
industry, from 2000 to 2002. In addition, Mr. Erickson was Co-Founder, President and Chief
Executive Officer for CareSelect Group, Inc. from 1994 to 2001, and has served as President and
Chief Executive Officer of ECG Ventures, Inc., a venture capital company, from 1987 to present.
Earlier in his career, Mr. Erickson held several management positions at American Hospital Supply
Corporation. He currently is Chairman of the Board of Trans Health, Inc. Mr. Erickson received a
B.B.A. from the University of Iowa and a M.B.A. from Southern Methodist University.
Gerard Vaillant, age 64
. Mr. Vaillant has served as a member of the Board of Directors since
February 2005. Mr. Vaillant held a number of positions within Johnson & Johnson from 1981 through
2004. Most recently, Mr. Vaillant served as Company Group Chairman until he retired. He also
served as Chairman for Ortho-Clinical Diagnostics, Inc., Veridex LLC and Therakos, Inc., and as a
member of several other operating committees within Johnson & Johnson during that period. In
addition, from 1992-1995, he was the Worldwide President of LifeScan, a company dedicated to
improving the quality of life for people with diabetes by developing, manufacturing and marketing a
wide range of blood glucose monitoring systems and software. He currently serves on the Board of
Directors for Sensors for Medicine and Science, Inc. and Tecan AG. He holds a Masters Degree &
Superior Certificate in Biochemistry & Industrial Chemistry from Paris University of Sciences and a
Degree in Marketing from Ecole Superieure de Commerce de Paris.
Class II Directors (Term Expires in 2008)
Fred C. Goad, Jr., age 65.
Mr. Goad has served as a member of the Board of Directors since
September 1997. Since August 2001, he has been a member in Voyent Partners, L.L.C., a private
investment company. Mr. Goad served as Co-Chief Executive Officer of the transaction services
division of WebMD Corporation (WebMD), a provider of health care transaction, information and
technology services, from June 2000 through March 2001. From March 1999 through May 2000, Mr. Goad
served as Senior Advisor to the Office of the President of the transaction services division of
Quintiles Transnational (Quintiles). Mr. Goad served as Co-Chief Executive Officer and Chairman
of Envoy, a provider of electronic transaction processing services for the healthcare industry,
from June 1996 until Envoy was acquired by Quintiles in March 1999. From 1985 to June 1996, Mr.
Goad served as President and Chief Executive Officer of Envoy. Mr. Goad also serves on the Boards
of Directors of Performance Food Group Company, Emageon Inc. and several private
companies.
Jim D. K
ever,
age 53
. Mr. Kever has served as a member of the Board of Directors since
December 1996. He has been a member in Voyent Partners, L.L.C. since August 2001. Mr. Kever
served as Co-Chief Executive Officer of the transaction services division of WebMD from June 2000
to March 2001. From March 1999 through May 2000, Mr. Kever served as Chief Executive Officer of
the transaction services division of Quintiles. From August 1995 through March 1999, Mr. Kever was
the President and Co-Chief Executive Officer of Envoy. Mr. Kever joined Envoy as Treasurer and
General Counsel in October 1981. Mr. Kever serves on the Boards of Directors of 3D Systems
Corporation, Transaction Systems Architects, Inc. and Tyson Foods, Inc. Mr. Kever received a B.S.
in business and administration from the University of Arkansas in 1974 and a J.D. from the
Vanderbilt University School of Law in 1977.
Jay B. Johnston, age 63
. Mr. Johnston has served as a member of the Board of Directors since
February 2005. Mr. Johnston currently serves as Chairman of QuesTek Innovations, LLC, a
privately-held company that designs and markets high tech materials. From 1975-1999, he held
numerous positions at Abbott Laboratories, most
9
recently Corporate Vice President for Diagnostic Assays and Systems. He held numerous other
positions with Abbott Laboratories, including President of Dainabot Co. Ltd. and Vice President
Asia Pacific. Mr. Johnston has experience in general management, product development, technology
management, strategic marketing and business development. He holds an M.B.A. in General Management
from Amos Tuck School of Business Administration and a B.A. degree in Public Administration from
Dartmouth College.
Required Vote; Recommendation of the Board
Election of Class III directors will be determined by a plurality of the votes cast at the
Meeting.
The Board of Directors unanimously recommend that stockholders vote
FOR
the election of its
nominees for Class III directors.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
Summary Compensation Table
The table below sets forth certain information concerning compensation paid during the last
three years to (i) our Chief Executive Officer and (ii) each named executive officer as of December
31, 2005. In accordance with the rules of the Securities and Exchange Commission, the compensation
set forth in the table below does not include medical, group life or other benefits which are
available to all of our salaried employees, and de minimis perquisites and other benefits in
accordance with SEC rules.
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Long Term
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Annual Compensation
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Compensation Awards
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Restricted
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Securities
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Name and Principal
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|
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Other Annual
|
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Stock
|
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Underlying
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All Other
|
Position
|
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Year
|
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Salary
|
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Bonus (1)
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Compensation
|
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Awards (2)
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Options
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Compensation (3)
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($)
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($)
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($)
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($)
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(#)
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($)
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Patrick J. Balthrop, Sr.
|
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2005
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400,000
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400,000
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146,458
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(4)
|
|
|
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|
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28,501
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President and Chief Executive
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2004
|
|
|
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282,169
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360,000
|
|
|
|
|
|
|
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2,020,000
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|
|
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500,000
|
(5)
|
|
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38,669
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|
Officer
|
|
|
2003
|
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|
|
|
|
|
|
|
|
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|
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Harriss T. Currie
|
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2005
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225,500
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128,071
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145,743
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5,000
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Vice President, Finance, Chief
|
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2004
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217,917
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99,688
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41,100
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15,000
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|
|
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4,800
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Financial Officer and Treasurer
|
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2003
|
|
|
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199,083
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|
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105,000
|
|
|
|
|
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|
|
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160,000
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|
|
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4,300
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|
Randel S. Marfin
|
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2005
|
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223,437
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127,915
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145,743
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|
|
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3,333
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|
Vice President, Luminex
|
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2004
|
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217,817
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91,850
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$
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41,100
|
|
|
|
15,000
|
|
|
|
3,200
|
|
Bioscience Group
|
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2003
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210,000
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|
|
30,000
|
|
|
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|
|
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150,000
|
|
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3,200
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James W. Jacobson, Ph.D.
|
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2005
|
|
|
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223,437
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|
|
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126,573
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|
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|
|
|
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145,743
|
|
|
|
|
|
|
|
3,385
|
|
Vice President, Research and
|
|
|
2004
|
|
|
|
217,197
|
|
|
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99,814
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|
|
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$
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41,100
|
|
|
|
15,000
|
|
|
|
3,250
|
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Development
|
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2003
|
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210,000
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105,000
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100,000
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3,250
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David S. Reiter
|
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2005
|
|
|
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212,625
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|
|
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125,843
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145,743
|
|
|
|
|
|
|
|
5,978
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|
Vice President, General Counsel
|
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|
2004
|
|
|
|
208,750
|
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|
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94,500
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|
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|
|
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6,500
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and Corporate Secretary
|
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|
2003
|
|
|
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147,500
|
|
|
|
|
|
|
|
|
|
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164,000
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6,000
|
|
|
|
|
(1)
|
|
Includes bonus amounts in the year earned, rather than in the year in which such bonus amount
was paid or is to be paid.
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(2)
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Restricted share amounts for 2005 include shares of Company common stock granted pursuant to
the 2000 Long-Term Incentive Plan based on the closing price per share on the date of grant.
Shares granted in 2005 include: Mr. Balthrop, no shares; Mr. Currie, 19,355; Mr. Marfin,
19,355; Mr. Jacobson, 19,355; and Mr. Reiter, 19,355. The restrictions on these awards lapse
20% per year over five years from the date of grant. As of December 31, 2005, Messrs.
Balthrop, Currie, Marfin, Jacobson, and Reiter held an aggregate of 200,000, 23,105, 23,105,
23,105, and 19,355 restricted shares, respectively. The restricted shares held by Messrs.
Balthrop, Currie, Marfin, Jacobson and Reiter were valued at $2,324,000, $268,480, $268,480,
$268,480 and $224,905, respectively, as of December 31, 2005. Dividends would be payable on
such shares,
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10
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regardless of whether the restrictions have lapsed, if and to the extent paid on Company
common stock generally.
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(3)
|
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For Mr. Balthrop for 2004 and 2005, includes payments made for temporary housing and matching
payments under our 401(k) Plan. For all others, consists of matching payments made under our
401(k) Plan.
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(4)
|
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This payment represents the first installment of the bonus payable to Mr. Balthrop to be paid
consistent with the vesting period of his initial option grant that was agreed to by the
Compensation Committee in connection with the repricing of this option in 2005. See the
report of our Compensation Committee on the repricing of stock options contained in its Report
on Executive Compensation for 2005 set forth below.
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(5)
|
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These options were repriced in 2005. The report of our Compensation Committee on the
repricing of stock options is contained in its Report on Executive Compensation for 2005 set
forth below. This report contains information regarding the exercise price per share of Mr.
Balthrops options.
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Option Grants for Fiscal 2005
No options were issued to executive officers during 2005.
Option Exercises and Values for Fiscal 2005
The table below sets forth information with respect to the named executive officers concerning
their exercise of options during 2005 and the unexercised options held by them as of the end of
such year. No stock appreciation rights were exercised during the year, and no stock appreciation
rights were outstanding at the end of 2005.
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Number of Securities
|
|
Value of Unexercised
|
|
|
|
|
|
|
|
|
|
|
Underlying Unexercised
|
|
In-the-Money Options
|
|
|
Shares Acquired
|
|
Value
|
|
Options at 12/31/2005
|
|
at 12/31/2005 (1)
|
Name
|
|
on Exercise
|
|
Realized
|
|
Exercisable
|
|
Unexercisable
|
|
Exercisable
|
|
Unexercisable
|
Patrick J. Balthrop,
Sr.
|
|
|
|
|
|
$
|
|
|
|
|
197,919
|
|
|
|
302,081
|
|
|
$
|
300,837
|
|
|
$
|
459,163
|
|
Harriss T. Currie
|
|
|
|
|
|
$
|
|
|
|
|
124,108
|
|
|
|
84,892
|
|
|
$
|
532,368
|
|
|
$
|
413,982
|
|
Randel S. Marfin
|
|
|
|
|
|
$
|
|
|
|
|
221,562
|
|
|
|
83,438
|
|
|
$
|
670,311
|
|
|
$
|
549,189
|
|
James W. Jacobson, Ph.D.
|
|
|
|
|
|
$
|
|
|
|
|
95,282
|
|
|
|
58,438
|
|
|
$
|
471,311
|
|
|
$
|
375,689
|
|
David S. Reiter
|
|
|
|
|
|
$
|
|
|
|
|
93,951
|
|
|
|
70,049
|
|
|
$
|
339,423
|
|
|
$
|
224,857
|
|
|
|
|
(1)
|
|
Based upon the market price of $11.62 per share, which was the closing selling price per
share of our common stock on The Nasdaq Stock Market on December 30, 2005, the last trading
day of 2005, less the option exercise price payable per share.
|
Employment Agreements and Termination of Employment Arrangements
We have an employment agreement with Patrick J. Balthrop, Sr., our President and Chief
Executive Officer. The employment agreement provides for certain salary, annual bonus
opportunities and other benefits and is for a term of two years from the effective date of May 15,
2004, and automatically renews for successive additional one-year terms unless either party
provides the other written notice of its intent not to renew the agreement at least 180 days prior
to the end of the then-current term of the agreement. If Mr. Balthrop is Terminated for Cause
(as defined in the employment agreement) or in the event of an Actual Voluntary Termination (as
defined in the agreement) by Mr. Balthrop, Mr. Balthrop will receive all accrued but unpaid salary
and benefits as of the date of termination (the Accrued Obligation). If Mr. Balthrop is
terminated Other Than For Cause, is Terminated By Reason of Incapacity (as such terms are
defined in the employment agreement) or is terminated by reason of his death, then, upon such
termination, Mr. Balthrop will receive (X) the Accrued Obligation, as well as an amount equal to
the sum of (i) the Accrued Bonus (as defined in the employment agreement), if any, plus (ii) an
amount equal to the greater of (a) Mr. Balthrops annual base salary or (b) the amount of base
salary that would have been paid over the remainder of the then-current term, paid in semi-monthly
installments for a period of 12 months from the date of termination (together with the continuing
health benefits described below, the Severance Compensation), less any payment or payments
received by Mr. Balthrop during the 12 month period from the time of termination under any
long-term disability plan, and (Y) certain continuing
11
health benefits for Mr. Balthrop and his family. In the event we refuse for any reason to extend
the employment agreement, Mr. Balthrop will receive the Accrued Obligations plus the Severance
Compensation. This employment agreement also has provisions that become effective upon a change in
control of the Company (within the meaning set forth in the employment agreement) or a termination
of employment in connection with an anticipated change in control. If Mr. Balthrop is terminated
within the six months period immediately following a change of control, we will pay him the Accrued
Obligation, as well as an amount equal to the sum of (i) the Bonus Amount (as defined in the
employment agreement) plus (ii) an amount equal to the employees annual base salary paid in
semi-monthly installments for a period of 12 months from the date of termination, prior to the
occurrence of the change of control. Upon a change in control, as defined in the employment
agreement, all unvested option or other restricted shares held by Mr. Balthrop will immediately
become vested and exercisable, as applicable.
Additionally, we have employment agreements with each of Randel S. Marfin, Vice President,
Luminex Bioscience Group; Oliver H. Meek, Vice President, Manufacturing; and James W. Jacobson,
Ph.D., Vice President, Research and Development. The employment agreements automatically renew
each year for additional one (1) year terms. However, the employment agreements may be terminated
by us or the employee at any time. If we terminate the employees employment for cause (as
defined in the employment agreements) or if the employee resigns, the employee will receive all
accrued salary and benefits as of the date of termination. If the employee dies or becomes
disabled, the employee will receive all accrued salary, benefits and bonus as of the date of death
or disability. If we terminate the employees employment without cause, the employee will
receive a lump sum payment equal to (i) one years base salary, plus (ii) the amount of the most
recent annual cash bonus amount, plus (iii) all accrued salary and benefits as of the date of
termination. These employment agreements also have provisions that become effective upon a change
in control of the Company (within the meaning set forth in the employment agreements) or a
termination of employment in connection with an anticipated change in control. If the executive is
terminated within the six months period immediately following a change of control, we will pay the
executive a lump sum equal to 2.99 times the executives average annual base salary plus bonus for
the most recent five calendar years prior to the occurrence of the change of control. The
employment agreements also provide for an additional payment to compensate the executive for any
tax liability imposed on change of control payments to the extent these payments constitute
parachute payments under Section 280G of the Internal Revenue Code. In addition, upon a change
of control, all unvested options or other restricted shares held by the executive will immediately
become vested and exercisable, as applicable.
We also have employment agreements with each of Harriss T. Currie, our Vice President,
Finance, Chief Financial Officer and Treasurer, David S. Reiter, our General Counsel and Corporate
Secretary, Gregory J. Gosch, our Vice President, Marketing and Sales, and Russell W. Bradley, our
Vice President, Business Development and Strategic Development. The employment agreements provide
for certain salary, annual bonus opportunities and other benefits and are for a term of one year
from the effective date of the agreements and automatically renew for successive additional
one-year terms unless either party provides the other written notice of its intent not to renew the
agreement at least 60 days prior to the end of the then-current term of the agreement. If the
employee is Terminated for Cause (as defined in the employment agreements) or in the event of an
Actual Voluntary Termination (as defined in the agreements) by the employee, the employee will
receive all accrued but unpaid salary and benefits as of the date of termination (the Accrued
Obligation). If the employee is terminated Other Than For Cause, is Terminated By Reason of
Incapacity (as such terms are defined in the employment agreements) or is terminated by reason of
death, then, upon such termination, the employee will receive (X) the Accrued Obligation, as well
as an amount equal to the sum of (i) a Bonus Amount (as defined in the employment agreements), plus
(ii) an amount equal to the employees annual base salary paid in semi-monthly installments for a
period of 12 months from the date of termination (together with the continuing health benefits
described below, the Severance Compensation), less any payment or payments received by the
employee during the 12 month period from the time of termination under any long-term disability
plan, and (Y) certain continuing health benefits for the employee and his family. In the event we
refuse for any reason to extend the employment agreement, the employee will receive the Accrued
Obligations plus the Severance Compensation. These employment agreements also have provisions that
become effective upon a change in control of the Company (within the meaning set forth in the
employment agreements) or a termination of employment in connection with an anticipated change in
control. If the executive is terminated within the six months period immediately following a
change of control, we will pay the executive the Accrued Obligation, as well as an amount equal to
the sum of (i) a Bonus Amount (as defined in the employment agreements) plus (ii) an amount equal
to the employees annual base salary paid in semi-monthly installments for a period of 12 months
from the date of termination, prior to the occurrence of the change of control.
12
Upon a change in control, as defined in the employment agreements, all unvested option or other
restricted shares held by the employee will immediately become vested and exercisable, as
applicable.
Certain of the employment agreements above were amended in 2006 to provide that in the event
the payment of any severance amounts payable pursuant to the employment agreements within six
months of the date of the applicable executives termination of employment would cause such
executive to incur any additional tax under Section 409A of the Internal Revenue Code, then payment
of such amounts shall be delayed until the date that is six months following such executives
termination date.
The foregoing summaries are qualified in their entireties by reference to the complete texts
of the employment agreements previously filed by the Company with the SEC.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth, as of December 31, 2005, certain information with respect to
shares of the Companys common stock authorized for issuance under the Companys equity
compensation plans. The numbers reflected below do not include the number of shares to be available
pursuant to the proposed 2006 Equity Incentive Plan as the availability of those shares are
contingent on stockholder approval at the Meeting.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities Remaining
|
|
|
|
|
|
|
|
|
|
|
|
Available for Future Issuance
|
|
|
|
Number of Securities to
|
|
|
Weighted-Average
|
|
|
Under Equity Compensation Plans
|
|
|
|
be Issued Upon Exercise
|
|
|
Exercise Price of
|
|
|
(Excluding Securities Reflected
|
|
Plan Category
|
|
of Outstanding Options
|
|
|
Outstanding Options
|
|
|
in Column (A)) (1)
|
|
|
|
(A)
|
|
|
(B)
|
|
|
(C)
|
|
Equity compensation
plans approved by
security holders
|
|
|
2,277,453
|
|
|
|
$10.44
|
|
|
|
461,059
|
|
Equity compensation
plans not approved
by security
holders (2)(3)
|
|
|
1,480,377
|
|
|
|
$ 8.93
|
|
|
|
621,638
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,757,830
|
|
|
|
|
|
|
|
1,082,697
|
|
|
|
|
|
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|
|
|
|
|
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|
|
(1)
|
|
Upon the approval by our stockholders of the 2006 Equity Incentive Plan, no further
awards will be made under our existing equity incentive plans. See Proposal 2.
|
|
(2)
|
|
In February 2001, our Board of Directors approved the 2001 Broad-Based Stock Option Plan
(the 2001 Plan), a non-stockholder approved plan, for grants of stock options to employees who
are not directors or officers of the Company. Options may be granted to such employees at not less
than 100% of the fair market value of the common stock on the date of grant. The options become
exercisable in whole or in such installments as determined by the Board of Directors and generally
expire 10 years after the grant date. The number of shares of the Companys common stock authorized
for issuance under the 2001 Plan, is determined by calculating 5% of the maximum number of all
issued and outstanding shares of the common stock plus all shares of the common stock which may be
directly issuable upon the exercise, exchange or conversion of any outstanding rights, warrants,
options or other derivative securities convertible into shares of common stock. For additional
information regarding the Companys 2001 Plan see Note 12 of our consolidated financial statements
included in our annual report.
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|
(3)
|
|
Includes an option to purchase 500,000 shares of the Companys common stock issued to
Patrick J. Balthrop, Sr. on May 15, 2004, in connection with his hiring and outside of any
stockholder approved equity incentive plan. The terms of this option, together with the amendment
to the related option agreement, are more fully described in the Compensation Committees report on
option repricings contained in its Report on Executive Compensation for 2005 set forth below.
|
13
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The following report of the Compensation Committee and the performance graph included
elsewhere in this proxy statement do not constitute soliciting material and should not be deemed
filed or incorporated by reference into any other Company filing under the Securities Act of 1933
or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates
this Report or the performance graphs by reference therein.
To the Stockholders of Luminex Corporation
:
The Compensation Committee of the Board of Directors (the Committee) is responsible for
establishing the compensation program for the Companys executive officers, comprised of base
salary, performance-based cash bonus programs and long-term equity incentive awards. In addition,
the Committee reviews and makes recommendations to the full board regarding non-employee director
compensation. The Committee has responsibility for administration of the 1996 Stock Option Plan
for which no further option shares are authorized for issuance, the 2000 Long-Term Incentive Plan
under which option and restricted stock grants may be made to key employees, directors and
consultants of the Company and the 2001 Broad-Based Stock Option Plan under which option grants may
be made to non-officer employees and consultants of the Company. Directors and officers of the
Company are not eligible to participate in or to receive grants under the 2001 Broad-Based Stock
Option Plan. As proposed herein and upon approval by the Companys stockholders, the Committee
would be responsible for administration of the proposed 2006 Equity Incentive Plan. If approved,
no further grants would be made under the existing equity plans referred to above.
The Committee regularly reviews the Companys compensation policies to ensure that the Chief
Executive Officer and the other executive officers are rewarded appropriately for their
contributions to the Company and that the overall compensation strategy supports the objectives of
our organization, as well as stockholder interests. It is the Committees objective to have a
substantial portion of each officers compensation contingent upon performance as a company, as
well as upon his or her own level of performance. Accordingly, the compensation packages for
officers are comprised of three elements: (i) base salary, which reflects individual performance
and is designed primarily to be competitive with median salary levels in an appropriate peer group
within our industry; (ii) annual variable performance awards payable in cash and tied to a formula
based on the financial performance of the Company and individual goals set by us, as well as
management evaluations and discretion of the Committee; and (iii) long-term stock-based incentive
awards which strengthen the mutuality of interests between these officers and the stockholders. As
an officers level of responsibility increases, it is the intent of the Committee to have a greater
portion of his or her total compensation be dependent upon performance and stock price appreciation
rather than base salary.
Executive Compensation for 2006.
In 2006, the Committee engaged Compensation Resources, Inc.
to assist it in reviewing the existing compensation strategy and plan and to conduct an executive
compensation market analysis. The focus was a market study of executive compensation for the
executive officers with an emphasis on base salary, performance-based cash incentives and long-term
equity compensation. In evaluating compensation, the Committee, reviewed the roles and
responsibilities of each officer and the performance priorities for the Company. In addition, the
Committee reviewed the competitive pay practices, using 2005 proxy statement data, of various peer
and industry related companies compiled by Compensation Resources, Inc. The results of the market
analysis revealed that the total cash compensation, composed of base salaries and performance bonus
opportunities, of the Company for the executive officers (overall) was slightly above the peer
group marketplace.
As a result of the Committees evaluation, base salaries for 2006 will remain the same. The
Committees goal is to maintain base salaries near the 50
th
percentile of the peer
group. With respect to annual cash performance awards for the executive officers (excluding the
Chief Executive Officer), the Committee approved performance award opportunities, generally
consistent on a structural basis with those of 2005, based upon achievement of established Company
performance goals (Company Goals) as well as personal business objectives (Individual Goals).
The Company Goals are based on a number of specific financial metrics, including total revenue,
totals of specific revenue components, operating profit/loss and net income/loss targets, with each
objective given a specified weight. The Individual Goals vary by executive and are based on
specified management initiatives, leadership and team contributions and/or execution against the
Companys strategic plan, with each objective given a specified weight. The Committees desire is
to provide total cash pay opportunities near the peer group median for meeting
14
targeted annual goals, but allow for upside (near 75
th
percentile) for meeting or
exceeding performance goals deemed outstanding by the Committee.
The total target awards under the performance-based cash bonus plan are weighted 50% for the
achievement of Company Goals and 50% for the achievement of Individual Goals, and are based on a
target bonus established by the Committee for each participant. The target bonuses range from 40%
to 50% of each executives base salary (excluding the Chief Executive Officer) depending on
seniority levels and the provisions in applicable employment contracts. Following the end of the
fiscal year, the Committee will determine whether and the extent to which the applicable targets
were met. The Company Goals are subject to an over/underachievement scale with possible payouts of
0% to 200% of the potential bonus for Company Goals based on financial results between 85% to 120%
of the applicable performance targets. Individual Goals are not subject to an
over/underachievement scale. Accordingly, total awards can range from zero to a maximum of 150% of
the target bonus. The Committee will make all calculations and determinations with respect to
payment of such cash bonuses in its sole discretion.
The Chief Executive Officer performance-based cash bonus plan is based upon achievement of
certain financial targets, including operating performance targets and combined consumable and
royalty revenue on a Company level, as well as business objectives, in each case as determined by
the Committee. The business objectives are based on specified management initiatives, with each
objective given a specific weight. The total target awards under the Chief Executive Officer plan
are weighted approximately 50% for the achievement of the Company performance goals and
approximately 50% for the achievement of Mr. Balthrops business objectives. The target bonus
established by the Committee is 100% of Mr. Balthrops base salary, as set forth in his employment
agreement. Following the end of the fiscal year, the Committee will determine whether and the
extent to which the applicable targets were met. Mr. Balthrops potential bonus is not subject to
an over/underachievement scale. Mr. Balthrops total award under the Chief Executive Officer bonus
plan will range from zero to a maximum of 100% of the target bonus, with no payouts permitted for
performance below the respective target thresholds. The Committee will make all calculations and
determinations with respect to payment of bonuses under the Chief Executive Officer bonus plan in
its sole discretion.
With respect to long-term stock-based incentives, the Committee, following analysis by and
discussion with Compensation Resources, Inc. and the Chief Executive Officer (as it related to the
remaining executive officers), authorized the issuance of restricted stock awards to each of the
Companys executive officers (eight individuals) as follows: Patrick J. Balthrop, Sr. (32,000
shares), Russell W. Bradley (12,503 shares), Harriss T. Currie (14,772 shares), Gregory J. Gosch
(10,157 shares), James W. Jacobson (9,324 shares), Randel S. Marfin (9,324 shares), Oliver H. Meek
(5,980 shares) and David R. Reiter (8,855 shares). On the date of grant, the fair market value of
such shares was $14.38 per share. The shares are subject to time vesting over five years in equal
annual increments on the anniversary date of such grants.
In 2006, the Committee also approved and has submitted to the stockholders adoption of the
Luminex Corporation Management Stock Purchase Plan to further align the interests of our senior
officers and our stockholders. See Proposal 3 below.
Executive Compensation for 2005.
During 2004 and 2005, the Committee had engaged A. G.
Ferguson & Associates, Inc. (A. G. Ferguson), compensation and benefits consultants, to assist
the Committee in evaluating the overall compensation of our officers and the compensation
guidelines for the non-employee directors. The Committee reviewed the results of A. G. Fergusons
report during the first quarter of 2005 in establishing 2005 base salaries, performance-based cash
bonus objectives and long-term equity incentives. Important factors which the Committee considered
and evaluated in establishing the components of the executive officers compensation packages for
2005 are summarized below.
The Committee, with the assistance of A. G. Ferguson, reviewed the roles and responsibilities
of each officer. In addition, the Committee reviewed the competitive pay practices, using 2004
proxy statement data, of certain biotech companies. At the request of the Committee, A. G.
Ferguson compiled comparative data regarding Luminexs salary, total cash pay and total
compensation to the 25
th
, 50
th
and 75
th
percentiles for 21 biotech
companies. These publicly traded biotech peer companies ranged in annual revenues from
approximately $5 million to $245 million, with a median of $47 million in revenues, and had a
median market capitalization of approximately $322 million (as of February 2005).
15
As a result of the Committees evaluation, base salaries for 2005 remained substantially the
same as they had been for 2004 for the executive officers. The Committees goal was to maintain
base salaries near the 50
th
percentile of the peer group. With respect to annual cash
performance awards for the executive officers (excluding the Chief Executive Officer), the
Committee approved performance award opportunities based upon achievement of established Company
performance goals (Company Goals) as well as personal business objectives (Individual Goals).
The Company Goals were based on total revenue, total gross profit, total combined consumable and
royalty revenue, operating expense and net loss targets, with each objective given a specified
weight. The Individual Goals varied by executive and were based on specified management
initiatives, leadership and team contributions and/or execution against the Companys strategic
plan, with each objective given a specified weight. The Committees desire was to provide total
cash pay opportunities near the peer group median for meeting targeted annual goals, but allow for
upside (near 75
th
percentile) for meeting or exceeding performance goals deemed
outstanding by the Committee.
The total target awards under the performance-based cash bonus plan were weighted 50% for the
achievement of Company Goals and 50% for the achievement of Individual Goals, and were based on a
target bonus established by the Committee for each participant. The target bonuses ranged from 40%
to 50% of each executives base salary (excluding the Chief Executive Officer) depending on
seniority levels and the provisions in applicable employment contracts. Following the end of the
fiscal year, the Committee determined whether and the extent to which the applicable targets were
met. The Company Goals were subject to an over/underachievement scale with possible payouts of 0%
to 200% of the potential bonus for Company Goals based on financial results between 85% to 120% of
the applicable performance targets. Individual Goals were not subject to an over/underachievement
scale. Accordingly, total awards could range from zero to a maximum of 150% of the target bonus.
Upon review of the factors, in February 2006, performance bonuses were paid to the executive
officers (excluding the Chief Executive Officer see below) based upon their criteria, as
determined by the Committee, ranging from $103,898 to $128,071 as previous reported.
With respect to long-term stock-based incentives, the Committee, following analysis by and
discussion with A. G. Ferguson and the Chief Executive Officer, authorized the issuance of
restricted stock awards for 19,355 shares to each of the Companys executive officers (six
individuals). On the date of grant, the fair market value of such shares was $7.53 per share. The
shares are subject to time vesting over five years in equal annual increments on the anniversary
date of such grants. No equity grant was made to the Chief Executive Officer as significant grants
were made to him, in the form of stock options and restricted shares, in connection with his
employment in May 2004.
Compensation of the Chief Executive Officer.
Patrick J. Balthrop, Sr. was hired as the
Companys Chief Executive Officer and President on May 15, 2004. The Company engaged in an
executive search to find an appropriate candidate for approximately 18 months. In connection with
Mr. Balthrops hiring, the Company negotiated his base salary, annual performances bonus
opportunity and long-term equity incentives. Pursuant to this negotiation, the Company entered
into an employment contract with Mr. Balthrop (see Employment Agreements and Termination of
Employment Arrangements above) providing for (i) a base annual salary of $400,000 per annum, (ii)
a target bonus of up to 100% of base salary, (iii) an option to purchase 500,000 shares of common
stock pursuant to a non-qualified stock option (the Balthrop Option), and (iv) a restricted stock
award for 200,000 shares of the Companys common stock. The Balthrop Option is subject to time
vesting, provided Mr. Balthrop continues in the employment of the Company, with 125,000 shares
vested as of May 15, 2005, and the remaining shares vesting in equal increments over the following
36 months. The restricted stock is subject to various performance related vesting criteria based
upon (i) the Companys common stock trading price, (ii) achievement of certain revenue targets, and
(iii) certain operating performance measures, all as set forth in the restricted stock agreement
and as established by the Committee and the Board of Directors.
For 2005, Mr. Baltrops base salary continued at $400,000. The Chief Executive Officer
performance-based cash bonus plan was based upon achievement of combined consumable and royalty
revenue targets on a Company level as well as personal business objectives, in each case as
determined by the Committee. The personal business objectives were based on specified management
initiatives, with each objective given a specific weight. The total target awards under the Chief
Executive Officer plan were weighted approximately 33% for the achievement of the Company
performance goals and approximately 66% for the achievement of Mr. Balthrops personal business
objectives. The target bonus established by the Committee was 100% of Mr. Balthrops base salary,
as set forth in his employment agreement. Mr. Balthrops potential bonus was not subject to an
16
over/underachievement scale. Mr. Balthrops total award under the Chief Executive Officer
bonus plan would range from zero to a maximum of 100% of the target bonus, with no payouts
permitted for performance below the target thresholds. As reported previously, in February 2006,
the Committee determined Mr. Balthrop and the Company had achieved each of the targets and he
received a cash performance bonus for 2005 of $400,000.
Report on Repricing of Options
. The 500,000 options granted to Mr. Balthrop in connection
with his hiring in 2004 (the Balthrop Option) were initially granted at an exercise price of
$9.36 per share. This award was not pursuant to any of the Companys existing equity incentive
plans. As previously reported, at a meeting of the Committee on February 10, 2005, the committee
approved resolutions to increase the exercise price of the Balthrop Option from $9.36 per share to
$10.10 per share (the closing market price on the date immediately preceding the original grant
date). This modification was made in order to eliminate the potential application of certain
adverse tax implications in light of tax law changes created as a result of the American Jobs
Creation Action of 2004. In connection therewith, the Committee approved a cash bonus payable to
Mr. Balthrop to be paid consistent with the vesting period of the option grant, subject to Mr.
Balthrops continued employment, equal to $370,000. According to the vesting schedule and assuming
no acceleration event contemplated by the Balthrop Option, one quarter of the cash bonus was paid
as of May 15, 2005 (the first vesting date and consistent with the equity vesting) and the balance
of such payments are being made in equal monthly installments over the 36 months thereafter.
The table below sets forth additional information on the repricing during 2005 of 500,000
stock options previously granted to Patrick J. Balthrop.
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|
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|
|
|
|
|
|
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|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Length of
|
|
|
|
|
|
|
Securities
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Original
|
|
|
|
|
|
|
Underlying
|
|
Market Price
|
|
Price at
|
|
|
|
|
|
Options Term
|
|
|
|
|
|
|
Number of
|
|
of Common
|
|
Time of
|
|
New
|
|
Remaining at
|
|
|
|
|
|
|
Options
|
|
Stock at Time
|
|
Repricing
|
|
Exercise
|
|
Date of
|
Name
|
|
Date
|
|
Repriced (#)
|
|
of Repricing ($)
|
|
($)
|
|
Price ($)
|
|
Repricing
|
Patrick J.
Balthrop, Sr.
|
|
|
2/10/2005
|
|
|
|
500,000
|
|
|
|
7.48
|
|
|
|
9.36
|
|
|
|
10.10
|
|
|
9.26 years
|
Executive Compensation Tax Deductibility.
We are required to disclose our policy regarding
qualifying executive compensation for deductibility under Section 162(m) of the Internal Revenue
Code which provides that, for purposes of the regular income tax and the alternative minimum tax,
the otherwise allowable deduction for compensation paid or accrued with respect to a covered
employee of a publicly-held corporation is limited to no more than $1 million per year. It is not
expected that the cash compensation to be paid to our officers for 2006 will exceed the $1 million
limit per officer. Our 2000 Long-Term Incentive Plan is structured so that any compensation deemed
paid to an officer when he or she exercises an outstanding option under the 2000 Long-Term
Incentive Plan, with an exercise price equal to the fair market value of the option shares on the
grant date will qualify as performance-based compensation which will not be subject to the $1
million limitation. Restricted stock grants, for which the vesting restrictions are solely time
based, may not qualify as performance-based compensation and could be subject to the $1 million
limitation. The Balthrop Option was not issued pursuant to a shareholder approved plan and, if
exercised while Mr. Balthrop is a covered employee, will not qualify as performance-based
compensation and will therefore be subject to the $1 million limitation.
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|
SUBMITTED BY THE COMPENSATION
|
|
|
COMMITTEE OF THE BOARD OF DIRECTORS
|
|
|
|
|
|
Fred C. Goad, Jr. (Chairman)
|
|
|
Gerard Vaillant
|
|
|
Jim D. Kever
|
17
PROPOSAL 2 APPROVAL OF 2006 EQUITY INCENTIVE PLAN
Our Board of Directors has adopted and recommends that you approve the Luminex Corporation
2006 Equity Incentive Plan (the Equity Incentive Plan). If approved by stockholders, the Equity
Incentive Plan will authorize awards in respect of an aggregate of 2,000,000 shares. If approved
by our stockholders, the Equity Incentive Plan will be effective as of May 25, 2006 and will
replace the Companys 2000 Long-Term Incentive Plan (the 2000 Plan) and the 2001 Plan, under
which plans the Board, upon approval of the Equity Incentive Plan, will not issue further grants.
As a result, this Proposal requests a net increase in shares of common stock available for grant of
approximately 1,021,000 shares, or only 3.2% of our common shares outstanding, as of the record
date for the Meeting.
The primary purpose of the Equity Incentive Plan is to promote the interests of the Company
and its stockholders by, among other things, (i) attracting and retaining key officers, employees
and directors of, and consultants to, the Company and its subsidiaries and affiliates, (ii)
motivating those individuals by means of performance-related incentives to achieve long-range
performance goals, (iii) enabling such individuals to participate in the long-term growth and
financial success of the Company, (iv) encouraging ownership of stock in the Company by such
individuals, and (v) linking their compensation to the long-term interests of the Company and its
stockholders.
Our general compensation philosophy is that long-term stock-based incentive compensation
should strengthen and align the interests of our officers and employees with our stockholders, as
more fully described above under the heading Compensation Committee Report on Executive
Compensation. We believe that the utilization of stock options and, in more recent years,
restricted stock awards, the core of our historical long-term stock-based incentive program, have
been effective over the years in enabling us to attract and retain the talent critical to the
Company. We believe that stock ownership has focused our key employees on improving our
performance, and has helped to create a culture that encourages employees to think and act as
stockholders. To further this alignment of interests with our stockholders, we recently adopted
meaningful stock ownership and retention guidelines that are further described in our corporate
governance guidelines. Participants in our long-term incentive compensation program generally
include our officers and other key employees. We also believe it is important for our stockholders
to have a voice in equity programs and, accordingly, propose that all future equity awards be under
the Equity Incentive Plan in lieu of the existing 2000 Plan and the 2001 Plan.
In 2005, as previously described, the Compensation Committee of our Board of Directors
reassessed and modified our compensation philosophy and award strategy in conjunction with
management and the Committees independent compensation consultant. The Equity Incentive Plan is
intended to facilitate our efforts to better align the Companys long-term awards structure with
its business and talent needs and our stockholders interests. Beginning in 2005, we have placed
more emphasis on restricted share grants. We believe the shift to restricted share grants will
continue to link executive compensation to the long-term interests of our stockholders while
allowing us to be more economically efficient in that we will be able to deliver similar value to
employees using fewer shares than pursuant to traditional option grants.
Although we modified our long-term incentive compensation philosophies in 2005 to emphasize
the use of restricted shares, we are limited in our ability to implement this policy in future
years under the 2000 Plan, which only has 351,955 shares remaining available for grants as of April
6, 2006. The 2001 Plan does not authorize the use of restricted shares and does not authorize
awards to our executive officers. Accordingly, we believe stockholder approval of the Equity
Incentive Plan is critical to facilitate our long-term incentive compensation program in future
years.
If approved by stockholders, the Equity Incentive Plan will authorize an aggregate of
2,000,000 shares. We believe this authorization will enable us to implement our long-term stock
incentive program, including our increased use of restricted shares, for the next four to five
years. We believe four to five years is an appropriate cycle that will allow us to periodically
review our Stock compensation programs and respond to periodic evolutions in compensation and
governance best practices and trends to the extent we believe such practices or trends to be in the
best interests of the Company and its stockholders.
If the Equity Incentive Plan is not approved, we may become unable to provide long-term,
stock-based incentives to present and future employees consistent with our current compensation
philosophies and objectives.
18
We believe that such a failure may adversely affect our ability to attract and retain the
caliber of key employees that is critical to our continued success.
Although we believe that employee stock ownership is important to incentivizing and retaining
key employees and is a contributing factor in achieving corporate performance goals, we recognize
that our historical long-term equity incentive program has created a certain amount of overhang.
Overhang refers to potential stockholder dilution, expressed as a percentage, represented by
outstanding employee stock awards and shares available for future grants. We use the following
calculations to determine overhang:
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|
Simple Overhang
|
|
=
|
|
Outstanding awards + Shares available for future grant
|
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|
Common shares outstanding
|
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|
|
|
Fully Diluted Overhang
|
|
=
|
|
Outstanding awards + Shares available for future grant
|
|
|
|
|
|
|
Common shares outstanding + Outstanding awards
|
|
|
|
|
|
|
+ Shares available for future grant
|
|
|
As of April 6, 2006, we had an aggregate of 3,570,713 shares of common stock subject to
options outstanding under all of our plans, with a weighted average exercise price of $9.94 and a
weighted average term to expiration of 6.7 years. Shares underlying outstanding restricted share
awards are not included in outstanding awards because they are already reflected in the number of
common shares outstanding. As of April 6, 2006, there were 647,499 restricted shares outstanding
under the 2000 Plan. As of April 6, 2006, we had 351,955 shares remaining available for grant
under the 2000 Plan, and 627,357 shares remaining available for grants under our 2001 Plan (none of
which shares may be awarded as restricted shares), and a total of 31,946,185 shares of common stock
outstanding. As a result, the net additional shares proposed for future grant by the Company is
1,020,688, or 3.2% of the outstanding common stock, as of April 6, 2006. Accordingly, as of April
6, 2006, our overhang was as follows:
|
|
|
|
|
|
|
|
|
|
|
As of April 6, 2006
|
|
|
|
|
|
|
Pro Forma (assuming
|
|
|
|
|
|
|
approval of Equity
|
|
|
Actual
|
|
Incentive Plan) (1) (2)
|
Simple Overhang
|
|
|
14.2
|
%
|
|
|
17.4
|
%
|
Fully Diluted Overhang
|
|
|
12.5
|
%
|
|
|
14.9
|
%
|
|
|
|
(1)
|
|
Pro Forma shares available for future grant are assumed to be 2,000,000 pursuant to the
proposed Equity Incentive Plan, with no further shares available under the 2000 Plan or
2001 Plan.
|
|
(2)
|
|
Does not reflect the impact of 500,000 shares pursuant to the proposed 2006 Management
Stock Purchase Plan, or MSPP, described in Proposal 3 below. With the inclusion of the
500,000 shares pursuant to the MSPP, the Pro Forma Simple Overhang would be 19.0% and the
Pro Forma Fully Diluted Overhang would be 16.0%. See Proposal 3.
|
Our annual grants under the 2000 Plan and 2001 Plan, collectively, as a percentage of shares
outstanding (burn rate) has averaged approximately 3.3% of outstanding shares for the last three
years. We believe this percentage to be lower than the burn rate of our peers and biotechnology
companies generally over this period based on published Institutional Shareholder Services data for
2006. As a result of our shift in philosophy toward use of restricted shares, our anticipated burn
rate for 2006 will be even lower at approximately 1% of outstanding shares (not including the
effects of the proposed MSPP).
We believe that our equity award programs and our emphasis on employee stock ownership have
been critical to our success in the past and are important to our ability to achieve our corporate
performance goals in the years ahead. We believe that the ability to attract, retain and motivate
talented employees is integral to our long-term performance and stockholder returns. We believe
that the Equity Incentive Plan will allow us the flexibility to implement our current long-term
incentive philosophy in future years, will better align executive and stockholder interests, and
will enable us to reduce the impact of stock overhang. For these reasons, we consider approval of
the Equity Incentive Plan important to our future success.
19
The following is a brief summary of the principal features of the Equity Incentive Plan, which
is qualified in its entirety by reference to the Equity Incentive Plan itself, a copy of which is
attached hereto as
Exhibit A
and incorporated herein by reference.
Shares Available for Awards under the Plan
. Under the Equity Incentive Plan, awards
may be made in common stock of the Company. Subject to adjustment as provided by the terms of the
Equity Incentive Plan, the maximum number of shares of common stock with respect to which awards
may be granted under the Equity Incentive Plan is 2,000,000. Except as adjusted in accordance with
the terms of the Equity Incentive Plan, no more than 1,000,000 shares of common stock authorized
under the Equity Incentive Plan may be awarded as incentive stock options. The maximum number of
shares with respect to which awards may be granted under the Equity Incentive Plan shall be
increased by the number of shares with respect to which options or other awards were granted under
the 2000 Plan as of the effective date of this Equity Incentive Plan, but which terminate, expire
unexercised, or are settled for cash, forfeited or cancelled or withheld without delivery of the
shares under the terms of the 2000 Plan after the effective date of the Equity Incentive Plan.
Shares of common stock subject to an award under the Equity Incentive Plan but which
terminate, expire unexercised or are settled for cash, or are forfeited, cancelled or withheld
without delivery of the shares, including shares of common stock withheld or surrendered in payment
of any exercise or purchase price of an award or taxes relating to an award, remain available for
awards under the Equity Incentive Plan. Shares of common stock issued under the Equity Incentive
Plan may be either newly issued shares or shares which have been reacquired by the Company. Shares
issued by the Company as substitute awards granted solely in connection with the assumption of
outstanding awards previously granted by a company acquired by the Company, or with which the
Company combines, (Substitute Awards) do not reduce the number of shares available for awards
under the Equity Incentive Plan.
In addition, the Equity Incentive Plan imposes individual limitations on the amount of certain
awards in order to comply with Section 162(m) of the Internal Revenue Code of 1986, as amended (the
Code). Under these limitations, no single participant may receive options or stock appreciation
rights (SARs) in any calendar year that, taken together, relate to more than 300,000 shares of
common stock, subject to adjustment in certain circumstances.
With certain limitations, awards made under the Equity Incentive Plan may be adjusted by the
Compensation Committee of the Board of Directors (the Committee) in its discretion or to prevent
dilution or enlargement of benefits or potential benefits intended to be made available under the
Equity Incentive Plan in the event of any stock dividend, reorganization, recapitalization, stock
split, combination, merger, consolidation, change in laws, regulations or accounting principles or
other relevant unusual or nonrecurring event affecting the Company.
Eligibility and Administration
. Current and prospective officers and employees, and
directors of, and consultants to, the Company or its subsidiaries or affiliates are eligible to be
granted awards under the Equity Incentive Plan. As of April 6, 2006, approximately 185 individuals
were eligible to participate in the Equity Incentive Plan. However, the Company has not at the
present time determined who will receive the shares of common stock that will be authorized for
issuance under the Equity Incentive Plan or how they will be allocated. The Committee will
administer the Equity Incentive Plan, except with respect to awards to non-employee directors, for
which the Equity Incentive Plan will be administered by the Board. The Committee will be composed
of not less than two non-employee directors, each of whom will be a Non-Employee Director for
purposes of Section 16 of the Exchange Act and Rule 16b-3 thereunder, an outside director within
the meaning of Section 162(m) and the regulations promulgated under the Code and will be an
independent director as defined by the listing standards of The Nasdaq Stock Market. Subject to
the terms of the Equity Incentive Plan, the Committee is authorized to select participants,
determine the type and number of awards to be granted, determine and later amend (subject to
certain limitations) the terms and conditions of any award, interpret and specify the rules and
regulations relating to the Equity Incentive Plan, and make all other determinations which may be
necessary or desirable for the administration of the Equity Incentive Plan.
Stock Options and Stock Appreciation Rights
. The Committee is authorized to grant
stock options, including both incentive stock options, which can result in potentially favorable
tax treatment to the participant, and non-qualified stock options. The Committee may specify the
terms of such grants subject to the terms of the Equity Incentive Plan. The Committee is also
authorized to grant SARs, either with or without a related option. The
20
exercise price per share subject to an option is determined by the Committee, but may not be
less than the fair market value of a share of common stock on the date of the grant, except in the
case of Substitute Awards. The maximum term of each option or SAR, the times at which each option
or SAR will be exercisable, and the provisions requiring forfeiture of unexercised options at or
following termination of employment generally are fixed by the Committee, except that no option or
SAR relating to an option may have a term exceeding ten years. Incentive stock options that are
granted to holders of more than ten percent of the Companys voting securities are subject to
certain additional restrictions, including a five-year maximum term and a minimum exercise price of
110% of fair market value.
A stock option or SAR may be exercised in whole or in part at any time, with respect to whole
shares only, within the period permitted thereunder for the exercise thereof. Stock options and
SARs shall be exercised by written notice of intent to exercise the stock option or SAR and, with
respect to options, payment in full to the Company of the amount of the option price for the number
of shares with respect to which the option is then being exercised.
Payment of the option price must be made in cash or cash equivalents, or, at the discretion of
the Committee, (i) by transfer, either actually or by attestation, to the Company of shares that
have been held by the participant for at least six months (or such lesser period as may be
permitted by the Committee) which have a fair market value on the date of exercise equal to the
option price, together with any applicable withholding taxes, or (ii) by a combination of such cash
or cash equivalents and such shares; provided, however, that a participant is not entitled to
tender shares pursuant to successive, substantially simultaneous exercises of any stock option of
the Company. Subject to applicable securities laws and Company policy, the Company may permit an
option to be exercised by delivering a notice of exercise and simultaneously selling the shares
thereby acquired, pursuant to a brokerage or similar agreement approved in advance by proper
officers of the Company, using the proceeds of such sale as payment of the option price, together
with any applicable withholding taxes. Until the participant has been issued the shares subject to
such exercise, he or she shall possess no rights as a stockholder with respect to such shares.
Restricted Shares and Restricted Share Units
. The Committee is authorized to grant
restricted shares of common stock and restricted share units. Restricted shares are shares of
common stock subject to transfer restrictions as well as forfeiture upon certain terminations of
employment prior to the end of a restricted period or other conditions specified by the Committee
in the award agreement. A participant granted restricted shares of common stock generally has most
of the rights of a stockholder of the Company with respect to the restricted shares, including the
right to receive dividends and the right to vote such shares. None of the restricted shares may be
transferred, encumbered or disposed of during the restricted period or until after fulfillment of
the restrictive conditions.
Each restricted share unit has a value equal to the fair market value of a share of common
stock on the date of grant. The Committee determines, in its sole discretion, the restrictions
applicable to the restricted share units. A participant will be credited with dividend equivalents
on any vested restricted share units at the time of any payment of dividends to stockholders on
shares of common stock. Except as determined otherwise by the Committee, restricted share units
may not be transferred, encumbered or disposed of, and such units shall terminate, without further
obligation on the part of the Company, unless the participant remains in continuous employment of
the Company for the restricted period and any other restrictive conditions relating to the
restricted share units are met.
Performance Awards
. A performance award consists of a right that is denominated in
cash or shares of common stock, valued in accordance with the achievement of certain performance
goals during certain performance periods as established by the Committee, and payable at such time
and in such form as the Committee shall determine. Performance awards may be paid in a lump sum or
in installments following the close of a performance period or on a deferred basis, as determined
by the Committee. Termination of employment prior to the end of any performance period, other than
for reasons of death or total disability, will result in the forfeiture of the performance award.
A participants rights to any performance award may not be transferred, encumbered or disposed of
in any manner, except by will or the laws of descent and distribution or as the Committee may
otherwise determine.
Performance awards are subject to certain specific terms and conditions under the Equity
Incentive Plan. Unless otherwise expressly stated in the relevant award agreement, each award
granted to a Covered Officer under the Equity Incentive Plan is intended to be performance-based
compensation within the meaning of Section 162(m).
21
Performance goals for Covered Officers will be limited to one or more of the following
financial performance measures relating to the Company or any of its subsidiaries, operating units,
business segments or divisions: (a) earnings before interest, taxes, depreciation and/or
amortization; (b) operating income or profit; (c) operating efficiencies; (d) return on equity,
assets, capital, capital employed or investment; (e) after tax operating income; (f) net income;
(g) earnings or book value per share; (h) cash flow(s); (i) total sales or revenues or sales or
revenues per employee; (j) production (separate work units or SWUs); (k) stock price or total
stockholder return; (l) dividends; (m) debt reduction; or (n) strategic business objectives,
consisting of one or more objectives based on meeting specified cost targets, business expansion
goals, and goals relating to acquisitions or divestitures; or any combination thereof. Each goal
may be expressed on an absolute and/or relative basis, may be based on or otherwise employ
comparisons based on internal targets, the past performance of the Company or any subsidiary,
operating unit or division of the Company and/or the past or current performance of other
companies, and in the case of earnings-based measures, may use or employ comparisons relating to
capital, stockholders stock and/or shares outstanding, or to assets or net assets. The Committee
may appropriately adjust any evaluation of performance under criteria set forth in the Equity
Incentive Plan to exclude any of the following events that occurs during a performance period: (i)
asset write-downs, (ii) litigation or claim judgments or settlements, (iii) the effect of changes
in tax law, accounting principles or other such laws or provisions affecting reported results, (iv)
accruals for reorganization and restructuring programs and (v) any extraordinary non-recurring
items as described in Accounting Principles Board Opinion No. 30 and/or in managements discussion
and analysis of financial condition and results of operations appearing in the Companys annual
report to stockholders for the applicable year.
To the extent necessary to comply with Section 162(m) of the Code, with respect to grants of
performance awards, no later than 90 days following the commencement of each performance period (or
such other time as may be required or permitted by Section 162(m)), the Committee will, in writing,
(1) select the performance goal or goals applicable to the performance period, (2) establish the
various targets and bonus amounts which may be earned for such performance period, and (3) specify
the relationship between performance goals and targets and the amounts to be earned by each Covered
Officer for such performance period. Following the completion of each performance period, the
Committee will certify in writing whether the applicable performance targets have been achieved and
the amounts, if any, payable to Covered Officers for such performance period. In determining the
amount earned by a Covered Officer for a given performance period, subject to any applicable award
agreement, the Committee shall have the right to reduce (but not increase) the amount payable at a
given level of performance to take into account additional factors that the Committee may deem
relevant to the assessment of individual or corporate performance for the performance period. With
respect to any Covered Officer, the maximum annual number of shares in respect of which all
performance awards may be granted under the Equity Incentive Plan is 300,000 and the maximum annual
amount of all performance awards that are settled in cash is $3,000,000.
Other Stock-Based Awards
. The Committee is authorized to grant any other type of
awards that are denominated or payable in, valued by reference to, or otherwise based on or related
to shares of common stock. The Committee will determine the terms and conditions of such awards,
consistent with the terms of the Equity Incentive Plan.
Non-Employee Director Awards
. The Board may provide that all or a portion of a
non-employee directors annual retainer and/or retainer fees or other awards or compensation as
determined by the Board be payable in non-qualified stock options, restricted shares, restricted
share units and/or other stock-based awards, including unrestricted shares, either automatically or
at the option of the non-employee directors. The Board will determine the terms and conditions of
any such awards, including those that apply upon the termination of a non-employee directors
service as a member of the Board. Non-employee directors are also eligible to receive other awards
pursuant to the terms of the Equity Incentive Plan, including options and SARs, restricted shares
and restricted share units, and other stock-based awards upon such terms as the Committee may
determine; provided, however, that with respect to awards made to members of the Committee, the
Equity Incentive Plan will be administered by the Board.
Termination of Employment
. The Committee will determine the terms and conditions that
apply to any award upon the termination of employment with the Company, its subsidiaries and
affiliates, and provide such terms in the applicable award agreement or in its rules or
regulations.
Change in Control
. Notwithstanding any other provision of the Equity Incentive Plan,
unless otherwise provided in an award agreement or other contractual agreement between the Company
and an award holder, if, within one year following a Change in Control, an award holders
employment with the Company (or its successor)
22
is terminated by reason of (a) death; (b) disability; (c) Normal Retirement or Early
Retirement; (d) for Good Reason by the award holder; or (e) involuntary termination by the Company
for any reason other than for Cause, all outstanding Awards of such award holder shall vest, become
immediately exercisable and payable and have all restrictions lifted.
Amendment and Termination
. The Board may amend, alter, suspend, discontinue or
terminate the Equity Incentive Plan or any portion of the Equity Incentive Plan at any time, except
that stockholder approval must be obtained for any such action if such approval is necessary to
comply with any tax or regulatory requirement with which the Board deems it desirable or necessary
to comply. The Committee may waive any conditions or rights under, amend any terms of, or alter,
suspend, discontinue, cancel or terminate any award, either prospectively or retroactively. The
Committee does not have the power, however, to amend the terms of previously granted options to
reduce the exercise price per share subject to such option or to cancel such options and grant
substitute options with a lower exercise price per share than the cancelled options. The Committee
also may not materially and adversely affect the rights of any award holder without the award
holders consent.
Other Terms of Awards
. The Company may take action, including the withholding of
amounts from any award made under the Equity Incentive Plan, to satisfy withholding and other tax
obligations. The Committee may provide for additional cash payments to participants to defray any
tax arising from the grant, vesting, exercise or payment of any award. Except as permitted by the
applicable award agreement, awards granted under the Equity Incentive Plan generally may not be
pledged or otherwise encumbered and are not transferable except by will or by the laws of descent
and distribution, or as permitted by the Committee in its discretion.
Certain Federal Income Tax Consequences
. The following is a brief description of the
Federal income tax consequences generally arising with respect to awards under the Equity Incentive
Plan.
Tax consequences to the Company and to participants receiving awards will vary with the type
of award. Generally, a participant will not recognize income, and the Company is not entitled to
take a deduction, upon the grant of an incentive stock option, a nonqualified option, a SAR or a
restricted share award. A participant will not have taxable income upon exercising an incentive
stock option (except that the alternative minimum tax may apply). Upon exercising an option other
than an incentive stock option, the participant must generally recognize ordinary income equal to
the difference between the exercise price and fair market value of the freely transferable and
non-forfeitable shares of common stock acquired on the date of exercise.
If a participant sells shares of common stock acquired upon exercise of an incentive stock
option before the end of two years from the date of grant and one year from the date of exercise,
the participant must generally recognize ordinary income equal to the difference between (i) the
fair market value of the shares of common stock at the date of exercise of the incentive stock
option (or, if less, the amount realized upon the disposition of the incentive stock option shares
of common stock), and (ii) the exercise price. Otherwise, a participants disposition of shares of
common stock acquired upon the exercise of an option (including an incentive stock option for which
the incentive stock option holding period is met) generally will result in short-term or long-term
capital gain or loss measured by the difference between the sale price and the participants tax
basis in such shares of common stock (the tax basis generally being the exercise price plus any
amount previously recognized as ordinary income in connection with the exercise of the option).
The Company generally will be entitled to a tax deduction equal to the amount recognized as
ordinary income by the participant in connection with an option. The Company generally is not
entitled to a tax deduction relating to amounts that represent a capital gain to a participant.
Accordingly, the Company will not be entitled to any tax deduction with respect to an incentive
stock option if the participant holds the shares of common stock for the incentive stock option
holding periods prior to disposition of the shares.
Similarly, the exercise of an SAR will result in ordinary income on the value of the stock
appreciation right to the individual at the time of exercise. The Company will be allowed a
deduction for the amount of ordinary income recognized by a participant with respect to an SAR.
Upon a grant of restricted shares, the participant will recognize ordinary income on the fair
market value of the common stock at the time restricted shares vest unless a participant makes an
election under Section 83(b) of the Code to be taxed at the time of grant. The participant also is
subject to capital gains treatment on the subsequent sale of any common stock acquired through the
exercise of an SAR or restricted share award. For this purpose, the participants basis in the
common stock is its fair market value
23
at the time the SAR is exercised or the restricted share becomes vested (or is granted, if an
election under Section 83(b) is made). Payments made under performance awards are taxable as
ordinary income at the time an individual attains the performance goals and the payments are made
available to, and are transferable by, the participant.
Section 162(m) of the Code generally disallows a public companys tax deduction for
compensation paid in excess of $1 million in any tax year to its five most highly compensated
executives. However, compensation that qualifies as performance-based compensation is excluded
from this $1 million deduction limit and therefore remains fully deductible by the company that
pays it. The Company intends that (i) performance awards and (ii) options granted (a) with an
exercise price at least equal to 100% of fair market value of the underlying shares of common stock
at the date of grant (b) to employees the Committee expects to be named executive officers at the
time a deduction arises in connection with such awards, qualify as performance-based compensation
so that these awards will not be subject to the Section 162(m) deduction limitations.
The foregoing discussion is general in nature and is not intended to be a complete description
of the Federal income tax consequences of the Equity Incentive Plan. This discussion does not
address the effects of other Federal taxes or taxes imposed under state, local or foreign tax laws.
Participants in the Equity Incentive Plan are urged to consult a tax advisor as to the tax
consequences of participation.
The Equity Incentive Plan is not intended to be a qualified plan under Section 401(a) of the
Code.
Required Vote, Recommendation of the Board
The approval of the Equity Incentive Plan requires the affirmative vote of a majority of the
shares present in person or by proxy and entitled to vote at the Meeting.
The Board of Directors unanimously recommends that stockholders vote
FOR
the Proposal to
approve the Equity Incentive Plan.
PROPOSAL 3 APPROVAL OF THE MANAGEMENT STOCK PURCHASE PLAN
In addition to the Equity Incentive Plan, the Luminex Corporation 2006 Management Stock
Purchase Plan (the MSPP) was approved by the Board of Directors, subject to stockholder approval
at the Meeting. The purposes of the MSPP are to enable executives to develop and maintain a
substantial share ownership position in the Company (and thereby further align executive and
stockholder long-term interests), to provide incentives to such executives to contribute to the
success of the Companys business and to help us attract and retain highly-qualified executives.
Subject to adjustment as provided in the plan, the MSPP provides for the granting of rights to
purchase up to an aggregate of 500,000 shares of the Companys common stock to officers (including
executive officers) of the Company (nine persons as of April 6, 2006). The MSPP will be
administered by the Compensation Committee of the Board of Directors. The Compensation Committee
can make such rules and regulations and establish such procedures for the administration of the
MSPP as it deems appropriate.
The maximum number of shares of the common stock to be authorized and reserved for issuance
under the MSPP is 500,000 shares, subject to equitable adjustment as set forth in the MSPP,
provided that no individual officer may exercise rights to receive more than 50,000 shares in any
year under the MSPP.
24
The additional potential impact of the MSPP on our overhang is illustrated in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 6, 2006
|
|
|
|
|
|
|
Pro Forma
|
|
Fully Adjusted Pro Forma
|
|
|
|
|
|
|
(assuming approval
|
|
(assuming approval of
|
|
|
Actual
|
|
of MSPP) (1)
|
|
Equity Incentive Plan) (2)
|
Simple Overhang
|
|
|
14.2
|
%
|
|
|
15.8
|
%
|
|
|
19.0
|
%
|
Fully Diluted Overhang
|
|
|
12.5
|
%
|
|
|
13.7
|
%
|
|
|
16.0
|
%
|
|
|
|
(1)
|
|
Pro Forma overhang calculation does not reflect the impact of the Equity Incentive
Plan, described in Proposal 2 above.
|
|
(2)
|
|
Fully Adjusted Pro Forma calculation reflects the impact of 500,000 shares pursuant to
the MSPP and 2,000,000 shares under the Equity Incentive Plan.
|
We believe the MSPP is consistent with our above stated compensation philosophies, including,
in particular, the objectives of our recently implemented stock ownership guidelines (which are
described in our corporate governance guidelines located on the Investor Relations section of our
website at www.luminexcorp.com), and will help encourage and facilitate acquisitions of the
required ownership levels by our executives in a timely manner. Moreover, in addition to further
promoting the alignment of interests of our officers with our stockholders, the MSPP should enable
us to utilize the cash saved in lieu of paying annual performance bonuses for research and
development and other productive corporate purposes. For these reasons, we consider the approval
of the MSPP important to our future success.
The following is a brief summary of the principal features of the MSPP, which is qualified in
its entirety by reference to the MSPP itself, a copy of which is attached hereto as
Exhibit B
and incorporated herein by reference.
All officers of the Company and each designated subsidiary shall be eligible to be designated
as participants in the MSPP. Each participant may elect to receive, in lieu of a specified portion
of his or her annual bonus a number of restricted shares equal to the amount of such specified
portion of the annual bonus divided by a dollar amount equal to 80% of the fair market value of a
share on the date on which such restricted shares are granted. Any participant who makes such an
election will be entitled to a grant of restricted shares generally by March 15 of each calendar
year following the year for which the election is in effect. Generally, any election to
participate in the MSPP is effective beginning with the calendar year next following the year in
which the election is made. Once an election has become effective, a participant may cancel such
election or make a change in the applicable bonus reduction percentage by filing an appropriate
notice. However, any such notice is generally not effective until the beginning of the calendar
year next following the year in which it is filed.
The restricted period for restricted shares granted under the MSPP is generally three years
from the date of grant. However, if the Compensation Committee determines that the Company may
lose its federal income tax deduction in connection with the future lapsing of restrictions on
restricted shares held by an executive officer because of the $1.0 million annual deductibility cap
of Section 162(m) of the Internal Revenue Code of 1986, as amended (the Code), the Compensation
Committee, in its discretion, can cause some or all of such restricted shares to be converted into
an equal number of restricted stock units, as to which payment will be postponed until such time
as the payment will not cause the Company to lose its deduction. When the payment is made, it will
be made in shares of common stock.
With respect to restricted shares granted under the MSPP, if a participants employment is
terminated during the restricted period, then, except as provided below, the participants rights
to such restricted shares will be entirely forfeited and the participant will instead have the
right to receive a cash payment equal to the lesser of (i) the then-current fair market value of
the restricted shares or (ii) the bonus amounts foregone by the participant as a condition of
receiving such restricted shares. If, during the restricted period, termination of employment of a
participant resulted from death or total and permanent disability, the restrictions on the
restricted shares will immediately lapse. If, during the restricted period, a participant is
terminated by the Company without cause, the participants right to the restricted shares will be
forfeited entirely and the participant will instead have the right to receive a cash payment equal
to either (i) the then-current fair market value of the restricted shares or (ii) the bonus
25
amounts foregone by the participant as a condition of receiving such restricted shares. The
Compensation Committee will decide, in its sole discretion, which of these amounts will be payable.
In addition, the Compensation Committee may, in its discretion, accelerate the lapse of such
restrictions upon a participants retirement. The same rules regarding termination of employment
will apply to any restricted share units that have been substituted for restricted shares.
The Compensation Committee can, in its discretion and on such terms and conditions as it
determines, permit or require a participant to pay all or a portion of any taxes arising in
connection with the grant of restricted shares or the lapse of restrictions thereon by having the
Company withhold such shares of the common stock or by the participant delivering previously
acquired shares of the common stock having a fair market value equal to the amount of taxes to be
withheld.
No grants of restricted stock can be made under the MSPP after May 25, 2016. Holdings of
restricted shares acquired prior thereto, however, can extend beyond such date, and the provisions
of the MSPP will continue to apply thereto.
The Board can amend, suspend or discontinue the MSPP; provided, however, that no amendment
which requires stockholder approval for the MSPP to comply with any law, regulation or stock
exchange requirement shall be effective unless approved by the requisite vote of stockholders. In
addition, the Compensation Committee can make such amendments as it deems necessary to comply with
applicable laws, rules and regulations.
The following is a brief summary of the principal federal income tax consequences of
transactions under the MSPP based on current federal income tax laws. The summary is not intended
to constitute tax advice and, among other things, does not address possible state, local or foreign
tax consequences.
A participant generally must include as ordinary income the fair market value of the
restricted shares at the earlier of the time such restricted shares are either transferable or no
longer subject to a deferred substantial risk of forfeiture (the forfeiture period) within the
meaning of Section 83 of the Code. Any participant can elect pursuant to Section 83(b) of the Code
to include as ordinary income, in the year of transfer of the restricted shares, an amount equal to
the fair market value of the restricted shares on the date of such transfer; such an election must
be made within 30 days of the date of such transfer. A participants tax basis in restricted
shares is equal to the amount paid for such shares plus the amount includable in income with
respect to such restricted shares. With respect to the sale of restricted shares after the
expiration of the forfeiture period, any gain or loss will generally be treated as long-term or
short-term capital gain or loss, depending on the holding period. The holding period for capital
gains treatment will begin when the forfeiture period expires, unless the participant has made a
Section 83(b) election, in which event the holding period will commence just after the date of
transfer of the restricted shares by the Company to such person. The Company generally will be
entitled to a deduction in the amount of a participants income at the time such income is so
recognized, provided that the participant includes such amount in income or the Company satisfies
applicable reporting requirements, and subject to possible limitations on deductibility under
Section 162(m) of the Code of compensation paid to executives designated in that Section.
A participant who holds restricted stock units that have been substituted for restricted
shares, generally, must include as ordinary income the fair market value of the common stock
received in payment of such restricted stock units at the time of such payment. With respect to
the sale of common stock received in payment of restricted stock units, any gain or loss will
generally be treated as long-term or short-term capital gain or loss, depending on the holding
period. The holding period for capital gains treatment will begin when the common stock is
received in payment of the restricted stock units. The Company generally will be entitled to a
deduction in the amount of a participants income at the time such income is recognized as
described above, provided that the participant includes such amount in income or the Company
satisfies applicable reporting requirements, and subject to possible limitations on deductibility
under Section 162(m) of the Code of compensation paid to executives designated in that Section.
Because the MSPP depends on the voluntary participation of the executive officers, the benefit
amounts under the MSPP are not determinable.
26
Required Vote; Recommendation of the Board
The approval of the MSPP requires the affirmative vote of a majority of the shares present in
person or by proxy and entitled to vote at the Meeting.
The Board of Directors unanimously recommends that stockholders vote
FOR
the proposal to
approve the MSPP.
PROPOSAL 4 RATIFICATION OF APPOINTMENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has appointed Ernst & Young LLP as the Companys independent registered
public accounting firm to audit the financial statements of the Company and to perform other
accounting services, if appropriate, for the year ending December 31, 2006. Such appointment will
be presented to the stockholders for ratification at the Meeting. A representative of Ernst &
Young LLP is expected to be present at the Meeting to respond to questions from stockholders and
will be given the opportunity to make a statement if so desired.
Stockholder ratification of the selection of Ernst & Young LLP as the Companys independent
registered public accountants is not required by the Companys bylaws or otherwise. However, the
Audit Committee is submitting the selection of Ernst & Young LLP to the stockholders for
ratification. If the stockholders fail to ratify the selection, the Audit Committee will
reconsider whether or not to retain that firm. Even if the selection is ratified, the Audit
Committee in its discretion may direct the appointment of a different independent registered public
accounting firm at any time during the year if it determines that such a change would be in the
best interests of the Company and its stockholders.
Fees paid to Ernst & Young LLP for services provided during the years ended December 31, 2005
and 2004, is presented below.
Audit Fees
. The aggregate audit fees billed to us by Ernst & Young LLP for professional
services rendered for the audit of our annual consolidated financial statements, for the reviews of
the consolidated financial statements included in our quarterly reports on Form 10-Q, for the audit
of managements report on the effectiveness of our internal control over financial reporting, as
required under Section 404 of the Sarbanes-Oxley Act of 2002, and other services that are normally
provided by the independent auditor in connection with statutory and regulatory filings totaled
$280,000 for 2005 and $282,100 for 2004.
Audit-Related Fees
. The aggregate fees billed to us by Ernst & Young LLP for assurance and
related services related to the performance of the audit or review of the Companys consolidated
financial statements, and for the review of the Companys internal controls over financial
reporting and not described above under Audit Fees, were $0 for 2005 and $0 for 2004.
Tax Fees
. The aggregate fees billed by Ernst & Young LLP for professional services rendered
for tax compliance, assistance with an IRS audit, tax advice and tax planning were $42,000 for 2005
and $104,510 for 2004.
All Other Fees
. The aggregate fees billed by Ernst & Young LLP for products or services other
than those described above were $0 for 2005 and $0 for 2004.
The Restated Audit Committee Charter, among other things, requires the Audit Committee to
pre-approve all audit and permitted non-audit services (including the fees and terms thereof) to be
performed for the Company by its independent auditor.
The Audit Committee has adopted a pre-approval policy in order to ensure that the performance
of audit and non-audit services by the independent auditor does not impair the auditors
independence. The policy provides for the general pre-approval of specific types of services,
gives guidance to management as to the specific type of services that are eligible for pre-approval
and provides cost limits for each such service on an annual basis. The policy requires specific
pre-approval of all other permitted services. Requests or applications to provide services
27
that require separate approval by the Audit Committee are submitted by the Companys Chief
Financial Officer to the Audit Committee and must include a statement as to whether, in the Chief
Financial Officers view, the request or application is consistent with the Securities and Exchange
Commissions rules on auditor independence. The Audit Committee may delegate pre-approval
authority to one or more of its members who shall report any pre-approval decisions to the Audit
Committee at its next scheduled meeting.
All audit related services, tax services and other services provided in 2005 and 2004 were
pre-approved by the Audit Committee. The Audit Committee concluded that the provision of such
services by Ernst & Young LLP was compatible with the maintenance of the firms independence in the
conduct of its auditing functions.
Required Vote; Recommendation of the Board
Approval of this proposal requires the affirmative vote of a majority of the shares present in
person or by proxy and entitled to vote on the matter.
The Board of Directors recommends a vote
FOR
Proposal 4.
REPORT OF THE AUDIT COMMITTEE
The following Report of the Audit Committee does not constitute soliciting material and should
not be deemed filed or incorporated by reference into any other Company filing under the Securities
Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically
incorporates this Report by reference therein.
To the Stockholders of Luminex Corporation:
The Board of Directors maintains an Audit Committee comprised of three independent directors.
The Board of Directors and the Audit Committee believe that the Audit Committees current member
composition satisfies the rules of The Nasdaq Stock Market that govern audit committee composition,
including the requirement that audit committee members meet the heightened independence
requirements as contemplated by the applicable rules of the The Nasdaq Stock Market. The Audit
Committee operates under a written charter, which was adopted by the Board of Directors (as amended
to date, the Restated Audit Committee Charter). A copy of the Restated Audit Committee Charter
may be viewed on the Investor Relations section of our website at www.luminexcorp.com.
Pursuant to the Restated Audit Committee Charter, the Audit Committee oversees the financial
reporting process on behalf of the entire Board of Directors. The Audit Committee is responsible
for the appointment, compensation and oversight of the work of the Companys independent registered
public accountants. Management has the primary responsibility for the financial statements and the
reporting process including the systems of internal controls. Our independent registered public
accountants are responsible for performing an independent audit of the Companys financial
statements in accordance with standards established by the Public Company Accounting Oversight
Board, expressing an opinion on the conformity of our audited financial statements to generally
accepted accounting principles and auditing managements assessment of the effectiveness of
internal control over financial reporting and issuing a report thereon. In fulfilling its
oversight responsibilities, the Audit Committee reviews and discusses with management and the
independent registered public accountants the audited and interim financial statements included in
our reports filed with the Securities and Exchange Commission in advance of the filings of such
reports.
The Audit Committee has reviewed and discussed the audited financial statements with
management and the independent registered public accountants. Furthermore, the Audit Committee has
reviewed and discussed with the independent registered public accountants all communications
required by generally accepted auditing standards, including those described in Statement on
Auditing Standards No. 61 (Communication with Audit Committees), as amended by Statement on
Auditing Standards No. 90 (Audit Committee Communications). The Audit Committee has also received
from the independent registered public accountants the written disclosures required by Independence
Standards Board Standard No. 1 (Independence Discussions with Audit Committees) and has discussed
with them their independence from the Company and its management.
28
The Audit Committee held 9 meetings during 2005. The Audit Committee discussed with the
independent registered public accountants the overall scope and plans for their audit. The Audit
Committee met with the independent registered public accountants, with and without management
present, to discuss the results of their examination, their evaluation of the Companys internal
controls requirements under Section 404 of the Sarbanes-Oxley Act of 2002, and the overall quality
of the Companys financial reporting.
In reliance on the reviews and discussions referred to above, the Audit Committee recommended
to the Board of Directors (and the Board of Directors approved) that the audited financial
statements be included in our Annual Report on Form 10-K for the year ended December 31, 2005, as
filed with the Securities and Exchange Commission.
|
|
|
|
|
SUBMITTED BY THE AUDIT COMMITTEE OF
|
|
|
THE BOARD OF DIRECTORS
|
|
|
|
|
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Jim D. Kever (Chairman)
|
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|
Robert J. Cresci
|
|
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Jay B. Johnston
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29
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to us regarding the ownership of the
common stock of the Company as of the record date (except as otherwise indicated below) by (i) each
director and director nominee, (ii) each executive officer named in the Summary Compensation Table
below (each a named executive officer), (iii) all directors and executive officers as a group and
(iv) each person known to us to own beneficially 5% or more of our outstanding common stock.
The information set forth below includes shares of common stock directly and indirectly owned
and shares of common stock underlying currently exercisable options, as well as those options which
will become exercisable within 60 days of April 6, 2006. Except as otherwise indicated, the named
persons below have sole voting and dispositive power with respect to beneficially owned shares.
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|
|
|
|
|
|
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|
Common Stock Beneficially Owned
|
|
|
|
|
|
|
Total as a
|
|
|
Number of Shares
|
|
Percentage of
|
Beneficial Owner
|
|
Owned (1)
|
|
Shares Outstanding
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Directors and Named Executive Officers
(2)
|
|
|
|
|
|
|
|
|
G. Walter Loewenbaum II (3)
|
|
|
2,027,400
|
|
|
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6.3
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%
|
Fred C. Goad, Jr. (4)
|
|
|
303,666
|
|
|
|
1.0
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%
|
Jim D. Kever (5)
|
|
|
254,902
|
|
|
|
*
|
|
Robert J. Cresci
|
|
|
214,016
|
|
|
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*
|
|
Kevin M. McNamara
|
|
|
101,166
|
|
|
|
*
|
|
Thomas W. Erickson
|
|
|
275,166
|
|
|
|
*
|
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Jay Johnston (6)
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45,500
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|
|
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*
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Gerard Vaillant
|
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4,500
|
|
|
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*
|
|
J. Stark Thompson
|
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19,500
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|
|
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*
|
|
Patrick J. Balthrop, Sr.
|
|
|
532,004
|
|
|
|
1.7
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%
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Harriss T. Currie
|
|
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199,202
|
|
|
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*
|
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Randel S. Marfin
|
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269,304
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|
|
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*
|
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James W. Jacobson, Ph.D.
|
|
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155,524
|
|
|
|
*
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David S. Reiter
|
|
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138,086
|
|
|
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*
|
|
All directors and executive officers
as a group (17 persons)
|
|
|
4,823,196
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|
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14.4
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%
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|
|
|
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|
|
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Other 5% Stockholders
|
|
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|
|
|
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|
|
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St. Denis J. Villere & Company, LLC (7)
210 Baronne Street, Suite 808
New Orleans, LA 70112
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4,764,080
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14.9
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%
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|
|
|
|
|
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Barclays Global Investors, N.A. (8)
45 Fremont Street
San Francisco, CA 94105
|
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1,616,979
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5.1
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%
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*
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Less than 1%.
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(1)
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Includes shares attributable to shares of common stock not outstanding but subject to
currently exercisable options (as well as those options which will become exercisable within
60 days of April 6, 2006) as follows: Mr. Loewenbaum 100,000 shares; Mr. Goad 10,000
shares; Mr. Kever 45,200 shares; Mr. Cresci 45,200 shares; Mr. McNamara 95,000 shares;
Mr. Erickson 262,500 shares; Mr. Johnston 15,000 shares; Mr. Vaillant 15,000 shares; Mr.
Thompson 0 shares; Mr. Balthrop 250,004 shares; Mr. Currie 153,276 shares; Mr. Marfin
235,625 shares; Dr. Jacobson 121,845 shares; Mr. Reiter 109,876 shares; and all directors
and executive officers as a group 1,626,336 shares.
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(2)
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|
The applicable address for all directors and named executive officers is c/o Luminex
Corporation, 12212 Technology Boulevard, Austin, Texas 78727.
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30
|
|
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(3)
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|
Does not include 1,243,208 of shares held by Mr. Loewenbaums wife, Lillian Loewenbaum;
132,586 shares held by a trust for the benefit of Mr. Loewenbaums children of which Lillian
Loewenbaum is the trustee; and 125,998 shares held by a trust for the benefit of Mr.
Loewenbaum which has an independent trustee and over which Mr. Loewenbaum neither has nor
shares investment or voting power.
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(4)
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|
Includes 6,120 shares held by a trust of which Mr. Goad is the trustee. Mr. Goad disclaims
beneficial ownership of the shares held by the trust.
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(5)
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|
Includes 68,712 shares held by a trust for Mr. Kevers benefit.
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(6)
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|
Includes 8,000 shares held by JK Investments II, a limited partnership managed by Mr.
Johnston and his wife and of which a trust for the benefit of Mr. Johnstons children is the
limited partner.
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(7)
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This information is as of December 31, 2005, and is based solely on a Schedule 13G/A filed by
St. Denis J. Villere & Company on March 1, 2006. St. Denis J. Villere & Company is an
investment advisor registered under Section 203 of the Investment Advisors Act of 1940 and
reports sole voting and dispositive power as to 604,209 shares and shared voting and
dispositive power as to 4,159,871 shares.
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(8)
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This information is as of December 31, 2005, and is based solely on a Schedule 13G filed by
Barclays Global Investors, N.A. on February 14, 2006. Barclays Global Investors, N.A. is a
Bank as defined in Section 3(a)(6) of the Securities Exchange Act of 1934 and reports sole
voting power as to 1,490,110 shares and shared voting and dispositive power as to 126,869
shares.
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31
Common Stock Performance Graph
The following graph sets forth the cumulative total stockholder return for our common stock,
The Nasdaq Stock Market Index (U.S.) and the Nasdaq Biotechnology Index for the period indicated as
prescribed by the Securities and Exchange Commissions rules. The graph assumes $100 was invested
on December 31, 2000, in each of (1) our common stock, (2) The Nasdaq Stock Market Index and (3)
the Nasdaq Biotechnology Index and that all dividends, if any, were reinvested.
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG LUMINEX CORPORATION,
THE NASDAQ STOCK MARKET (U.S.) INDEX,
AND THE NASDAQ BIOTECHNOLOGY
INDEX
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|
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Total Return Analysis
|
|
12/31/01
|
|
|
12/31/02
|
|
|
12/31/03
|
|
|
12/31/04
|
|
|
12/31/05
|
|
Luminex
Corporation
|
|
$
|
65.07
|
|
|
$
|
15.77
|
|
|
$
|
35.99
|
|
|
$
|
34.07
|
|
|
$
|
44.59
|
|
Nasdaq Stock Market
Index (U.S.)
|
|
$
|
79.08
|
|
|
$
|
55.95
|
|
|
$
|
83.35
|
|
|
$
|
90.64
|
|
|
$
|
92.73
|
|
Nasdaq Biotechnology
Index
|
|
$
|
80.72
|
|
|
$
|
44.83
|
|
|
$
|
62.82
|
|
|
$
|
65.43
|
|
|
$
|
83.51
|
|
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
There were no reportable relationships or related party transactions in 2005.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, our directors, executive officers and any
persons holding more than ten percent of our common stock are required to report their initial
ownership of our common stock and any subsequent changes in their ownership to the Securities and
Exchange Commission. Specific due dates have been established by the Securities and Exchange
Commission, and we are required to disclose in this Proxy Statement any failure of such persons to
file by those dates. Based solely upon the copies of Section 16(a) reports that we have received
from such persons for their transactions in 2005 and written representations to the Company by such
persons that no other reports were required, we believe that there has been compliance with all
Section 16(a)
32
filing requirements applicable to such directors, executive officers and ten-percent beneficial
owners for 2005, other than Messrs. Johnston and Vaillant who each filed one late report due to an
administrative error.
EXPENSES AND SOLICITATION
We will bear the cost of soliciting proxies. Proxies may be solicited in person or by
telephone, facsimile, electronic mail or other electronic medium by certain of our directors,
officers and regular employees, without additional compensation. The Company requests that
brokerage houses and other custodians, nominees and fiduciaries forward solicitation materials to
the beneficial owners of shares of the Companys common stock held of record by such persons, and
the Company will reimburse such brokers and other fiduciaries for their reasonable out-of-pocket
expenses incurred when the solicitation materials are forwarded.
STOCKHOLDER PROPOSALS FOR 2007 ANNUAL MEETING
It is contemplated that our 2007 annual meeting of stockholders will take place in May 2007.
Stockholders proposals will be eligible for consideration for inclusion in the proxy statement for
the 2007 annual meeting pursuant to Rule 14a-8 under the Securities Exchange Act of 1934 if such
proposals are received by us before the close of business on December 26, 2006. Notices of
stockholders proposals submitted outside the processes of Rule 14a-8 will be considered timely
(but not considered for inclusion in our proxy statement), pursuant to the advance notice
requirement set forth in our bylaws, if such notices are filed with our Secretary not less than 30
days nor more than 90 days prior to the first anniversary of the Meeting in the manner specified in
the bylaws. For proposals that are not timely filed, we retain discretion to vote proxies that we
receive. For proposals that are timely filed, we retain discretion to vote proxies that we receive
provided (1) we include in our proxy statement advice on the nature of the proposal and how we
intend to exercise our voting discretion and (2) the proponent does not issue a proxy statement.
In order to curtail any controversy as to the date on which a proposal was received by us, we
suggest that stockholders submit their proposals by certified mail, return receipt requested.
TRANSACTION OF OTHER BUSINESS
At the date of this Proxy Statement, the only business which the Board of Directors intends to
present or knows that others will present at the Meeting is as set forth above. If any other
matter or matters are properly brought before the Meeting, or an adjournment or postponement
thereof, it is the intention of the persons named in the accompanying form of proxy to vote the
proxy on such matters in accordance with their best judgment.
UPON WRITTEN REQUEST OF ANY STOCKHOLDER TO DAVID RIETER, CORPORATE SECRETARY, LUMINEX
CORPORATION, 12212 TECHNOLOGY BOULEVARD, AUSTIN, TEXAS 78727, THE COMPANY WILL PROVIDE WITHOUT
CHARGE A COPY OF THE COMPANYS ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2005, AS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
Austin, Texas
April 24, 2006
33
EXHIBIT A
LUMINEX CORPORATION
2006 EQUITY INCENTIVE PLAN
TABLE OF CONTENTS
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|
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|
Section 1. Purpose
|
|
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1
|
|
Section 2. Definitions
|
|
|
1
|
|
Section 3. Administration
|
|
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4
|
|
Section 4. Shares Available For Awards
|
|
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5
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|
Section 5. Eligibility
|
|
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6
|
|
Section 6. Stock Options And Stock Appreciation Rights
|
|
|
6
|
|
Section 7. Restricted Shares And Restricted Share Units
|
|
|
7
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|
Section 8. Performance Awards
|
|
|
8
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|
Section 9. Other Stock-Based Awards
|
|
|
9
|
|
Section 10. Non-Employee Director And Outside Director Awards
|
|
|
9
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|
Section 11. Provisions Applicable To Covered Officers And Performance Awards
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|
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9
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|
Section 12. Termination Of Employment
|
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11
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|
Section 13. Change In Control
|
|
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11
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|
Section 14. Amendment And Termination
|
|
|
11
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|
Section 15. General Provisions
|
|
|
11
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|
Section 16. Term Of The Plan
|
|
|
13
|
|
LUMINEX CORPORATION
2006 EQUITY INCENTIVE PLAN
Section 1. Purpose.
This plan shall be known as the Luminex Corporation 2006 Equity Incentive Plan (the Plan).
The purpose of the Plan is to promote the interests of Luminex Corporation (the Company) and its
shareholders by (i) attracting and retaining key officers, employees and directors of, and
consultants to, the Company and its Subsidiaries and Affiliates; (ii) motivating such individuals
by means of performance-related incentives to achieve long-range performance goals; (iii) enabling
such individuals to participate in the long-term growth and financial success of the Company; (iv)
encouraging ownership of stock in the Company by such individuals; and (v) linking their
compensation to the long-term interests of the Company and its shareholders. With respect to any
awards granted under the Plan that are intended to comply with the requirements of
performance-based compensation under Section 162(m) of the Code, the Plan shall be interpreted in
a manner consistent with such requirements.
Section 2. Definitions.
As used in the Plan, the following terms shall have the meanings set forth below:
2.1 Affiliate
shall mean (i) any entity that, directly or indirectly, is controlled by the
Company, (ii) any entity in which the Company has a significant equity interest, (iii) an affiliate
of the Company, as defined in Rule 12b-2 promulgated under Section 12 of the Exchange Act, and (iv)
any entity in which the Company has at least twenty percent (20%) of the combined voting power of
the entitys outstanding voting securities, in each case as designated by the Board as being a
participating employer in the Plan.
2.2 Award
shall mean any Option, Stock Appreciation Right, Restricted Share Award,
Restricted Share Unit, Performance Award, Other Stock-Based Award or other award granted under the
Plan, whether singly, in combination or in tandem, to a Participant by the Committee (or the Board)
pursuant to such terms, conditions, restrictions and/or limitations, if any, as the Committee (or
the Board) may establish.
2.3 Award Agreement
shall mean any written agreement, contract or other instrument or
document evidencing any Award, which may, but need not, be executed or acknowledged by a
Participant.
2.4 Board
shall mean the Board of Directors of the Company.
2.5 Cause
shall mean, unless otherwise defined in the applicable Award Agreement, (i) the
engaging by the Participant in willful misconduct that is injurious to the Company or its
Subsidiaries or Affiliates, or (ii) the embezzlement or misappropriation of funds or property of
the Company or its Subsidiaries or Affiliates by the Participant. For purposes of this paragraph,
no act, or failure to act, on the Participants part shall be considered willful unless done, or
omitted to be done, by the Participant not in good faith and without reasonable belief that the
Participants action or omission was in the best interest of the Company. Any determination of
Cause for purposes of the Plan or any Award shall be made by the Committee in its sole discretion.
Any such determination shall be final and binding on a Participant.
2.6 Change in Control
shall mean, unless otherwise provided in the applicable Award
Agreement, the happening of one of the following:
(a) any person or entity, including a group as defined in Section 13(d)(3) of the
Exchange Act, other than the Company or a wholly-owned Subsidiary thereof or any employee
benefit plan of the Company or any of its Subsidiaries, becomes the beneficial owner of the
Companys securities having 35% or more of the combined voting power of the then outstanding
securities of the Company that may be cast for the election of directors of the Company
(other than as a result of an issuance of securities initiated by the Company in the
ordinary course of business); or
(b) as the result of, or in connection with, any cash tender or exchange offer, merger
or other business combination, sales of assets or contested election, or any combination of
the foregoing transactions, less than a majority of the combined voting power of the then
outstanding securities of the Company or any successor corporation or entity entitled to
vote generally in the election of the directors of the Company or such other corporation or
entity after such transaction are held in the aggregate by the holders of the Companys
securities entitled to vote generally in the election of directors of the Company
immediately prior to such transaction; or
(c) during any period of two consecutive years, individuals who at the beginning of any
such period constitute the Board cease for any reason to constitute at least a majority
thereof, unless the election, or the nomination for election by the Companys shareholders,
of each director of the Company first elected during such period was approved by a vote of
at least two-thirds of the directors of the Company then still in office who were directors
of the Company at the beginning of any such period.
2.7 Code
shall mean the Internal Revenue Code of 1986, as amended from time to time.
2.8 Committee
shall mean a committee of the Board composed of not less than two Non-Employee
Directors, each of whom shall be (i) a non-employee director for purposes of Exchange Act Section
16 and Rule 16b-3 thereunder, (ii) an outside director for purposes of Section 162(m) and the
regulations promulgated under the Code, and (iii) independent within the meaning of the listing
standards of the Nasdaq National Market.
2.9 Consultant
shall mean any consultant to the Company or its Subsidiaries or Affiliates.
2.10 Covered Officer
shall mean at any date (i) any individual who, with respect to the
previous taxable year of the Company, was a covered employee of the Company within the meaning of
Section 162(m); provided, however, that the term Covered Officer shall not include any such
individual who is designated by the Committee, in its discretion, at the time of any Award or at
any subsequent time, as reasonably expected not to be such a covered employee with respect to the
current taxable year of the Company and (ii) any individual who is designated by the Committee, in
its discretion, at the time of any Award or at any subsequent time, as reasonably expected to be
such a covered employee with respect to the current taxable year of the Company or with respect
to the taxable year of the Company in which any applicable Award will be paid or vested.
2.11 Director
shall mean a member of the Board.
2.12 Disability
shall mean, unless otherwise defined in the applicable Award Agreement, a
disability that would qualify as a total and permanent disability under the Companys then current
long-term disability plan.
2.13 Early Retirement
shall mean retirement, for purposes of this Plan, with the express
consent of the Company at or before the time of such retirement, from active employment with the
Company and any Subsidiary or Affiliate prior to age 65, in accordance with any applicable early
retirement policy of the Company then in effect or as may be approved by the Committee.
2.14 Effective Date
shall have the meaning provided in
Section 16.1
of the Plan.
2.15 Employee
shall mean a current or prospective officer or employee of the Company or of
any Subsidiary or Affiliate.
2.16 Exchange Act
shall mean the Securities Exchange Act of 1934, as amended from time to
time.
2.17 Fair Market Value
with respect to the Shares, shall mean, for purposes of a grant of an
Award as of any date, (i) the reported closing sales price of the Shares on the Nasdaq National
Market, or any other such market or exchange as is the principal trading market for the Shares, on
such date, or in the absence of reported sales on such date, the closing sales price on the
immediately preceding date on which sales were reported or (ii) in the event there is no public
market for the Shares on such date, the fair market value as determined, in good faith, by the
Committee in its sole discretion, and for purposes of a sale of a Share as of any date, the actual
sales price on that date.
2
2.18 Good Reason
means (i) a material reduction in a Participants position, authority,
duties or responsibilities, (ii) any reduction in a Participants annual base salary as in effect
immediately prior to a Change in Control; (iii) the relocation of the office at which the
Participant is to perform the majority of his or her duties following a Change in Control to a
location more than 30 miles from the location at which the Participant performed such duties prior
to the Change in Control; or (iv) the failure by the Company or its successor to continue to
provide the Participant with benefits substantially similar in aggregate value to those enjoyed by
the Participant under any of the Companys pension, life insurance, medical, health and accident or
disability plans in which Participant was participating immediately prior to a Change in Control,
unless the Participant is offered participation in other comparable benefit plans generally
available to similarly situated employees of the Company or its successor after the Change in
Control.
2.19 Incentive Stock Option
shall mean an option to purchase Shares from the Company that is
granted under
Section 6
of the Plan and that is intended to meet the requirements of
Section 422 of the Code or any successor provision thereto.
2.20 Non-Employee Director
shall mean a member of the Board who is not an officer or
employee of the Company or any Subsidiary or Affiliate.
2.21 Non-Qualified Stock Option
shall mean an option to purchase Shares from the Company
that is granted under
Sections 6
or
10
of the Plan and is not intended to be an
Incentive Stock Option.
2.22 Normal Retirement
shall mean, unless otherwise defined in the applicable Award
Agreement, retirement of a Participant from active employment with the Company or any of its
Subsidiaries or Affiliates on or after such Participants 65
th
birthday.
2.23 Option
shall mean an Incentive Stock Option or a Non-Qualified Stock Option.
2.24 Option Price
shall mean the purchase price payable to purchase one Share upon the
exercise of an Option.
2.25 Other Stock-Based Award
shall mean any Award granted under
Sections 9
or
10
of the Plan.
2.26 Outside Director
means, with respect to the grant of an Award, a member of the Board
then serving on the Committee.
2.27 Participant
shall mean any Employee, Director, Consultant or other person who receives
an Award under the Plan.
2.28 Performance Award
shall mean any Award granted under
Section 8
of the Plan.
2.29 Person
shall mean any individual, corporation, partnership, limited liability company,
association, joint-stock company, trust, unincorporated organization, government or political
subdivision thereof or other entity.
2.30 Restricted Share
shall mean any Share granted under Sections 7 to 10 of the Plan.
2.31 Restricted Share Unit
shall mean any unit granted under Sections 7 to 10 of the Plan.
2.32 Retirement
shall mean Normal or Early Retirement.
2.33 SEC
shall mean the Securities and Exchange Commission or any successor thereto.
2.34 Section 16
shall mean Section 16 of the Exchange Act and the rules promulgated
thereunder and any successor provision thereto as in effect from time to time.
3
2.35 Section
162(m)
shall mean Section 162(m) of the Code and the regulations promulgated
thereunder and any successor provision thereto as in effect from time to time.
2.36 Shares
shall mean shares of the common stock, $0.01 par value, of the Company.
2.37 Stock Appreciation Right
or
SAR
shall mean a stock appreciation right granted under
Sections 6
,
8
or
10
of the Plan that entitles the holder to receive, with
respect to each Share encompassed by the exercise of such SAR, the amount determined by the
Committee and specified in an Award Agreement. In the absence of such a determination, the holder
shall be entitled to receive, with respect to each Share encompassed by the exercise of such SAR,
the excess of the Fair Market Value on the date of exercise over the Fair Market Value on the date
of grant.
2.38 Subsidiary
shall mean any Person (other than the Company) of which 50% or more of its
voting power or its equity securities or equity interest is owned directly or indirectly by the
Company.
2.39 Substitute Awards
shall mean Awards granted solely in assumption of, or in substitution
for, outstanding awards previously granted by a company acquired by the Company or with which the
Company combines.
Section 3. Administration.
3.1 Authority of Committee.
The Plan shall be administered by a Committee of not less than
two Non-Employee Directors, who shall be appointed by and serve at the pleasure of the Board;
provided, however, with respect to Awards to Outside Directors, all references in the Plan to the
Committee shall be deemed to be references to the Board. The initial Committee shall be the
Compensation Committee of the Board. Subject to the terms of the Plan and applicable law, and in
addition to other express powers and authorizations conferred on the Committee by the Plan, the
Committee shall have full power and authority in its discretion to: (i) designate Participants;
(ii) determine the type or types of Awards to be granted to a Participant; (iii) determine the
number of Shares to be covered by, or with respect to which payments, rights or other matters are
to be calculated in connection with Awards; (iv) determine the timing, terms, and conditions of any
Award; (v) accelerate the time at which all or any part of an Award may be settled or exercised;
(vi) determine whether, to what extent, and under what circumstances Awards may be settled or
exercised in cash, Shares, other securities, other Awards or other property, or canceled, forfeited
or suspended and the method or methods by which Awards may be settled, exercised, canceled,
forfeited or suspended; (vii) determine whether, to what extent, and under what circumstances cash,
Shares, other securities, other Awards, other property, and other amounts payable with respect to
an Award shall be deferred either automatically or at the election of the holder thereof or of the
Committee; (viii) interpret and administer the Plan and any instrument or agreement relating to, or
Award made under, the Plan; (ix) except to the extent prohibited by
Section 6.2
, amend or
modify the terms of any Award at or after grant with the consent of the holder of the Award; (x)
establish, amend, suspend or waive such rules and regulations and appoint such agents as it shall
deem appropriate for the proper administration of the Plan; and (xi) make any other determination
and take any other action that the Committee deems necessary or desirable for the administration of
the Plan, subject to the exclusive authority of the Board under
Section 14
hereunder to
amend or terminate the Plan.
3.2
Committee Discretion Binding.
Unless otherwise expressly provided in the Plan, all
designations, determinations, interpretations, and other decisions under or with respect to the
Plan or any Award shall be within the sole discretion of the Committee, may be made at any time and
shall be final, conclusive, and binding upon all Persons, including the Company, any Subsidiary or
Affiliate, any Participant and any holder or beneficiary of any Award.
3.3
Action by the Committee.
The Committee shall select one of its members as its Chairperson
and shall hold its meetings at such times and places and in such manner as it may determine. A
majority of its members shall constitute a quorum. All determinations of the Committee shall be
made by not less than a majority of its members. Any decision or determination reduced to writing
and signed by all of the members of the Committee shall be fully effective as if it had been made
by a majority vote at a meeting duly called and held. The exercise of an Option or receipt of an
Award shall be effective only if an Award Agreement shall have been duly executed and delivered on
behalf of the Company following the grant of the Option or other Award. The Committee may appoint
a Secretary and may make such rules and regulations for the conduct of its business, as it shall
deem advisable.
4
3.4
Delegation.
Subject to the terms of the Plan and applicable law, the Committee may
delegate to one or more officers or managers of the Company or of any Subsidiary or Affiliate, or
to a Committee of such officers or managers, the authority, subject to such terms and limitations
as the Committee shall determine, to grant Awards to or to cancel, modify or waive rights with
respect to, or to alter, discontinue, suspend or terminate Awards held by Participants who are not
officers or directors of the Company for purposes of Section 16 or who are otherwise not subject to
such Section.
3.5
No Liability.
No member of the Board or Committee shall be liable for any action taken or
determination made in good faith with respect to the Plan or any Award granted hereunder.
Section 4. Shares Available For Awards.
4.1
Shares Available.
Subject to the provisions of
Section 4.2
hereof, the stock to
be subject to Awards under the Plan shall be the Shares of the Company and the maximum aggregate
number of Shares with respect to which Awards may be granted under the Plan shall be 2,000,000
(which includes
Shares with respect to which awards under the Companys 2000 Long-Term
Incentive Plan (the 2000 Plan) were authorized but not awarded), of which the number of Shares
with respect to which Incentive Stock Options may be granted shall be no more than 1,000,000.
Notwithstanding the foregoing and subject to adjustment as provided in
Section 4.2
, the
maximum number of Shares with respect to which Awards may be granted under the Plan shall be
increased by the number of Shares with respect to which Options or other Awards were granted under
the 2000 Plan as of the effective date of this Plan, but which terminate, expire unexercised or are
settled for cash, forfeited, withheld to satisfy withholding obligations or cancelled without the
delivery of Shares under the terms of the 2000 Plan after the effective date of this Plan. If,
after the effective date of the Plan, any Shares covered by an Award granted under this Plan, or to
which such an Award relates, are forfeited, or if such an Award is settled for cash or otherwise
terminates, expires unexercised or is canceled without the delivery of Shares, then the Shares
covered by such Award, or to which such Award relates, or the number of Shares otherwise counted
against the aggregate number of Shares with respect to which Awards may be granted, to the extent
of any such settlement, forfeiture, termination, expiration or cancellation, shall again become
Shares with respect to which Awards may be granted. In the event that any Option or other Award
granted hereunder is exercised through the delivery of Shares or in the event that withholding tax
liabilities arising from such Award are satisfied by the withholding of Shares by the Company, the
number of Shares available for Awards under the Plan shall be increased by the number of Shares so
surrendered or withheld. Notwithstanding the foregoing and subject to adjustment as provided in
Section 4.2
hereof, no Participant may receive Options or SARs under the Plan in any
calendar year that, taken together, relate to more than 300,000 Shares.
4.2
Adjustments.
In the event that the Committee determines that any dividend or other
distribution (whether in the form of cash, Shares, other securities or other property),
recapitalization, stock split, reverse stock split, reorganization, merger, consolidation,
split-up, spin-off, combination, repurchase or exchange of Shares or other securities of the
Company, issuance of warrants or other rights to purchase Shares or other securities of the
Company, or other similar corporate transaction or event affects the Shares such that an adjustment
is determined by the Committee, in its sole discretion, to be appropriate, then the Committee
shall, in such manner as it may deem equitable (and, with respect to Incentive Stock Options, in
such manner as is consistent with Section 422 of the Code and the regulations thereunder and with
respect to Awards to Covered Officers, in such a manner as is consistent with Section 162(m)): (i)
adjust any or all of (1) the aggregate number of Shares or other securities of the Company or its
successor (or number and kind of other securities or property) with respect to which Awards may be
granted under the Plan; (2) the number of Shares or other securities of the Company or its
successor (or number and kind of other securities or property) subject to outstanding Awards under
the Plan; (3) the grant or exercise price with respect to any Award under the Plan, provided that
the number of shares subject to any Award shall always be a whole number; and (4) the limits on the
number of Shares that may be granted to Participants under the Plan in any calendar year; (ii) if
deemed appropriate, subject to
Section 13
, provide for an equivalent award in respect of
securities of the surviving entity of any merger, consolidation or other transaction or event
having a similar effect; or (iii) if deemed appropriate, make provision for a cash payment to the
holder of an outstanding Award.
4.3
Substitute Awards.
Any Shares issued by the Company as Substitute Awards in connection
with the assumption or substitution of outstanding grants from any acquired corporation shall not
reduce the Shares available for Awards under the Plan.
5
4.4
Sources of Shares Deliverable Under Awards.
Any Shares delivered pursuant to an Award may
consist, in whole or in part, of authorized and unissued Shares or of issued Shares which have been
reacquired by the Company.
Section 5. Eligibility.
Any Employee, Director or Consultant shall be eligible to be designated a Participant;
provided, however, that Outside Directors shall only be eligible to receive Awards granted
consistent with
Section 10
.
Section 6. Stock Options And Stock Appreciation Rights.
6.1
Grant.
Subject to the provisions of the Plan, the Committee shall have sole and complete
authority to determine the Participants to whom Options and SARs shall be granted, the number of
Shares subject to each Award, the exercise price and the conditions and limitations applicable to
the exercise of each Option and SAR. An Option may be granted with or without a related SAR. An
SAR may be granted with or without a related Option. The Committee shall have the authority to
grant Incentive Stock Options, or to grant Non-Qualified Stock Options, or to grant both types of
Options. In the case of Incentive Stock Options, the terms and conditions of such grants shall be
subject to and comply with such rules as may be prescribed by Section 422 of the Code, as from time
to time amended, and any regulations implementing such statute. A person who has been granted an
Option or SAR under this Plan may be granted additional Options or SARs under the Plan if the
Committee shall so determine; provided, however, that to the extent the aggregate Fair Market Value
(determined at the time the Incentive Stock Option is granted) of the Shares with respect to which
all Incentive Stock Options are exercisable for the first time by an Employee during any calendar
year (under all plans described in subsection (d) of Section 422 of the Code of the Employees
employer corporation and its parent and Subsidiaries) exceeds $100,000, such Options shall be
treated as Non-Qualified Stock Options.
6.2
Price.
The Committee in its sole discretion shall establish the Option Price at the time
each Option is granted. Except in the case of Substitute Awards, the Option Price of an Option may
not be less than one hundred percent (100%) of the Fair Market Value of the Shares with respect to
which the Option is granted on the date of grant of such Option. Notwithstanding the foregoing and
except as permitted by the provisions of
Section 4.2
and
Section 14
hereof, the
Committee shall not have the power to (i) amend the terms of previously granted Options to reduce
the Option Price of such Options, or (ii) cancel such Options and grant substitute Options with a
lower Option Price than the cancelled Options. Except with respect to Substitute Awards, SARs may
not be granted at a price less than the Fair Market Value of a Share on the date of grant.
6.3
Term.
Subject to the Committees authority under
Section 3.1
and the provisions
of
Section 6.6
, each Option and SAR and all rights and obligations thereunder shall expire
on the date determined by the Committee and specified in the Award Agreement. The Committee shall
be under no duty to provide terms of like duration for Options or SARs granted under the Plan.
Notwithstanding the foregoing, no Option or SAR shall be exercisable after the expiration of ten
(10) years from the date such Option or SAR was granted.
6.4
Exercise.
(a) Each Option and SAR shall be exercisable at such times and subject to such terms
and conditions as the Committee may, in its sole discretion, specify in the applicable Award
Agreement or thereafter. The Committee shall have full and complete authority to determine,
subject to
Section 6.6
herein, whether an Option or SAR will be exercisable in full
at any time or from time to time during the term of the Option or SAR, or to provide for the
exercise thereof in such installments, upon the occurrence of such events and at such times
during the term of the Option or SAR as the Committee may determine.
(b) The Committee may impose such conditions with respect to the exercise of Options,
including without limitation, any relating to the application of federal, state or foreign
securities laws or the Code, as it may deem necessary or advisable. The exercise of any
Option granted hereunder shall be effective only at such time as the sale of Shares pursuant
to such exercise will not violate any state or federal securities or other laws.
6
(c) An Option or SAR may be exercised in whole or in part at any time, with respect to
whole Shares only, within the period permitted thereunder for the exercise thereof, and
shall be exercised by written notice of intent to exercise the Option or SAR, delivered to
the Company at its principal office, and payment in full to the Company at the direction of
the Committee of the amount of the Option Price for the number of Shares with respect to
which the Option is then being exercised.
(d) Payment of the Option Price shall be made in cash or cash equivalents, or, at the
discretion of the Committee, (i) by transfer, either actually or by attestation, to the
Company of Shares that have been held by the Participant for at least six (6) months (or
such lesser period as may be permitted by the Committee), valued at the Fair Market Value of
such Shares on the date of exercise (or next succeeding trading date, if the date of
exercise is not a trading date), together with any applicable withholding taxes, such
transfer to be upon such terms and conditions as determined by the Committee, or (ii) by a
combination of such cash (or cash equivalents) and such Shares; provided, however, that the
optionee shall not be entitled to tender Shares pursuant to successive, substantially
simultaneous exercises of an Option or any other stock option of the Company. Subject to
applicable securities laws and Company policy, the Company may permit an Option to be
exercised by delivering a notice of exercise of the Option and simultaneously selling the
Shares thereby acquired, pursuant to a brokerage or similar agreement approved in advance by
proper officers of the Company, using the proceeds of such sale as payment of the Option
Price, together with any applicable withholding taxes. Until the optionee has been issued
the Shares subject to such exercise, he or she shall possess no rights as a shareholder with
respect to such Shares.
(e) At the Committees discretion, the amount payable as a result of the exercise of an
SAR may be settled in cash, Shares or a combination of cash and Shares. A fractional Share
shall not be deliverable upon the exercise of a SAR but a cash payment will be made in lieu
thereof.
6.6
Ten Percent Stock Rule.
Notwithstanding any other provisions in the Plan, if at the time
an Option is otherwise to be granted pursuant to the Plan, the optionee or rights holder owns
directly or indirectly (within the meaning of Section 424(d) of the Code) Shares of the Company
possessing more than ten percent (10%) of the total combined voting power of all classes of Stock
of the Company or its parent or Subsidiary or Affiliate corporations (within the meaning of Section
422(b)(6) of the Code), then any Incentive Stock Option to be granted to such optionee or rights
holder pursuant to the Plan shall satisfy the requirement of Section 422(c)(5) of the Code, and the
Option Price shall be not less than one hundred ten percent (110%) of the Fair Market Value of the
Shares of the Company, and such Option by its terms shall not be exercisable after the expiration
of five (5) years from the date such Option is granted.
Section 7. Restricted Shares And Restricted Share Units.
7.1
Grant.
(a) Subject to the provisions of the Plan, the Committee shall have sole and complete
authority to determine the Participants to whom Restricted Shares and Restricted Share Units
shall be granted, the number of Restricted Shares and/or the number of Restricted Share
Units to be granted to each Participant, the duration of the period during which, and the
conditions under which, the Restricted Shares and Restricted Share Units may be forfeited to
the Company, and the other terms and conditions of such Awards. The Restricted Share and
Restricted Share Unit Awards shall be evidenced by Award Agreements in such form as the
Committee shall from time to time approve, which agreements shall comply with and be subject
to the terms and conditions provided hereunder and any additional terms and conditions
established by the Committee that are consistent with the terms of the Plan.
(b) Each Restricted Share and Restricted Share Unit Award made under the Plan shall be
for such number of Shares as shall be determined by the Committee and set forth in the Award
Agreement containing the terms of such Restricted Share or Restricted Share Unit Award.
Such agreement shall set forth a period of time during which the grantee must remain in the
continuous employment of the Company in order for the forfeiture and transfer restrictions
to lapse. If the Committee so determines, the restrictions may lapse during such restricted
period in installments with respect to specified portions of the Shares covered by the
Restricted Share or Restricted Share Unit Award. The Award Agreement may also, in the
discretion of the Committee, set forth performance or other conditions that will subject the
Shares to forfeiture and transfer
7
restrictions. The Committee may, at its discretion, waive all or any part of the
restrictions applicable to any or all outstanding Restricted Share and Restricted Share Unit
Awards.
7.2
Delivery of Shares and Transfer Restrictions.
At the time of a Restricted Share Award, a
certificate representing the number of Shares awarded thereunder shall be registered in the name of
the grantee. Such certificate shall be held by the Company or any custodian appointed by the
Company for the account of the grantee subject to the terms and conditions of the Plan, and shall
bear such a legend setting forth the restrictions imposed thereon as the Committee, in its
discretion, may determine. Unless otherwise provided in the applicable Award Agreement, the
grantee shall have all rights of a shareholder with respect to the Restricted Shares, including the
right to receive dividends and the right to vote such Shares, subject to the following
restrictions: (i) the grantee shall not be entitled to delivery of the stock certificate until the
expiration of the restricted period and the fulfillment of any other restrictive conditions set
forth in the Award Agreement with respect to such Shares; (ii) none of the Shares may be sold,
assigned, transferred, pledged, hypothecated or otherwise encumbered or disposed of during such
restricted period or until after the fulfillment of any such other restrictive conditions; and
(iii) except as otherwise determined by the Committee at or after grant, all of the Shares shall be
forfeited and all rights of the grantee to such Shares shall terminate, without further obligation
on the part of the Company, unless the grantee remains in the continuous employment of the Company
for the entire restricted period in relation to which such Shares were granted and unless any other
restrictive conditions relating to the Restricted Share Award are met. Unless otherwise provided
in the applicable Award Agreement, any Shares, any other securities of the Company and any other
property (except for cash dividends) distributed with respect to the Shares subject to Restricted
Share Awards shall be subject to the same restrictions, terms and conditions as such Restricted
Shares.
7.3
Termination of Restrictions.
At the end of the restricted period and provided that any
other restrictive conditions of the Restricted Share Award are met, or at such earlier time as
otherwise determined by the Committee, all restrictions set forth in the Award Agreement relating
to the Restricted Share Award or in the Plan shall lapse as to the restricted Shares subject
thereto, and a stock certificate for the appropriate number of Shares, free of the restrictions and
restricted stock legend, shall be delivered to the Participant or the Participants beneficiary or
estate, as the case may be.
7.4
Payment of Restricted Share Units.
Each Restricted Share Unit shall have a value equal to
the Fair Market Value of a Share. Restricted Share Units shall be paid in cash, Shares, other
securities or other property, as determined in the sole discretion of the Committee, upon the lapse
of the restrictions applicable thereto, or otherwise in accordance with the applicable Award
Agreement. Unless otherwise provided in the applicable Award Agreement, a Participant shall
receive dividend rights in respect of any vested Restricted Stock Units at the time of any payment
of dividends to shareholders on Shares. The amount of any such dividend right shall equal the
amount that would be payable to the Participant as a shareholder in respect of a number of Shares
equal to the number of vested Restricted Stock Units then credited to the Participant. Any such
dividend right shall be paid in accordance with the Companys payment practices as may be
established from time to time and as of the date on which such dividend would have been payable in
respect of outstanding Shares. No dividend equivalents shall be paid in respect of Restricted
Share Units that are not yet vested. Except as otherwise determined by the Committee at or after
grant, Restricted Share Units may not be sold, assigned, transferred, pledged, hypothecated or
otherwise encumbered or disposed of, and all Restricted Share Units and all rights of the grantee
to such Restricted Share Units shall terminate, without further obligation on the part of the
Company, unless the grantee remains in continuous employment of the Company for the entire
restricted period in relation to which such Restricted Share Units were granted and unless any
other restrictive conditions relating to the Restricted Share Unit Award are met.
Section 8. Performance Awards.
8.1
Grant.
The Committee shall have sole and complete authority to determine the Participants
who shall receive a Performance Award, which shall consist of a right that is (i) denominated in
cash or Shares (including but not limited to Restricted Shares and Restricted Share Units), (ii)
valued, as determined by the Committee, in accordance with the achievement of such performance
goals during such performance periods as the Committee shall establish, and (iii) payable at such
time and in such form as the Committee shall determine.
8.2
Terms and Conditions.
Subject to the terms of the Plan and any applicable Award
Agreement, the Committee shall determine the performance goals to be achieved during any
performance period, the length of any performance period, the amount of any Performance Award and
the amount and kind of any payment or transfer to be
8
made pursuant to any Performance Award, and may amend specific provisions of the Performance Award;
provided, however, that such amendment may not adversely affect existing Performance Awards made
within a performance period commencing prior to implementation of the amendment.
8.3
Payment of Performance Awards.
Performance Awards may be paid in a lump sum or in
installments following the close of the performance period or, in accordance with the procedures
established by the Committee, on a deferred basis. Termination of employment prior to the end of
any performance period, other than for reasons of death or Disability, will result in the
forfeiture of the Performance Award, and no payments will be made. A Participants rights to any
Performance Award may not be sold, assigned, transferred, pledged, hypothecated or otherwise
encumbered or disposed of in any manner, except by will or the laws of descent and distribution,
and/or except as the Committee may determine at or after grant.
Section 9. Other Stock-Based Awards.
The Committee shall have the authority to determine the Participants who shall receive an
Other Stock-Based Award, which shall consist of any right that is (i) not an Award described in
Sections 6
and
7
above and (ii) an Award of Shares or an Award denominated or
payable in, valued in whole or in part by reference to, or otherwise based on or related to, Shares
(including, without limitation, securities convertible into Shares), as deemed by the Committee to
be consistent with the purposes of the Plan. Subject to the terms of the Plan and any applicable
Award Agreement, the Committee shall determine the terms and conditions of any such Other
Stock-Based Award.
Section 10. Non-Employee Director And Outside Director Awards.
10.1 The Board may provide that all or a portion of a Non-Employee Directors annual retainer,
meeting fees and/or other awards or compensation as determined by the Board, be payable (either
automatically or at the election of a Non-Employee Director) in the form of Non-Qualified Stock
Options, Restricted Shares, Restricted Share Units and/or Other Stock-Based Awards, including
unrestricted Shares. The Board shall determine the terms and conditions of any such Awards,
including the terms and conditions which shall apply upon a termination of the Non-Employee
Directors service as a member of the Board, and shall have full power and authority in its
discretion to administer such Awards, subject to the terms of the Plan and applicable law.
10.2 The Board may also grant Awards to Outside Directors pursuant to the terms of the Plan,
including any Award described in
Sections 6
,
7
and
9
above. With respect
to such Awards, all references in the Plan to the Committee shall be deemed to be references to the
Board.
Section 11. Provisions Applicable To Covered Officers And Performance Awards.
11.1 Notwithstanding anything in the Plan to the contrary, unless the Committee determines
that a Performance Award to be granted to a Covered Officer should not qualify as
performance-based compensation for purposes of Section 162(m), Performance Awards granted to
Covered Officers shall be subject to the terms and provisions of this
Section 11
.
11.2 The Committee may grant Performance Awards to Covered Officers based solely upon the
attainment of performance targets related to one or more performance goals selected by the
Committee from among the goals specified below. For the purposes of this
Section 11
,
performance goals shall be limited to one or more of the following Company, Subsidiary, operating
unit, business segment or division financial performance measures:
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(a)
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earnings before interest, taxes, depreciation and/or
amortization;
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(b)
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operating income or profit;
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(c)
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operating efficiencies;
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(d)
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return on equity, assets, capital, capital employed or
investment;
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(e)
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after tax operating income;
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9
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(f)
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net income;
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(g)
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earnings or book value per Share;
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(h)
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cash flow(s);
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(i)
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total sales or revenues or sales or revenues per employee;
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(j)
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production (separate work units or SWUs);
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(k)
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stock price or total shareholder return;
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(l)
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dividends;
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(m)
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debt reduction;
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(n)
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strategic business objectives, consisting of one or more
objectives based on meeting specified cost targets, business expansion goals and
goals relating to acquisitions or divestitures; or
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(o)
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any combination thereof.
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Each goal may be expressed on an absolute and/or relative basis, may be based on or otherwise
employ comparisons based on internal targets, the past performance of the Company or any
Subsidiary, operating unit, business segment or division of the Company and/or the past or current
performance of other companies, and in the case of earnings-based measures, may use or employ
comparisons relating to capital, shareholders equity and/or Shares outstanding, or to assets or
net assets. The Committee may appropriately adjust any evaluation of performance under criteria
set forth in this
Section 11.2
to exclude any of the following events that occurs during a
performance period: (i) asset write-downs, (ii) litigation or claim judgments or settlements, (iii)
the effect of changes in tax law, accounting principles or other such laws or provisions affecting
reported results, (iv) accruals for reorganization and restructuring programs and (v) any
extraordinary non-recurring items as described in Accounting Principles Board Opinion No. 30 and/or
in managements discussion and analysis of financial condition and results of operations appearing
in the Companys annual report to shareholders for the applicable year.
11.3 With respect to any Covered Officer, the maximum annual number of Shares in respect of
which all Performance Awards may be granted under
Section 8
of the Plan is 300,000 and the
maximum amount of all Performance Awards that are settled in cash and that may be granted under
Section 8
of the Plan in any year is $3,000,000.
11.4 To the extent necessary to comply with Section 162(m), with respect to grants of
Performance Awards, no later than 90 days following the commencement of each performance period (or
such other time as may be required or permitted by Section 162(m) of the Code), the Committee
shall, in writing, (1) select the performance goal or goals applicable to the performance period,
(2) establish the various targets and bonus amounts which may be earned for such performance
period, and (3) specify the relationship between performance goals and targets and the amounts to
be earned by each Covered Officer for such performance period. Following the completion of each
performance period, the Committee shall certify in writing whether the applicable performance
targets have been achieved and the amounts, if any, payable to Covered Officers for such
performance period. In determining the amount earned by a Covered Officer for a given performance
period, subject to any applicable Award Agreement, the Committee shall have the right to reduce
(but not increase) the amount payable at a given level of performance to take into account
additional factors that the Committee may deem relevant in its sole discretion to the assessment of
individual or corporate performance for the performance period.
11.5 Unless otherwise expressly stated in the relevant Award Agreement, each Award granted to
a Covered Officer under the Plan is intended to be performance-based compensation within the
meaning of Section 162(m). Accordingly, unless otherwise determined by the Committee, if any
provision of the Plan or any Award
10
Agreement relating to such an Award does not comply or is inconsistent with Section 162(m), such
provision shall be construed or deemed amended to the extent necessary to conform to such
requirements, and no provision shall be deemed to confer upon the Committee discretion to increase
the amount of compensation otherwise payable to a Covered Officer in connection with any such Award
upon the attainment of the performance criteria established by the Committee.
Section 12. Termination Of Employment.
The Committee shall have the full power and authority to determine the terms and conditions
that shall apply to any Award upon a termination of employment with the Company, its Subsidiaries
and Affiliates, including a termination by the Company with or without Cause, by a Participant
voluntarily, or by reason of death, Disability, Early Retirement or Retirement, and may provide
such terms and conditions in the Award Agreement or in such rules and regulations as it may
prescribe.
Section 13. Change In Control.
Notwithstanding any other provision of the Plan, unless otherwise provided in an Award
Agreement or other contractual agreement between the Company and a Participant, if, within one year
following a Change in Control, a Participants employment with the Company (or its successor) is
terminated by reason of (a) death; (b) disability; (c) Normal Retirement or Early Retirement; (d)
for Good Reason by the Participant; or (e) involuntary termination by the Company for any reason
other than for Cause, all outstanding Awards of such Participant shall vest, become immediately
exercisable and payable and have all restrictions lifted.
Section 14. Amendment And Termination.
14.1
Amendments to the Plan.
The Board may amend, alter, suspend, discontinue or terminate
the Plan or any portion thereof at any time; provided that no such amendment, alteration,
suspension, discontinuation or termination shall be made without shareholder approval if such
approval is necessary to comply with any tax or regulatory requirement for which or with which the
Board deems it necessary or desirable to comply.
14.2
Amendments to Awards.
Subject to the restrictions of
Section 6.2
, the Committee
may waive any conditions or rights under, amend any terms of or alter, suspend, discontinue, cancel
or terminate, any Award theretofore granted, prospectively or retroactively; provided that any such
waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would
materially and adversely affect the rights of any Participant or any holder or beneficiary of any
Award theretofore granted shall not to that extent be effective without the consent of the affected
Participant, holder or beneficiary.
14.3
Adjustments of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events.
The
Committee is hereby authorized to make adjustments in the terms and conditions of, and the criteria
included in, Awards in recognition of unusual or nonrecurring events (including, without
limitation, the events described in
Section 4.2
hereof) affecting the Company, any
Subsidiary or Affiliate, or the financial statements of the Company or any Subsidiary or Affiliate,
or of changes in applicable laws, regulations or accounting principles, whenever the Committee
determines that such adjustments are appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the Plan.
Section 15. General Provisions.
15.1
Limited Transferability of Awards.
Except as otherwise provided in the Plan, no Award
shall be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a
Participant, except by will or the laws of descent and distribution and/or as may be provided by
the Committee in its discretion, at or after grant, in the Award Agreement or otherwise. No
transfer of an Award by will or by laws of descent and distribution shall be effective to bind the
Company unless the Company shall have been furnished with written notice thereof and an
authenticated copy of the will and/or such other evidence as the Committee may deem necessary or
appropriate to establish the validity of the transfer.
11
15.2
Dividend Equivalents.
In the sole and complete discretion of the Committee, an Award may
provide the Participant with dividends or dividend equivalents, payable in cash, Shares, other
securities or other property on a current or deferred basis. All dividend or dividend equivalents
which are not paid currently may, at the Committees discretion, accrue interest, be reinvested
into additional Shares, or, in the case of dividends or dividend equivalents credited in connection
with Performance Awards, be credited as additional Performance Awards and paid to the Participant
if and when, and to the extent that, payment is made pursuant to such Award. The total number of
Shares available for grant under
Section 4
shall not be reduced to reflect any dividends or
dividend equivalents that are reinvested into additional Shares or credited as Performance Awards.
15.3.
Compliance with Section 409A of the Code.
No Award (or modification thereof) shall
provide for deferral of compensation that does not comply with Section 409A of the Code unless the
Committee, at the time of grant, specifically provides that the Award is not intended to comply
with Section 409A of the Code. Notwithstanding any provision of this Plan to the contrary, if one
or more of the payments or benefits received or to be received by a Participant pursuant to an
Award would cause the Participant to incur any additional tax or interest under Section 409A of the
Code, the Committee may reform such provision to maintain to the maximum extent practicable the
original intent of the applicable provision without violating the provisions of section 409A of the
Code.
15.4
No Rights to Awards.
No Person shall have any claim to be granted any Award, and there
is no obligation for uniformity of treatment of Participants or holders or beneficiaries of Awards.
The terms and conditions of Awards need not be the same with respect to each Participant.
15.5
Share Certificates.
All certificates for Shares or other securities of the Company or
any Subsidiary or Affiliate delivered under the Plan pursuant to any Award or the exercise thereof
shall be subject to such stop transfer orders and other restrictions as the Committee may deem
advisable under the Plan or the rules, regulations and other requirements of the SEC or any state
securities commission or regulatory authority, any stock exchange or other market upon which such
Shares or other securities are then listed, and any applicable Federal or state laws, and the
Committee may cause a legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.
15.6
Withholding.
A Participant may be required to pay to the Company or any Subsidiary or
Affiliate and the Company or any Subsidiary or Affiliate shall have the right and is hereby
authorized to withhold from any Award, from any payment due or transfer made under any Award or
under the Plan, or from any compensation or other amount owing to a Participant the amount (in
cash, Shares, other securities, other Awards or other property) of any applicable withholding or
other tax-related obligations in respect of an Award, its exercise or any other transaction
involving an Award, or any payment or transfer under an Award or under the Plan and to take such
other action as may be necessary in the opinion of the Company to satisfy all obligations for the
payment of such taxes. The Committee may provide for additional cash payments to holders of
Options to defray or offset any tax arising from the grant, vesting, exercise or payment of any
Award.
15.7
Award Agreements.
Each Award hereunder shall be evidenced by an Award Agreement that
shall be delivered to the Participant and may specify the terms and conditions of the Award and any
rules applicable thereto. In the event of a conflict between the terms of the Plan and any Award
Agreement, the terms of the Plan shall prevail. The Committee shall, subject to applicable law,
determine the date an Award is deemed to be granted. The Committee or, except to the extent
prohibited under applicable law, its delegate(s) may establish the terms of agreements or other
documents evidencing Awards under this Plan and may, but need not, require as a condition to any
such agreements or documents effectiveness that such agreement or document be executed by the
Participant, including by electronic signature or other electronic indication of acceptance, and
that such Participant agree to such further terms and conditions as specified in such agreement or
document. The grant of an Award under this Plan shall not confer any rights upon the Participant
holding such Award other than such terms, and subject to such conditions, as are specified in this
Plan as being applicable to such type of Award (or to all Awards) or as are expressly set forth in
the agreement or other document evidencing such Award.
15.8
No Limit on Other Compensation Arrangements.
Nothing contained in the Plan shall prevent
the Company or any Subsidiary or Affiliate from adopting or continuing in effect other compensation
arrangements, which may, but need not, provide for the grant of Options, Restricted Shares,
Restricted Share Units, Other Stock-Based Awards or other types of Awards provided for hereunder.
12
15.9
No Right to Employment.
The grant of an Award shall not be construed as giving a
Participant the right to be retained in the employ of the Company or any Subsidiary or Affiliate.
Further, the Company or a Subsidiary or Affiliate may at any time dismiss a Participant from
employment, free from any liability or any claim under the Plan, unless otherwise expressly
provided in an Award Agreement.
15.10
No Rights as Shareholder.
Subject to the provisions of the Plan and the applicable
Award Agreement, no Participant or holder or beneficiary of any Award shall have any rights as a
shareholder with respect to any Shares to be distributed under the Plan until such person has
become a holder of such Shares. Notwithstanding the foregoing, in connection with each grant of
Restricted Shares hereunder, the applicable Award Agreement shall specify if and to what extent the
Participant shall not be entitled to the rights of a shareholder in respect of such Restricted
Shares.
15.11
Governing Law.
The validity, construction and effect of the Plan and any rules and
regulations relating to the Plan and any Award Agreement shall be determined in accordance with the
laws of the State of Delaware without giving effect to conflicts of laws principles.
15.12
Severability.
If any provision of the Plan or any Award is, or becomes, or is deemed to
be invalid, illegal or unenforceable in any jurisdiction or as to any Person or Award, or would
disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision
shall be construed or deemed amended to conform to the applicable laws, or if it cannot be
construed or deemed amended without, in the determination of the Committee, materially altering the
intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, Person
or Award and the remainder of the Plan and any such Award shall remain in full force and effect.
15.13
Other Laws.
The Committee may refuse to issue or transfer any Shares or other
consideration under an Award if, acting in its sole discretion, it determines that the issuance or
transfer of such Shares or such other consideration might violate any applicable law or regulation
(including applicable non-U.S. laws or regulations) or entitle the Company to recover the same
under Exchange Act Section 16(b), and any payment tendered to the Company by a Participant, other
holder or beneficiary in connection with the exercise of such Award shall be promptly refunded to
the relevant Participant, holder or beneficiary.
15.14
No Trust or Fund Created.
Neither the Plan nor any Award shall create or be construed
to create a trust or separate fund of any kind or a fiduciary relationship between the Company or
any Subsidiary or Affiliate and a Participant or any other Person. To the extent that any Person
acquires a right to receive payments from the Company or any Subsidiary or Affiliate pursuant to an
Award, such right shall be no greater than the right of any unsecured general creditor of the
Company or any Subsidiary or Affiliate.
15.15
No Fractional Shares.
No fractional Shares shall be issued or delivered pursuant to the
Plan or any Award, and the Committee shall determine whether cash, other securities or other
property shall be paid or transferred in lieu of any fractional Shares or whether such fractional
Shares or any rights thereto shall be canceled, terminated or otherwise eliminated.
15.16
Headings.
Headings are given to the sections and subsections of the Plan solely as a
convenience to facilitate reference. Such headings shall not be deemed in any way material or
relevant to the construction or interpretation of the Plan or any provision thereof.
Section 16. Term Of The Plan.
16.1
Effective Date.
The Plan shall be effective as of
, 2006 provided it has
been approved by the Board and by the Companys shareholders.
16.2
Expiration Date.
No new Awards shall be granted under the Plan after the tenth
(10
th
) anniversary of the Effective Date. Unless otherwise expressly provided in the
Plan or in an applicable Award Agreement, any Award granted hereunder may, and the authority of the
Board or the Committee to amend, alter, adjust, suspend, discontinue or terminate any such Award or
to waive any conditions or rights under any such Award shall, continue after the tenth
(10
th
) anniversary of the Effective Date.
13
EXHIBIT
B
LUMINEX CORPORATION
2006 Management Stock Purchase Plan
1.
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Purposes; Construction
.
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This Plan shall be known as the Luminex 2006 Management Stock Purchase Plan and is hereinafter
referred to as the Plan. The purposes of the Plan are to attract and retain highly-qualified
executives, to align executive and stockholder long-term interests by creating a direct link
between executive compensation and stockholder return, to enable executives to develop and maintain
a substantial equity-based interest in Luminex Corporation (the Company), and to provide
incentives to such executives to contribute to the success of the Companys business. The
provisions of the Plan are intended to satisfy the requirements of Section 16(b) of the Securities
Exchange Act of 1934, as amended from time to time (the Exchange Act), and shall be interpreted
in a manner consistent with the requirements thereof, as now or hereafter construed, interpreted
and applied by regulation, rulings and cases.
The terms of the Plan shall be as set forth below.
2.
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Administration of the Plan
.
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(a)
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The Plan shall be administered by the Compensation Committee (the Committee)
which consists of two or more directors of the Company, each of whom shall (i) meet the
independence requirements of the Nasdaq National Market, (ii) be a non-employee
director for purposes of Section 16 of the Securities Exchange Act of 1934, as
amended, and the rules thereunder, and (iii) be an outside director for purposes of
Section 162(m) of the Internal Revenue Code of 1986, and the regulations thereunder.
The members of the Committee shall be appointed by and serve at the pleasure of the
Board of Directors.
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(b)
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The Committee shall have plenary authority in its discretion, but subject to
the express provisions of the Plan, to administer the Plan and to exercise all the
powers and authorities either specifically granted to it under the Plan or necessary or
advisable in the administration of the Plan, including, without limitation, to
interpret the Plan, to prescribe, amend and rescind rules and regulations relating to
the Plan, to determine the terms and provisions of the Agreements (which need not be
identical) and to make all other determinations deemed necessary or advisable for the
administration of the Plan. The Committees determinations on the foregoing matters
shall be final and conclusive.
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(c)
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No member of the Board or the Committee shall be liable for any action taken
or determination made in good faith with respect to the Plan or any grant hereunder.
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As used in this Plan, the following words and phrases shall have the meanings indicated:
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(a)
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Agreement shall mean an agreement entered into between the Company and a
Participant in connection with a grant under the Plan.
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(b)
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Board shall mean the Board of Directors of the Company.
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(c)
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Annual Bonus shall mean the bonus earned by a Participant as determined by
the Committee with respect to each year.
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1
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(d)
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Cause shall mean the Participants fraud, embezzlement, defalcation, gross
negligence in the performance or nonperformance of the Participants duties or failure
or refusal to perform the Participants duties (other than as a result of Disability)
at any time while in the employ of the Company or a Subsidiary.
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(e)
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Code shall mean the Internal Revenue Code of 1986, as amended from time to
time.
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(f)
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Committee shall mean the Compensation Committee of the Board.
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(g)
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Company shall mean Luminex Corporation, a Delaware corporation, or any
successor corporation.
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(h)
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Disability shall mean a Participants total and permanent inability to
perform his or her duties with the Company or any Subsidiary by reason of any medically
determinable physical or mental impairment, within the meaning of Code Section
22(e)(3).
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(i)
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Exchange Act shall mean the Securities Exchange Act of 1934, as amended from
time to time and as now or hereafter construed, interpreted and applied by regulations,
rulings and cases.
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(j)
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Fair Market Value per Share, Restricted Share or Restricted Share Unit shall
mean the closing price on the Nasdaq National Market (or its equivalent if the Shares
are not traded on the Nasdaq National Market) of a Share for the relevant valuation
date (or next preceding trading day, if such valuation date is not a trading day).
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(k)
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Participant shall mean a person who receives a grant of Restricted Shares
under the Plan.
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(l)
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Participating Subsidiary shall mean any Subsidiary that is designated by the
Committee or Board to be a participating employer under the Plan.
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(m)
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Plan shall mean the Luminex Corporation 2006 Management Stock Purchase Plan,
as in effect from time to time.
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(n)
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Restricted Period shall have the meaning given in Section 6(b) hereof.
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(o)
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Restricted Share or Restricted Shares shall mean the common stock
purchased hereunder subject to restrictions.
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(p)
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Restricted Share Unit or Restricted Share Units shall have the meaning
given in Section 6(e) hereof.
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(q)
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Rule 16b-3 shall mean Rule 16b-3, as in effect from time to time,
promulgated by the Securities and Exchange Commission under Section 16 of the Exchange
Act, including any successor to such Rule.
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(r)
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Section 16 Person shall mean a Participant who is subject to the reporting
and short-swing liability provisions of Section 16 of the Exchange Act.
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(s)
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Shares shall mean the voting shares of common stock of the Company, with a
par value of $.01 per share.
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(t)
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Subsidiary shall mean any subsidiary of the Company (whether or not a
subsidiary as of the date the Plan is adopted).
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2
4.
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Stock Subject to Plan
.
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The maximum number of Shares which shall be distributed as Restricted Shares under the Plan shall
be 500,000 Shares, which number shall be subject to adjustment as provided in Section 8 hereof.
Such Shares may be either authorized but unissued Shares or Shares that have been or may be
reacquired by the Company.
If any outstanding Restricted Shares under the Plan shall be forfeited and reacquired by the
Company, or withheld to satisfy federal or state tax or withholding obligations, the Shares so
forfeited or withheld shall (unless the Plan shall have been terminated) again become available for
use under the Plan.
5.
Eligibility
.
All officers of the Company and each Participating Subsidiary shall be eligible to become
Participants in the Plan.
Each Participant may elect to receive, in lieu of a specified portion of his or her Annual Bonus, a
number of Restricted Shares equal to the amount of such specified portion of the Annual Bonus
divided by a dollar amount equal to 80% of the Fair Market Value of a Share on the date on which
such Restricted Shares are granted. The Annual Bonus payable to the Participant in cash shall be
reduced by the designated portion. Any such election shall be effective beginning with the bonus
payable with respect to the first calendar year next following the calendar year in which such
election is made (and shall become irrevocable on December 31 of the calendar year in which it is
made). Any cancellation of, or other change in, any such bonus reduction election shall become
effective as of the first calendar year next following the calendar year in which notice of such
cancellation or change is filed (and any such notice shall become irrevocable on December 31 of the
calendar year in which it is filed). Restricted Shares shall be granted in respect of such bonus
reductions by March 15 of each calendar year or as soon as practicable following the Committees
determination of the Annual Bonus earned.
In the event that a Participant who has elected a bonus reduction hereunder shall terminate
employment before Restricted Shares are granted in respect of such bonus reduction, any bonus to
which the Participant would otherwise be entitled shall be paid to the Participant consistent with
the Companys bonus payment practices and any contractual provisions between the Participant and
the Company.
Each grant of Restricted Shares under the Plan shall be evidenced by a written Agreement between
the Company and Participant, which shall be in such form as the Committee shall from time to time
approve and shall comply with the following terms and conditions (and with such other terms and
conditions not inconsistent with such terms as the Committee, in its discretion, may establish):
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(a)
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Number of Shares.
Each Agreement shall state the number of Restricted Shares
to be granted thereunder.
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(b)
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Restricted Period.
Subject to such exceptions as may be determined by the
Committee in its discretion, the Restricted Period for Restricted Shares granted under
the Plan shall be three (3) years from the date of grant.
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(c)
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Ownership and Restrictions.
At the time of grant of Restricted Shares, a
certificate representing the number of Restricted Shares granted shall be registered in
the name of the Participant. Such certificate shall be held by the Company or any
custodian appointed by the Company for the account of the Participant subject to the
terms and conditions of the Plan, and shall bear such legend setting forth the
restrictions imposed thereon as the Committee, in its discretion, may determine. The
Participant shall have all rights of a stockholder with respect to such Restricted
Shares, including the right to receive dividends and the right to vote such Restricted
Shares, subject to the following restrictions: (i) the Participant shall not be
entitled to delivery of the stock certificate until the expiration of the Restricted
Period and the fulfillment of any other restrictive conditions set forth in this Plan
or the Agreement with respect to such Restricted Shares; (ii) none
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3
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of the Restricted Shares may be sold, assigned, transferred, pledged, hypothecated
or otherwise encumbered or disposed of (except by will or the applicable laws of
descent and distribution) during such Restricted Period or until after the
fulfillment of any such other restrictive conditions; and (iii) except as otherwise
determined by the Committee, all of the Restricted Shares shall be forfeited and all
rights of the Participant to such Restricted Shares shall terminate, without further
obligation on the part of the Company, unless the Participant remains in the
continuous employment of the Company or any subsidiaries for the entire Restricted
Period and unless any other restrictive conditions relating to the Restricted Shares
are met. Any common stock, any other securities of the Company and any other
property (except cash dividends) distributed with respect to the Restricted Shares
shall be subject to the same restrictions, terms and conditions as such Restricted
Shares.
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(d)
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Termination of Restrictions.
At the end of the Restricted Period and provided
that any other restrictive conditions of the Restricted Shares are met, or at such
earlier time as shall be determined by the Committee, all restrictions set forth in the
Agreement relating to the Restricted Shares or in the Plan shall lapse as to the
Restricted Shares subject thereto, and a stock certificate for the appropriate number
of Shares, free of the restrictions and restrictive stock legend (other than as
required under the Securities Act of 1933 or otherwise), shall be delivered to the
Participant or his or her beneficiary or estate, as the case may be.
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(e)
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Restricted Share Units.
Notwithstanding anything elsewhere in the Plan to the
contrary, if during the Restricted Period relating to a Participants Restricted Shares
the Committee shall determine that the Company may lose its Federal income tax
deduction in connection with the future lapsing of the restrictions on such Restricted
Shares because of the deductibility cap of section 162(m) of the Code, the Committee,
in its discretion, may convert some or all of such Restricted Shares into an equal
number of Restricted Share Units, as to which payment will be postponed until such time
as the Company will not lose its Federal income tax deduction for such payment under
section 162(m). Until payment of the Restricted Share Units is made, the Participant
will be credited with dividend equivalents on the Restricted Share Units, which
dividend equivalents will be converted into additional Restricted Share Units. When
payment of any Restricted Share Units is made, it will be in the same form as would
apply if the Participant were then holding Restricted Shares instead of Restricted
Share Units.
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7.
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Termination of Employment
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The following rules shall apply, in the event of a Participants termination of employment with the
Company and its Subsidiaries, with respect to Restricted Shares held by the Participant at the time
of such termination:
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(a)
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Termination of Employment During Restricted Period.
Except as provided
herein, if during the Restricted Period for any Restricted Shares held by a Participant
the Participants employment is terminated either (i) for Cause by the Company or a
Subsidiary or (ii) for any reason by the Participant, the Participant shall forfeit all
rights with respect to such Restricted Shares, which shall automatically be considered
to be cancelled, and shall have only an unfunded right to receive from the Companys
general assets a cash payment equal to the lesser of (i) the Fair Market Value of such
Restricted Shares on the Participants last day of employment or (ii) the aggregate
Annual Bonus amounts foregone by the Participant as a condition of receiving such
Restricted Shares.
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Except as otherwise provided herein, if a Participants employment is terminated by
the Company or a Subsidiary without Cause during the Restricted Period for any
Restricted Shares held by the Participant, the Participant shall forfeit all rights
with respect to such Restricted Shares, which shall automatically be considered to
be cancelled, and shall have only an unfunded right to receive from the Companys
general assets a cash payment equal to either (i) the Fair Market Value of such
Restricted Shares on the Participants last day of employment or (ii) the aggregate
Annual Bonus amounts or aggregate amount of salary (as the case may be) foregone by
the Participant as a condition of receiving such Restricted Shares, with the
Committee to have the sole discretion as
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to which of such amounts shall be payable. The Committee shall be considered to
have delegated its authority to determine the amount of payment pursuant to this
Section 7(a) Paragraph 2 to the Chief Executive Officer of the Company as it relates
to Non-Section 16 Persons, which authority is revocable at any time.
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If the employment of a Participant holding Restricted Share Units terminates during
the Restricted Period relating to such Restricted Share Units, they shall be treated
in a manner substantially equivalent to the treatment of Restricted Shares set forth
above.
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(b)
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Accelerated Lapse of Restrictions.
Upon a termination of employment which
results from a Participants death or Disability, all restrictions then outstanding
with respect to Restricted Shares held by such Participant shall automatically expire
and be of no further force and effect.
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(c)
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Retirement of Participant.
Upon the retirement of a Participant, the
Committee shall determine, in its discretion, whether all restrictions then outstanding
with respect to Restricted Shares held by the Participant shall expire or the
Participant shall instead be treated as though the Participants employment had been
terminated by the Company without Cause, as described above.
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8.
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Dilution and Other Adjustments
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In the event of any merger, reorganization, consolidation, recapitalization, stock dividend, stock
split, or other change in corporate structure affecting the Shares, such substitution or adjustment
shall be made in the aggregate number of Shares that may be distributed as Restricted Shares under
the Plan and the number of Restricted Shares outstanding under the Plan as may be determined to be
appropriate by the Committee in its sole discretion; provided, however, that the number of Shares
thus subject to the Plan shall always be a whole number.
9.
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Payment of Withholding and Payroll Taxes
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Subject to the requirements of Section 16(b) of the Exchange Act, the Committee shall have
discretion to permit or require a Participant, on such terms and conditions as it determines, to
pay all or a portion of any taxes arising in connection with a grant of Restricted Shares
hereunder, or the lapse of restrictions with respect thereto, by having the Company withhold Shares
or by the Participants delivering other Shares having a then-current Fair Market Value equal to
the amount of taxes to be withheld. In the absence of such withholding or delivery of Shares, the
Company shall otherwise withhold from any payment under the Plan all amounts required by law to be
withheld.
10.
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Coordination with 2006 Equity Incentive Plan
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In the event a Participants Annual Bonus has been designated under the Performance Award
provisions of the Companys 2006 Equity Incentive Plan, the maximum amount of such Participants
Annual Bonus that may be used to purchase Restricted Shares under the Plan is $2,000,000 and the
maximum number of Restricted Shares that may be purchased by the Participant in any one year is
50,000.
11.
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No Rights to Employment
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Nothing in the Plan or in any grant made or Agreement entered into pursuant hereto shall confer
upon any Participant the right to continue in the employ of the Company or any Subsidiary or to be
entitled to any remuneration or benefits not set forth in the Plan or such Agreement, or interfere
with, or limit in any way, the right of the Company or any Subsidiary to terminate such
Participants employment. Grants made under the Plan shall not be affected by any change in duties
or position of a Participant as long as such Participant continues to be employed by the Company or
a Subsidiary.
12.
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Amendment and Termination of the Plan
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The Board, at any time and from time to time, may suspend, terminate, modify or amend the Plan;
provided, however, that an amendment which requires stockholder approval for the Plan to continue
to comply with any law,
5
regulation or stock exchange requirement shall not be effective unless approved by the requisite
vote of stockholders. No suspension, termination, modification or amendment of the Plan may
adversely affect any grants previously made, unless the written consent of the Participant is
obtained.
The Plan shall terminate ten years from the Effective Date (as defined below). No other grants may
be made after such termination, but termination of the Plan shall not, without the consent of any
Participant who then holds Restricted Shares or to whom Restricted Share Units are then credited,
alter or impair any rights or obligations in respect of such Restricted Shares or Restricted Share
Units.
The Plan and the rights of all persons claiming hereunder shall be construed and determined in
accordance with the laws of the State of Delaware without giving effect to the choice of law
principles thereof, except to the extent that such laws are preempted by Federal law.
The Plan shall be effective, subject to Board and stockholder approval, as of
, 2006 (the
Effective Date).
6
[SAMPLEDO
NOT EXECUTE]
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Please
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Mark Here
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for Address
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Change or
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Comments
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SEE REVERSE SIDE
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1.
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Proposal to elect the following nominees as Class III directors for a three-year term:
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01 Patrick J. Balthrop
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02 G. Walter Loewenbaum II
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03 J. Stark Thompson
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04 Kevin M. McNamara
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FOR ALL NOMINEES
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WITHHOLD
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(except if written below)
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ALL
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o
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o
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(Instruction: to withhold authority to vote for an individual nominee, write that
nominees name in the space provided below.)
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FOR
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AGAINST
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ABSTAIN
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2.
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Proposal to approve the
Companys 2006 Equity Incentive Plan.
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o
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o
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o
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FOR
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AGAINST
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ABSTAIN
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3.
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Proposal to approve the
Companys 2006 Management Stock Purchase
Plan.
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o
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o
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FOR
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AGAINST
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ABSTAIN
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4.
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Proposal to ratify the appointment
of Ernst & Young LLP as the Companys
independent registered public accounting firm for fiscal 2006.
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o
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o
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o
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5.
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In the discretion, the proxies are authorized to vote with respect to matters incident to the
conduct of the Annual Meeting, or on any other matter that may properly come before the Annual
Meeting or any postponement or adjournment thereof.
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(Mark X in only one box)
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I plan to attend the meeting.
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o
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Please sign exactly as your name(s) appear(s) on this proxy. When signing in a representative capacity, please give title. When
shares are held jointly, each person should sign.
5
FOLD AND DETACH HERE
5
Vote by Internet or Telephone or Mail
24 Hours a Day, 7 Days a Week
Internet and telephone voting is available through 11:59 PM Eastern Time
the day prior to annual meeting day.
Your Internet or telephone vote authorizes the named proxies to vote your shares in the same manner
as if you marked, signed and returned your proxy card.
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Internet
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Telephone
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Mail
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http://www.proxyvoting.com/lmnx
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1-866-540-5760
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Use the internet to vote your proxy. Have your proxy card in hand
when you access the web site.
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OR
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Use any touch-tone telephone to vote your proxy. Have your proxy
card in hand when you call.
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OR
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Mark, sign and date
your proxy card and return it in the
enclosed postage-paid
envelope.
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If you vote your proxy by Internet or by telephone,
you do
NOT need to mail back your proxy card.
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REVOCABLE PROXY
LUMINEX CORPORATION
12212 Technology Blvd., Austin, Texas 78727
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THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF LUMINEX CORPORATION FOR USE ONLY AT THE ANNUAL MEETING OF
STOCKHOLDERS TO BE HELD ON MAY 25, 2006 AND AT ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
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The undersigned hereby appoints Harriss T. Currie and David S. Reiter, or either of them, or any successors in their respective
positions, as proxies with full powers of substitution, and hereby authorizes them to represent the undersigned and to vote, as
designated on the reverse side, all the shares of common stock
of Luminex Corporation (the Company) held of record by the
undersigned as of April 6, 2006, at the Annual Meeting of Stockholders (the "Annual Meeting") to be held at the Hilton Austin
Airport, 9515 New Airport Drive, Austin, Texas 78719 on Thursday, May 25, 2006, at 12:00 p.m. Central Daylight Time, or at any
adjournment or postponement thereof.
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The Board of Directors recommends a vote
FOR
the Boards nominees,
FOR
the approval of the
Companys 2006 Equity Incentive
Plan,
FOR
the approval of the Companys 2006 Management Stock
Purchase Plan, and
FOR
the ratification of the appointment of Ernst
& Young LLP as the Companys independent registered public accounting firm for fiscal 2006.
Shares of common stock of the Company
will be voted as specified. If not otherwise specified, this
proxy will be voted
FOR
the election of the
Board of Directors
nominees to the Board of Directors,
FOR
the
approval of the Companys 2006 Equity Incentive Plan,
FOR
the approval of the
Companys 2006 Management Stock Purchase Plan,
FOR
the ratification of the appointment of
Ernst & Young LLP as the Companys
independent registered public accounting firm for fiscal 2006, and on other properly presented matters at the discretion of the
proxies. You may revoke this proxy at any time prior to the time it is voted at the Annual Meeting in the manner described in the
Proxy Statement. This proxy may not be voted for any person who is not a nominee of the Board of Directors of the Company.
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The undersigned hereby acknowledges receipt of a Notice of Annual Meeting of Stockholders of Luminex Corporation to be held on
May 25, 2006, a Proxy Statement for the Annual Meeting and the 2005 Annual Report, prior to the signing of this proxy. All of the
proposals set forth on the reverse side hereof are more fully described in the Proxy Statement.
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(Continued, and to be dated and signed, on reverse side)
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Address Change/Comments (Mark the corresponding box on the reverse side)
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