<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
Raytel Medical Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
RAYTEL MEDICAL CORPORATION
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD FEBRUARY 25, 1999
TO THE STOCKHOLDERS:
The Annual Meeting of Stockholders of RAYTEL MEDICAL CORPORATION, a
Delaware corporation (the "Company"), will be held at the Hyatt Regency Hotel,
1333 Bayshore Highway, Burlingame, California on Thursday, February 25, 1999 at
10:30 a.m. for the following purposes:
1. To elect one (1) director to Class I of the Board of Directors.
2. To approve an amendment to the 1990 Stock Option Plan to increase the
number of shares reserved for issuance thereunder by 400,000 shares.
3. To ratify the appointment of Arthur Andersen LLP as the independent
accountants of the Company for the fiscal year ending September 30,
1999.
4. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Stockholders of record at the close of business on January 11, 1999 shall
be entitled to vote at the meeting.
By order of the Board of Directors
/s/ Richard F. Bader
RICHARD F. BADER
Chairman of the Board and
Chief Executive Officer
San Mateo, California
January 25, 1999
IMPORTANT: PLEASE FILL IN, DATE, SIGN AND MAIL PROMPTLY THE ENCLOSED PROXY IN
THE POSTAGE-PAID ENVELOPE PROVIDED TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT
THE MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH TO DO
SO EVEN THOUGH YOU HAVE SENT IN YOUR PROXY.
<PAGE> 3
RAYTEL MEDICAL CORPORATION
2755 CAMPUS DRIVE, SUITE 200
SAN MATEO, CALIFORNIA 94403
------------------------
PROXY STATEMENT
------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of Raytel Medical Corporation, a
Delaware corporation (the "Company"), for use at the Annual Meeting of
Stockholders to be held Thursday, February 25, 1999 at 10:30 a.m., local time,
or at any adjournment thereof, for the purposes set forth herein and in the
accompanying Notice of Annual Meeting of Stockholders. The Annual Meeting will
be held at the Hyatt Regency Hotel, 1333 Bayshore Highway, Burlingame,
California. The Company's principal executive offices are located at 2755 Campus
Drive, Suite 200, San Mateo, California. Its telephone number at that address is
(650) 349-0800.
These proxy solicitation materials were mailed on or about January 25, 1999
to all stockholders entitled to vote at the Annual Meeting.
RECORD DATE
Stockholders of record at the close of business on January 11, 1998 are
entitled to notice of, and to vote at, the Annual Meeting. At the record date,
8,674,141 shares of the Company's Common Stock, $0.001 par value, were issued
and outstanding.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company a written
notice of revocation or a duly executed proxy bearing a later date or by
attending the Annual Meeting and voting in person.
VOTING
The shares represented by the proxies received will be voted as you direct.
If you give no direction, the shares will be voted as recommended by the Board
of Directors. Each stockholder is entitled to one vote for each share of stock
held by him or her on all matters.
SOLICITATION
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of this Proxy Statement, the Proxy
and any additional soliciting materials sent to stockholders. The Company may
reimburse brokerage firms and other persons representing beneficial owners of
shares for their expenses in forwarding solicitation materials to such
beneficial owners. Proxies may also be solicited by certain of the Company's
directors, officers and regular employees, without additional compensation,
personally or by telephone or telegram. Except as described above, the Company
does not currently intend to solicit proxies other than by mail.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
The Company's bylaws require advance notice of any stockholder proposals to
be brought before a stockholders' meeting. Under the bylaws, in order for
business to be properly brought before a meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
the Company.
1
<PAGE> 4
To be timely, a stockholder proposal to be presented at an annual meeting must
be received at the Company's principal executive offices not less than 120
calendar days in advance of the date that the Company's proxy statement was
released to stockholders in connection with the previous year's annual meeting
of stockholders, except that if no annual meeting was held in the previous year
or the date of the annual meeting has been changed by more than 30 calendar days
from the date contemplated at the time of the previous year's proxy statement,
or in the event of a special meeting, notice by the stockholder to be timely
must be received not later than the close of business on the 10th day following
the day on which such notice of the date of the meeting was mailed or such
public disclosure was made.
Accordingly, proposals of stockholders intended to be presented at the 2000
Annual Meeting of Stockholders must be received by the Company no later than
September 27, 1999. Such proposals may be included in next year's proxy
statement if they comply with certain rules and regulations promulgated by the
Securities and Exchange Commission (the "SEC").
PROPOSAL NO. 1
ELECTION OF DIRECTORS
CLASSIFIED BOARD
The Company has a classified Board of Directors consisting of three classes
of directors serving staggered three-year terms. The Class I director is Thomas
J. Fogarty, M.D., whose current term will end in 1999; the Class II directors
are Gene I. Miller, Joseph T. Sebastianelli, and David E. Wertheimer, M.D.,
whose current terms will end in 2000; and the Class III directors are Richard F.
Bader and Allan Zinberg, whose current terms will end in 2001. There is
currently one Class I vacancy on the Board. At each annual meeting of
stockholders, the successors to the class of directors whose term expires at
such meeting will be elected to hold office for a term expiring at the annual
meeting of stockholders held in the third year following the year of their
election.
NOMINEES
The term of the Class I director will expire on the date of the upcoming
annual meeting. Accordingly, one person is to be elected to the Board as a Class
I director at the meeting. Management's nominee for election to this position is
the current Class I director, Thomas J. Fogarty, M.D. If elected, the nominee
will serve as a director until the Company's annual meeting of stockholders in
2002, or until his successor is elected and qualified. If the nominee declines
to serve or becomes unavailable for any reason, or if an additional vacancy
occurs before the election, the Proxies may be voted for such substitute
nominees as management may designate. Management does not currently intend to
designate any nominee to fill the current vacancy prior to the upcoming annual
meeting.
If a quorum is present and voting, the nominee receiving the highest number
of votes will be elected as a Class I director. Abstentions and shares held by
brokers that are present but not voted because the brokers were prohibited from
exercising discretionary authority, i.e., "broker non-votes," will be counted as
present for purposes of determining if a quorum is present.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
ELECTION OF THE NOMINEE NAMED IN THIS PROPOSAL.
2
<PAGE> 5
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Richard F. Bader............... 61 Chairman of the Board of Directors and
Chief Executive Officer
Allan Zinberg.................. 57 President, Chief Operating Officer and Director
E. Payson Smith, Jr............ 50 Senior Vice President and Chief Financial Officer
Senior Vice President and Executive Medical
F. David Rollo, M.D............ 59 Director
Senior Vice President -- Heart Center Development
David E. Wertheimer, M.D....... 43 and Director
Swapan Sen..................... 46 Senior Vice President -- General Manager,
Medical Facility Operations
Michael O. Kokesh.............. 48 Vice President, General Counsel and Secretary
John F. Lawler, Jr............. 52 Vice President -- Corporate Controller
Thomas J. Fogarty, M.D......... 64 Director
Joseph T. Sebastianelli........ 53 Director
Gene I. Miller................. 57 Director
</TABLE>
Richard F. Bader was a founder of the Company in 1981 and has served as its
Chief Executive Officer and as a director since its inception and as Chairman of
the Company's Board of Directors since April 1986. Mr. Bader also served as
President of the Company from its inception to May 1988 and again from May 1989
to December 1991, and as Chief Financial Officer from February 1990 to December
1991. Prior to founding the Company, Mr. Bader was employed as President and
Chief Executive Officer of Compression Labs, Inc., a developer of video
teleconferencing equipment and digital signal compression technology, from 1977
to 1981, and of Integrated Microsystems, a manufacturer of semiconductor
microsystems, from 1969 to 1975.
Allan Zinberg has been President and Chief Operating Officer of the Company
since December 1991. Mr. Zinberg joined the Company as President of the
Company's Cardiac Datacorp, Inc. subsidiary ("CDI") in February 1990, when CDI
was acquired by the Company, and has also served as a director of the Company
since that time. From June 1974 to February 1990, Mr. Zinberg was employed by
CDI, where he served as a senior executive from June 1979 to February 1990.
E. Payson Smith, Jr. has been Senior Vice President and Chief Financial
Officer of the Company since December 1991 and was a director from February 1990
to February 1993. From June 1986 through December 1991, Mr. Smith served as
Senior Vice President of Corporate Finance of Van Kasper & Company, an
investment banking firm.
F. David Rollo, M.D. has been Senior Vice President and Executive Medical
Director of the Company since June 1996 and was a director of the Company from
March 1993 to July 1998. Dr. Rollo served as Senior Vice President-Medical
Affairs of HCIA, a healthcare information company, from April 1995 to June 1996.
Dr. Rollo served as President and Chief Executive Officer of Metricor, a
healthcare consulting company, from October 1992 to April 1995, when it was
acquired by HCIA. From September 1980 to October 1992, Dr. Rollo served as
Senior Vice President-Medical Affairs of Humana, Inc., a hospital management
company. Dr. Rollo is a director of ADAC Laboratories, Inc.
Swapan Sen has been a Senior Vice President of the Company since December
1997 and a Vice President of the Company since February 1990, when he joined the
Company following the CDI acquisition. Since the Company's acquisition of
Cardiovascular Ventures, Inc. ("CVI") in August 1997, Mr. Sen has had primary
responsibilities for the day- to-day operations of the Company's cardiovascular
diagnostic facilities, and continues to have primary responsibility for the
day-to-day operations of the Company's imaging centers. From February 1990 to
December 1991, he managed the three imaging centers associated with the CDI
acquisition. From December 1985 to February 1990, Mr. Sen served in the same
capacity with CDI.
David E. Wertheimer, M.D. has been a Senior Vice President and a director
of the Company since August 1997, when he joined the Company following the CVI
acquisition. Dr. Wertheimer founded CVI in
3
<PAGE> 6
1991, where he served as the Chairman of the Board and a director until its
acquisition by the Company in August 1997. Dr. Wertheimer serves as the
President of and is a practicing cardiologist with the Heart Institute of Port
St. Lucie, Inc., a multi-specialty physician practice, and its predecessor
practice, which he founded in 1984. Dr. Wertheimer is a Fellow of the American
College of Cardiology, the American College of Physicians, and the Society for
Cardiac Angiography and Intervention. Dr. Wertheimer currently serves as the
chairman of the Medical Advisory Committee of the Department of Health for the
State of Florida, a post that he has held since 1996.
Michael O. Kokesh has been General Counsel and Secretary of the Company
since March 1996 and a Vice President since December 1996. Mr. Kokesh was a
co-founder of National Reproductive Medical Centers, Inc., where he served as a
director from November 1991 to June 1993 and served as Vice President, General
Counsel, and Secretary from November 1991 until March 1996. From May 1989 to
November 1991, Mr. Kokesh was a partner with Bronson, Bronson & McKinnon, a
general practice law firm where he specialized in healthcare law, emphasizing
transactional, corporate and securities matters.
John F. Lawler, Jr. has served as Vice President-Corporate Controller of
the Company since March 1993. Mr. Lawler served as Corporate Controller of Zygo
Corp., a manufacturer of measuring equipment and optical components, from
September 1983 to March 1993. Prior to September 1983, he served with Raymond
Industries, Inc., a diversified manufacturing company, and KPMG Peat Marwick.
Thomas J. Fogarty, M.D. has been a director of the Company since November
1982. Dr. Fogarty is a cardiovascular surgeon and has served as Professor of
Surgery at Stanford University Medical School since July 1993. Dr. Fogarty
practiced with Pacific Coast Cardiac and Vascular Systems from 1971 to July
1993. Dr. Fogarty is also the founder and President of Fogarty Engineering,
Inc., and Thomas Fogarty Winery and Vineyards. Dr. Fogarty has authored 85
patents in the field of catheter and cardiovascular instrumentation. Dr. Fogarty
is also a director of Cardiac Pathways, Inc., CardioThoracic Systems, Inc.,
General Surgical Innovations, Inc., and several privately-held companies. In
addition, he is general partner of a venture capital fund focused on the
development of advanced cardiac care products.
Joseph T. Sebastianelli has been a director of the Company since July 1998.
Mr. Sebastianelli has maintained an independent consulting practice since June
1997, when he resigned as President and as a member of the Board of Directors of
Aetna, Inc. Mr. Sebastianelli joined Aetna, Inc. in July 1996 when it merged
with U.S. Healthcare, Inc. Mr. Sebastianelli held various positions with U.S.
Healthcare, Inc., from 1994 to July 1996. He was Co-President of U.S. Healthcare
at the time of its merger with Aetna. Prior to joining U.S. Healthcare, Mr.
Sebastianelli had practiced law in the Mid-Atlantic region for 23 years,
including serving as Senior Principal from 1984 to 1993 in the firm of
Sebastianelli Law Associates, specializing in healthcare and managed care law.
Gene I. Miller has been a director of the Company since February 1989. Mr.
Miller has been a general partner of Peregrine Ventures funds, a venture capital
firm, since its inception in 1981. Mr. Miller is also a director of Somatogen,
Inc., a developer and manufacturer of human blood substitutes, and Digital
Transmission Systems, Inc., a manufacturer of telecommunications equipment, and
serves on the boards of several privately-held companies.
There are no family relationships among directors or executive officers of
the Company.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held four regular meetings and one
special meeting during the fiscal year ended September 30, 1998. The Board of
Directors has a Compensation Committee, an Audit Committee, an Employee Stock
Option Committee, and a Nominating Committee. During the fiscal year ended
September 30, 1998, no incumbent director attended fewer than 75% of the
aggregate of (i) all meetings of the Board of Directors (held during the period
in which such director served) and (ii) all meetings of committees of the Board
on which such director served.
The Compensation Committee, which consists of Dr. Fogarty and Mr. Miller,
is responsible for reviewing the performance of the officers of the Company and
making recommendations to the Board concerning
4
<PAGE> 7
salaries and incentive compensation for such officers. The Compensation
Committee held one meeting during the fiscal year ended September 30, 1998.
The Audit Committee, which consists of Mr. Miller, is responsible for
reviewing the Company's financial statements and significant audit and
accounting practices with the Company's independent auditors and making
recommendations to the Board of Directors with respect thereto. The Audit
Committee held one meeting during the fiscal year ended September 30, 1998.
The Employee Stock Option committee, which consists of Messrs. Bader and
Zinberg, is authorized to grant stock options under the Company's 1990 Stock
Option Plan to employees of the Company who are not executive officers. The
Employee Stock Option Committee held one meeting during the fiscal year ended
September 30, 1998.
The Nominating Committee, which consists of Messrs. Bader and Miller, was
formed for purposes of identifying and evaluating the qualifications of all
candidates for election to the Board of Directors. The Nominating Committee will
consider nominations recommended by stockholders. Stockholders wishing to submit
nominations must notify the Company of their intent to do so (and provide the
Company with certain information set forth in the Company's bylaws, a copy of
which may be obtained from the Company) on or before the date on which
stockholder proposals to be included in the proxy statement for the stockholder
meeting must be received by the Company.
DIRECTOR COMPENSATION
Non-employee directors are entitled to a fee of $1,500 for each Board
meeting they attend. In June 1994, the Company's non-employee directors were
granted stock options pursuant to the Company's 1990 Stock Option Plan in
connection with their service on the Board of Directors. The options are fully
exercisable, subject to the Company's right to repurchase any unvested shares at
the original exercise price at the time the optionee ceases to serve on the
Board of Directors. Such shares vest, and the Company's repurchase right
terminates, in annual installments of 25%, subject to the optionee's continuous
service and subject to adjustment at each scheduled vesting date by multiplying
the number of shares scheduled for vesting by a fraction, the numerator of which
is the number of meetings of the Board of Directors attended by the optionee
during the preceding 12-month period and the denominator of which is all such
meetings held during such period.
In addition, the Company's 1995 Outside Directors Stock Option Plan (the
"Directors Plan") provides for formula-based grants of options to non-employee
directors. The Directors Plan provides that each non-employee director of the
Company shall be granted a nonstatutory stock option to purchase 6,000 shares of
Common Stock on the date on which the optionee first becomes a non-employee
director of the Company. Thereafter, on the date immediately following each
annual stockholders' meeting, each non-employee director who is reelected at the
meeting to an additional term shall be granted an additional option to purchase
6,000 shares of Common Stock if, on such date, he or she shall have served on
the Company's Board of Directors for at least six months. The Directors Plan
provides that each option shall become exercisable in installments as to
one-third of the total number of shares subject to the option on each of the
first, second and third anniversaries of the date of grant, subject to the
director's continuous service and subject to adjustment at each scheduled
vesting date by multiplying the number of shares eligible for vesting by a
fraction, the numerator of which is the number of meetings of the Board of
Directors attended by the director during the preceding 12-month period and the
denominator of which is all such meetings held during such period. Shares which
do not vest on a scheduled vesting date as a result of such an adjustment will
vest instead, without further adjustment, on the fifth anniversary of the date
of grant. The exercise price per share of all options granted under the
Directors Plan shall be equal to the fair market value of a share of the
Company's Common Stock on the date of grant. Options granted under the Directors
Plan have a term of ten years.
5
<PAGE> 8
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company
relating to the beneficial ownership of the Company's Common Stock by (i) each
person who is known by the Company to be the beneficial owner of more than 5% of
the outstanding shares of Common Stock, (ii) each executive officer named in the
tables set forth under "Executive Compensation," (iii) each director and (iv)
all executive officers and directors as a group, as of December 31, 1998:
<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY
NAME AND ADDRESS OWNED(1) PERCENT(1)
---------------- ------------ ----------
<S> <C> <C>
State of Wisconsin Investment Board......................... 1,163,239 13.4%
P.O. Box 7842
Madison, WI 53707
Heartland Advisers.......................................... 982,000 11.3%
790 N. Milwaukee Street
Milwaukee, WI 53202
Wellington Management Company LLP........................... 885,400 10.2%
75 State Street, 19th Floor
Boston, MA 02109
Prudential Investment Corporation........................... 882,600 10.2%
751 Broad Street
Newark, NJ 07102
Richard F. Bader(2)......................................... 566,767 6.4%
c/o Raytel Medical Corporation
2755 Campus Drive, Suite 200
San Mateo, CA 94403
Thomas J. Fogarty, M.D.(3).................................. 231,129 2.7%
David E. Wertheimer, M.D.(4)................................ 182,874 2.1%
Allan Zinberg(5)............................................ 108,077 1.2%
Gene I. Miller(6)........................................... 50,994 *
F. David Rollo, M.D.(7)..................................... 29,751 *
Swapan Sen(8)............................................... 25,311 *
All executive officers and directors as a group (11
persons)(9)............................................... 1,270,022 14.2%
</TABLE>
- ---------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the SEC.
In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of Common Stock subject to
options held by that person that are currently exercisable, or will become
exercisable within 60 days after December 31, 1998, are deemed outstanding.
Such shares, however, are not deemed outstanding for purposes of computing
the percentage ownership of any other person. In general, options granted
under the Company's 1983 Stock Option Plan and its 1990 Stock Option Plan
are fully exercisable from the date of grant, subject to the Company's right
to repurchase any unvested shares at the original exercise price in the
event of termination of the optionee's employment. Options (or shares issued
upon exercise thereof) vest over a period of two to four years from the date
of grant. Unless otherwise indicated in the footnotes to this table, the
persons and entities named in the table have sole voting and sole investment
power with respect to all shares beneficially owned, subject to community
property laws where applicable.
(2) Includes 146,522 shares issuable upon exercise of stock options that are
currently exercisable and will be fully vested within 60 days after December
31, 1998.
(3) Includes 161,935 shares held by the Lincoln Trust Company, Custodian FBO
Thomas J. Fogarty IRA Rollover Account, and 65,194 shares held by the
Fogarty Family Revocable Trust dated September 14, 1971, as amended and
restated February 14, 1991. Also includes 4,000 shares issuable upon
exercise of
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<PAGE> 9
stock options that are currently exercisable and will be fully vested within
60 days after December 31, 1998.
(4) Includes 4,100 shares held by his minor children, as to which Dr. Wertheimer
disclaims beneficial ownership.
(5) Includes 12,383 shares issuable upon exercise of stock options that are
currently exercisable and will be fully vested within 60 days after December
31, 1998.
(6) Includes 40,469 shares issuable upon exercise of stock options that are
currently exercisable and will be fully vested within 60 days after December
31, 1998.
(7) Includes 11,250 shares issuable upon exercise of stock options that are
currently exercisable and will be fully vested within 60 days after December
31, 1998.
(8) Includes 20,311 shares issuable upon exercise of stock options that are
currently exercisable and will be fully vested within 60 days after December
31, 1998.
(9) Includes 267,472 shares issuable upon exercise of stock options that are
currently exercisable, of which 267,472 shares will be fully vested within
60 days after December 31, 1998.
EXECUTIVE COMPENSATION AND OTHER MATTERS
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth information concerning the compensation
received for services rendered to the Company during each of the fiscal years
ended September 30, 1998, 1997 and 1996 by the Chief Executive Officer of the
Company and the four other most highly compensated executive officers of the
Company whose total salary and bonus for such fiscal year exceeded $100,000
(collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION(1) ---------------
FISCAL ---------------------- OPTIONS GRANTED ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (SHARES) COMPENSATION
--------------------------- ------ --------- --------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Richard F. Bader................ 1998 $281,973 $150,000 -- $10,588(2)
Chairman of the Board of 1997 $281,973 $179,000 300,000 $ 9,944(3)
Directors and Chief 1996 $282,754 $130,000 -- $ 9,989(4)
Executive Officer
Allan Zinberg................... 1998 $281,973 $150,000 -- $ 9,720(2)
President and Chief 1997 $281,973 $135,000 100,000 $ 9,944(3)
Operating Officer 1996 $281,480 $100,000 -- $ 9,254(4)
David E. Wertheimer, M.D.(5).... 1998 $300,000 -- 75,000 $ 43(2)
Senior Vice President -- Heart 1997 $ 37,500 -- -- --
Center Development 1996 -- -- -- --
F. David Rollo, M.D............. 1998 $250,120 -- -- $10,849(2)
Senior Vice President and 1997 $250,120 $ 37,000 87,000 $ 2,284(3)
Executive Medical Director 1996 $225,000 -- -- $ 9,989(4)
Swapan Sen...................... 1998 $167,797 $100,000 40,000 $10,440(2)
Senior Vice President-General 1997 $163,324 $ 85,000 -- $10,172(3)
Manager, Medical Facility 1996 $143,133 $ 50,000 21,000 $ 9,975(4)
Operations
</TABLE>
- ---------------
(1) Includes amounts (if any) deferred under the Company's 401(k) Plan and its
Executive Deferred Compensation Plan.
(2) Consists of matching contributions by the Company under the 401(k) Plan,
contributions by the Company to the Pension Plan and life insurance premiums
paid by the Company for the benefit of the Named Executive Officer. These
amounts accrue on a calendar year basis. The reported amounts
7
<PAGE> 10
represent the amounts estimated by the Company to have accrued during the
fiscal year. The amounts representing 401(k) Plan contributions for fiscal
year 1998 are $2,500 for Mr. Bader, $1,632 for Mr. Zinberg, $2,352 for Mr.
Sen, and $2,951 for Dr. Rollo and 0 for Dr. Wertheimer. The amounts
representing Pension Plan contributions for the fiscal year 19987 are $7,638
for Messrs. Bader, Zinberg, Sen, and Rollo, and $-0- for Dr. Wertheimer. The
amounts representing life insurance premiums are $450 for Messrs. Bader,
Zinberg, and Sen, $360 for Dr. Rollo, and $43 for Dr. Wertheimer.
(3) Consists of matching contributions by the Company under the 401(k) Plan,
contributions by the Company to the Pension Plan and life insurance premiums
paid by the Company for the benefit of the Named Executive Officer. These
amounts accrue on a calendar year basis. The reported amounts represent the
amounts estimated by the Company to have accrued during the fiscal year. The
amounts representing 401(k) Plan contributions for fiscal year 1997 are
$2,375 for Mr. Bader, $2,375 for Mr. Zinberg, $2,603 for Mr. Sen, $1,924 for
Dr. Rollo, and $0 for Dr. Wertheimer. The amounts representing Pension Plan
contributions for the fiscal year 1997 are $7,119 for Mr. Bader, $7,119 for
Mr. Zinberg, and $7,119 for Mr. Sen, $0 for Dr. Rollo and $0 for Dr.
Wertheimer. The amounts representing life insurance premiums for fiscal year
1997 are $450 for Mr. Bader, $450 for Mr. Zinberg, $450 for Mr. Sen, $360
Dr. Rollo, and $0 for Dr. Wertheimer.
(4) Consists of matching contributions by the Company under the 401(k) Plan,
contributions by the Company to the Pension Plan and life insurance premiums
paid by the Company for the benefit of the Named Executive Officer. These
amounts accrue on a calendar year basis. The reported amounts represent the
amounts estimated by the Company to have accrued during the fiscal year. The
amounts representing 401(k) Plan contributions for the fiscal year 1996 are
$2,375 for Mr. Bader, $1,640 for Mr. Zinberg, $2,489 for Mr. Sen, $0 for Dr.
Rollo, and $0 for Dr. Wertheimer. The amounts representing Pension Plan
contributions for the fiscal year 1996 are $7,164 for Mr. Bader, $7,164 for
Mr. Zinberg, $7,036 for Mr. Sen, $0 for Dr. Rollo, and $0 for Dr.
Wertheimer. The amounts representing life insurance premiums for fiscal year
1996 are $450 for Messrs. Bader, Zinberg, and Sen, $0 for Dr. Rollo, and $0
for Dr. Wertheimer. The amount for Dr. Rollo represents moving expenses
included in compensation during the fiscal year.
(5) Dr. Wertheimer joined the Company in August 1997 with the acquisition of
CVI.
STOCK OPTION GRANTS
The following table sets forth information concerning grants of options to
purchase the Company's Common Stock made during the fiscal year ended September
30, 1998 to the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------------------- VALUE
NUMBER OF % OF TOTAL AT ASSUMED RATES OF
SHARES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(1)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ------------------------
NAME GRANTED FISCAL 1998 SHARE(2) DATE 5% 10%
---- ---------- ------------ --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Richard F. Bader............ -- N/A N/A N/A N/A N/A
Allan Zinberg............... -- N/A N/A N/A N/A N/A
David E. Wertheimer, M.D.... 75,000(3)(4) 48.78% $5.625 08/07/08 $265,315 $672,360
F. David Rollo, M.D......... -- N/A N/A N/A N/A N/A
Swapan Sen.................. 40,000(5) 26.02 $ 7.50 04/06/08 $188,668 $478,123
</TABLE>
- ---------------
(1) Potential realizable values are net of the exercise price but before taxes
associated with the exercise. Amounts represent hypothetical gains that
could be achieved for the respective options if exercised at the end of the
option term. The assumed 5% and 10% rates of stock price appreciation are
provided in accordance with the rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of the
future Common Stock price. Actual gains, if any, on stock
8
<PAGE> 11
option exercise are dependent on the future financial performance of the
Company, overall market conditions and the option holders' continued
employment through the vesting period.
(2) All options were granted at the fair market value of the Common Stock on the
date of grant, based on the closing price of the Company's Common Stock on
the Nasdaq National Market.
(3) The options were granted on August 7, 1998 in replacement of previously
outstanding options. On such date, as a result of a decline in the market
price of the Company's Common Stock, the Employee Stock Option Committee and
the Compensation Committee determined that it was in the best interest of
the Company to offer current option holders the opportunity to exchange
outstanding options with an exercise price above the then-current market
price ($5.625) for options with an exercise price equal to such market
price. Each new option vests at the same rate as the option it replaced, and
with the vesting of each new option to commence on August 7, 1999. Of the
Named Executive Officers, only Dr. Wertheimer participated in the exchange.
(4) The options vest and become exercisable at the rate of 1/4 on August 7, 1999
and annually thereafter through August 7, 2002.
(5) The options vest and become exercisable at the rate of 1/4 on April 6, 1999
and annually thereafter through April 6, 2002.
OPTION EXERCISES AND YEAR-END HOLDINGS
The following table sets forth information concerning the exercise of stock
options during the fiscal year ended September 30, 1998 and the stock options
held as of September 30, 1998 by the Named Executive Officers.
AGGREGATE OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER NUMBER OF SHARES VALUE OF UNEXERCISED
OF SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED OPTIONS AT SEPTEMBER 30, 1998 SEPTEMBER 30, 1998(2)
UPON VALUE ------------------------------ ------------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE(3) UNEXERCISABLE EXERCISABLE(3) UNEXERCISABLE
---- --------- ----------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard F. Bader..... -- -- 271,522 150,000 $161,854 --
Allan Zinberg........ -- -- 54,049 50,001 -- --
David E. Wertheimer,
M.D. .............. -- -- -- 75,000 -- --
F. David Rollo,
M.D. .............. 5,031 $52,574 47,500 45,500 -- --
Swapan Sen........... -- -- 33,436 46,563 $ 40,671 --
</TABLE>
- ---------------
(1) "Value Realized" represents the fair market value of the Common Stock on the
exercise date minus the aggregate exercise price of such options. For
purposes of this calculation, the fair market value of the Common Stock is
based on the closing price for the Common Stock, as quoted on the Nasdaq
National Market.
(2) Based on the closing price of $4.5625 for the Common Stock as quoted on the
Nasdaq National Market on September 30, 1998, less the exercise price.
(3) Options granted prior to October 1, 1995, are fully exercisable, subject to
the Company's right to repurchase any unvested shares at the original
exercise price in the event of the optionee's termination. Options (or
shares issued upon exercise thereof) vest over periods of two to four years
from the date of grant.
9
<PAGE> 12
TEN YEAR OPTION REPRICINGS
The following table provides the specified information concerning all
repricings of options to purchase the Company's Common Stock held by any
executive officer of the Company since December 1, 1995, the date of the
Company's initial public offering.
TEN YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF ORIGINAL
SECURITIES MARKET EXERCISE TERM
UNDERLYING PRICE OF PRICE AT REMAINING
OPTIONS STOCK AT TIME OF NEW AT DATE OF
REPRICED OR REPRICING OR REPRICING OR EXERCISE REPRICING OR
NAME AND POSITION DATE AMENDED AMENDMENT AMENDMENT PRICE AMENDMENT
----------------- -------- ----------- ------------ ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Richard F. Bader....................... 05/05/97 300,000 $8.50 $11.50 $8.50 9 years
Chairman of the Board of Directors 71 days
And Chief Executive Officer
Allan Zinberg.......................... 05/05/97 100,000 $8.50 $11.50 $8.50 9 years
President and 71 days
Chief Operating Officer
E. Payson Smith, Jr.................... 05/05/97 35,000 $8.50 $11.50 $8.50 9 years
Senior Vice President and 71 days
Chief Financial Officer
F. David Rollo, M.D.................... 05/05/97 87,000 $8.50 $11.875 $8.50 9 years
Senior Vice President and 26 days
Executive Medical Director
David E. Wertheimer, M.D............... 08/07/98 75,000 5.625 $12.125 $5.625 9 years
Senior Vice President -- Development 21 days
</TABLE>
EMPLOYMENT AGREEMENTS
Messrs. Bader, Zinberg, and Sen and Dr. Rollo have each entered into an
employment agreement with the Company that entitles each to receive a base
annual salary and such bonus as may be authorized from time to time by the Board
of Directors. The agreements for Messrs. Bader and Zinberg originally had a term
of two years, expiring in September 1997, and provide that at the end of each
year, beginning in September 1996, the term is automatically extended for an
additional year, unless either the officer or the Company elects not to renew
the agreement. Mr. Sen's agreement had an original term of two years, expiring
February 28, 2000, and provides that at the end of each year, beginning in
February 1999, the term is automatically extended for an additional year, unless
either party elects not to renew the agreement. Dr. Rollo's agreement had an
original term of one year, expiring February 28, 1999, and provides that at the
end of each year, beginning in February 1999, the term is automatically extended
for an additional year, unless either party elects not to renew the agreement.
Each of the agreements requires the officer to devote his full time and
attention to the affairs of the Company. If the Company terminates the
employment of Messrs. Bader, Zinberg, or Sen other than for cause (or if the
officer voluntarily terminates his employment following certain specified
actions by the Company), the officer will be entitled to receive severance
payments equal to his then current base salary for a period of 24 months
following the date of termination. If the Company terminates the employment of
Dr. Rollo other than for cause (or if Dr. Rollo voluntarily terminates his
employment following certain specified actions by the Company), Dr. Rollo will
be entitled to receive severance payments equal to his then current base salary
for a period of 12 months following the date of termination. The current annual
base salaries of Messrs. Bader, Zinberg, Sen and Dr. Rollo are $281,973,
$281,973, $167,797 and $250,120, respectively.
As a result of the CVI acquisition in August 1997, the Company, through a
subsidiary of CVI, has become subject to an employment agreement with David E.
Wertheimer, M.D., that entitles him to receive a base salary and such bonus as
may be authorized from time to time by the Board of Directors. The agreement has
a term of ten years, expiring on December 31, 2006. The agreement requires that
Dr. Wertheimer devote his full time and attention to the affairs of the Company,
both in his capacity as a physician and as a member of executive management. The
agreement may be terminated only for cause. In addition, the agreement
10
<PAGE> 13
provides that upon termination other than upon expiration of the regular term,
the employee is prohibited from engaging in the practice of medicine within a
ten-mile radius of his then current principal place of practice.
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
COMPENSATION PHILOSOPHY
The goals of the Company's compensation policy are to attract, retain and
reward executive officers who contribute to the overall success of the Company
by offering compensation that is competitive in the healthcare industry, to
motivate executives to achieve the Company's business objectives and to align
the interests of officers with the long-term interests of stockholders. The
Company currently uses salary, a management incentive plan, an executive
deferred compensation plan and stock options to meet these goals.
COMPENSATION COMMITTEE
The Compensation Committee is composed of two non-management members of the
Board of Directors, Thomas J. Fogarty, M.D., and Gene I. Miller. The Committee
is responsible for setting and administering the policies governing annual
compensation of executive officers, including cash compensation and grants of
stock options. The Committee reviews compensation levels of executive officers,
considers their performance and makes recommendations regarding their cash
compensation and stock option awards to the full Board of Directors.
FORMS OF COMPENSATION
The Company provides its executive officers with a compensation package
consisting of base salary, variable incentive pay, and participation in benefit
plans generally available to other employees. In setting total compensation, the
Committee considers individual and Company performance, from time to time, and
data gathered from the public filings of other public companies. The market data
consist primarily of base salary and total cash compensation rates, as well as
incentive bonus and stock programs of the companies considered by the Committee
to be peer companies in the Company's industry.
Base Salary. Salaries for executive officers are initially set based on
negotiation with individual executive officers at the time of recruitment and
with reference to salaries for comparable positions among individuals of similar
education and background to the executive officers being recruited. The Company
also gives consideration to the individual's experience, reputation in his or
her industry and expected contributions to the Company.
Generally, salary adjustments are made for each executive officer at the
end of each fiscal year. The size of the annual salary adjustments for each
executive officer is primarily based on the Committee's determination that the
officer has met or exceeded his or her individual goals. These individual goals
are determined in consultation with management, subject to review and approval
by the Board of Directors, and generally relate to strategic goals within the
responsibility of the executive officer. The Chief Executive Officer's goals
also include the Company's financial performance, measured primarily by the
achievement of predetermined revenue and expense objectives and maintenance of
adequate cash reserves.
Executive Bonuses. The Company seeks to provide additional incentives and
rewards to executives who make valuable contributions to the Company.
Accordingly, the Compensation Committee awards annual bonuses, which can
comprise a substantial portion of the total compensation of each executive
officer. At the beginning of each fiscal year, the Board establishes a suggested
budget for bonuses that may be earned during such fiscal year by executive
officers and other employees. Following the end of the fiscal year, the
Compensation Committee determines the amount of the cash bonus to be awarded to
each executive officer. Awards are based upon such factors as the Compensation
Committee may consider relevant in any particular year, including the Company's
attainment of certain goals for revenue growth and profitability, as well as the
11
<PAGE> 14
Compensation Committee's evaluation of each executive officer's individual
contribution to the attainment of such goals.
Long-term Incentives. Longer term incentives are provided through the 1990
Stock Option Plan, which rewards executives and other employees through the
growth in value of the Company's stock. The committee believes that employee
equity ownership is highly motivating, provides a major incentive for employees
to build stockholder value and serves to align the interests of employees with
those of stockholders.
Grants of stock options to executive officers are based upon each officer's
relative position, responsibilities, historical and expected contributions to
the Company, and the officer's existing stock ownership and previous option
grants, with primary weight given to the executive officers' relative rank and
responsibilities. Initial stock option grants designed to recruit an executive
officer to join the Company may be based on negotiations with the officer and
with reference to historical option grants to existing officers. Stock options
are granted at the market price on the date of grant and will provide value to
the executive officers only when the price of the Company's Common Stock
increases over the exercise price.
In August 1998, the Committee considered the options held by executive
officers and employees and the fact that significant portions of the outstanding
options had exercise prices well above the recent historical trading prices for
the Company's Common Stock. The Committee reviewed the grants of options made to
employees and executive officers and to determine if the option grants continued
to provide long-term equity incentive to improve the Company's performance and
stock holder value.
Based upon the recommendation of Messrs. Bader and Zinberg, the Committee
approved an offer to all employees and executive officers, with the exception of
those whose options were repriced at the August 6, 1998 meeting of the Board of
Directors, to exchange outstanding options with an exercise price equal to the
current fair market value as of October 15, 1998, with vesting commencing on the
date of the exchange. Accordingly, optionees who participate in the exchange
received a lower exercise price but gave up any accrued vesting on their
exchanged options. See further discussion under "Repricing of Stock Options
Following the End of Fiscal 1998" on page 15, herein below.
Other Benefit Plans. Executive officers may participate in several benefit
plans, including the Company's Pension Plan, 401(k) Plan and Executive Deferred
Compensation Plan, a nonqualified deferred compensation plan. The Company makes
matching contributions to the 401(k) Plan equal to 25% of the amount contributed
by each employee.
FISCAL 1998 COMPENSATION
Bonuses paid after the end of fiscal 1998 were based upon the Company's
operating results in fiscal 1998 and each executive's contribution to these
operating results. The Company posted income from operations for fiscal 1998 of
$9,962,000 which was approximately 6.2% lower than the Company's previous record
of $10,622,000 earned in fiscal 1997, which excludes an extraordinary item of
$2,510,000 in income from the favorable administrative decision related to a
dispute with a New York Medicare carrier.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The base compensation payable to Richard F. Bader, the Company's Chairman
and Chief Executive Officer, is determined by the employment agreement described
above under "Employment Agreements." The incentive compensation and bonus are
determined by the Compensation Committee based on the financial objectives set
by the Compensation Committee for that fiscal year. The financial objectives
include but are not limited to the increase from one fiscal year to the next in
net revenues, net earnings and shareholder value and based upon a survey of
compensation paid to the chief executive officers of comparably sized companies
in the same industry as the Company. Based on these financial results, the
Compensation Committee awarded Mr. Bader a bonus equal to approximately 53% of
his 1998 base salary.
12
<PAGE> 15
For specific information regarding compensation earned in fiscal 1998 by
certain executive officers, see "Executive Compensation -- Summary Compensation
Table."
THE COMPENSATION COMMITTEE
Thomas J. Fogarty, M.D.
Gene I. Miller
REPORT OF THE EMPLOYEE STOCK OPTION COMMITTEE AND THE
COMPENSATION COMMITTEE ON REPRICING OF OPTIONS
In August 1998, the Employee Stock Option Committee and the Executive
Compensation Committee (the "Committees") reviewed the options held by the
Company's executive officers and employees and considered the fact that the
decline in the price of the Common Stock of the Company resulted in a
substantial number of stock options granted pursuant to the 1990 Stock Option
Plan having exercise prices well above the recent trading prices for the Common
Stock. The Committees were advised by management that management believed that
the Company's total compensation package for employees, which included options
with exercise prices well above the current trading price of the Company's
shares, was noncompetitive and would result in key personnel turn-over as well
as defeating the purpose of the options as an incentive to improve shareholder
value. The Committees also considered that the recent decline in the Company's
share price would result in inequities between employees holding higher-priced
options and recent hires who had been granted options with exercise prices set
at the lower current trading price of the Company's shares. The Committees were
advised by management that management believed that key employee turnover was
likely to increase in part because the Company's total compensation package for
long-term employees, which included substantial options with exercise prices
well above the current trading price, was less attractive than compensation
offered by other companies in the same geographic location. This is because
options granted to new hires at other companies would likely be granted at
current trading prices, providing more opportunity for appreciation than the
Company's options.
The Committees believed that the Company's success in the future would
depend in large part on its ability to retain a number of its highly skilled
technical, managerial and marketing personnel and the loss of key employees
could have significant adverse impact on the Company's business. The Committees
also believed that unless an adjustment was made in option prices, existing
employees holding options would perceive a substantial inequity in comparison to
new employees granted stock options with exercise prices set at the current,
lower fair market value of the Company's Common Stock and that employee morale
would suffer as a consequence. The Committees concluded that it was important
and cost-effective to provide equity incentives to employees and executive
officers of the Company to improve the Company's performance and the value of
the Company for its stockholders. The Committees considered granting new options
selectively to current key employees at fair market value, but recognized that
the size of the option grants required to offset the decline in market price
would result in significant additional dilution to stockholders. The Committees
recognized that an exchange of existing options with exercise prices higher than
fair market value for options at fair market value would provide additional
incentives to employees because of the increased potential for appreciation. The
Committees also recognized that the new options could require completion of an
extension of the options vesting schedule for up to three months providing
optionees participating in the exchange with an added incentive to remain with
the Company.
Accordingly, on August 6, 1998, the Committees approved an offer to
specific employees of the Company with options with an exercise price equal to
or greater than $12.00 per share, including executive officers (whom the
Compensation Committee considered separately), to exchange outstanding options
with exercise prices above the then-current trading price for options with an
exercise price equal to the then-current trading price, subject to the condition
that any participating employee agree to cancel any stock option held by him or
her, and with the vesting of each new option to commence on August 7, 1998. All
exchanged options will terminate no later than 10 years from the date when the
exchange was approved by the two Committees. The offer to exchange options was
effective August 7, 1998. In response to the offer, options for 88,500 shares,
with
13
<PAGE> 16
exercise prices ranging from $12.00 to $12.125, were exchanged for options for
an equal number of shares at an exercise price of $5.625, the closing price of
the Company's stock on August 7, 1998, the date of the approval of the repricing
by both Committees.
REPRICING OF STOCK OPTIONS FOLLOWING THE END OF FISCAL 1998
In October 1998, the Compensation Committee separately considered the
options held by the Company's executive officers and employees and the fact
that, despite improved revenue, a broad decline in the price of the Common Stock
of the Company had resulted in a substantial number of stock options granted
pursuant to the Option Plan having exercise prices well above the recent
historical trading prices for the Common Stock. Considering these factors and
the factors described above, particularly the dilutive effect of granting new
options selectively to current key employees at fair market value, the
Compensation Committee determined that it was in the best interests of the
Company and its stockholders to restore the incentives for employees and
executive officers to remain as employees of the Company and to exert their
maximum efforts on behalf of the Company by granting replacement stock options
under the Option Plan for those options with exercise prices above recent
trading prices, with restarted vesting and exercise prices equal to $3.625, the
closing sale price of the Company's Common Stock preceding the Committee's
approval of the repricing. The replacement options are subject to termination if
the optionee fails to agree within a reasonable period to the cancellation of
the old options to be replaced.
Accordingly, in October 1998, the Compensation Committee approved an offer
to all employees of the Company, including executive officers whom the
Compensation Committee considered separately, to exchange outstanding options
with exercise prices above the then current trading price for options with an
exercise price of $3.625 per share subject to the condition that any
participating employee agree to cancel any stock option held by him or her, and
with the vesting of each new option to commence on October 15, 1998. The
Compensation Committee approved new vesting for the replacement options as
follows: Replacement options shall have a new vesting schedule commencing
October 15, 1998. All replacement options will terminate no later than ten (10)
years from the date of grant. Accordingly, optionees who participated in the
exchange received a lower exercise price in exchange for forfeiting vesting
under their old options. The offer to exchange options was completed in October
1998; in total, options for 628,950 shares, with an exercise prices of $7.50 per
share to $10.00 per share may be exchanged for options for an equal number of
shares at an exercise price of $3.625 per share, the closing price of the
Company's Common Stock on October 15, 1998, the date selected by the
Compensation Committee.
<TABLE>
<S> <C>
THE EMPLOYEE STOCK OPTION COMMITTEE THE COMPENSATION COMMITTEE
Richard F. Bader Thomas J. Fogarty, M.D.
Allan Zinberg Gene I. Miller
</TABLE>
14
<PAGE> 17
PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total return at
September 30, 1998 (assuming reinvestment of dividends) on $100 invested,
alternatively in the Company's Common Stock, the Nasdaq Stock Market -- US
Index, and the Nasdaq Health Services Index on December 1, 1995, the date of the
Company's initial public offering.
COMPARISON OF 34 MONTH CUMULATIVE TOTAL RETURN*
AMONG RAYTEL MEDICAL CORPORATION, THE NASDAQ STOCK MARKET (U.S.) INDEX AND THE
NASDAQ HEALTH SERVICES INDEX
[GRAPH]
<TABLE>
<CAPTION>
S & P TECHNOLOGY
SECTOR S & P 500 SYNOPSIS INC.
---------------- --------- -------------
<S> <C> <C> <C>
12/1/95 100 100 100
Dec-95 106 100 104
Mar-96 125 105 109
Jun-96 159 113 118
Sep-96 169 117 118
Dec-96 138 123 104
Mar-97 131 116 97
Jun-97 144 137 109
Sep-97 181 161 118
Dec-97 145 151 106
Mar-98 99 176 116
Jun-98 69 181 106
Sep-98 57 164 80
</TABLE>
- ---------------
* $100 INVESTED ON 12/01/95 IN STOCK OR INDEX --
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING SEPTEMBER 30.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10% of a registered class
of the Company's equity securities, to file reports of ownership and changes in
ownership with the SEC and Nasdaq. Officers, directors and greater than 10%
stockholders are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms they file.
15
<PAGE> 18
To the Company's knowledge, based solely on its review of the copies of
such reports received by it, or written representations from reporting persons
that all required reports were filed, all Section 16(a) filing requirements
applicable to its officers, directors and greater-than-10% beneficial owners
during fiscal 1998 were complied with, except that one late report was filed
with respect to a transaction by Allan Zinberg.
CERTAIN TRANSACTIONS
The Company, through the Heart Institute of Port St. Lucie ("HIPSL"), a
subsidiary of CVI, is a party to a real estate lease agreement with 1700 S.E.
Hillmoor Drive, Inc., a Florida corporation in which David E. Wertheimer, Senior
Vice President-Development and a director of the Company, is a minority
shareholder. The lease is for an office condominium consisting of approximately
22,500 square feet in a medical office building. The lease commenced January 1,
1997 and has a ten-year term, with a single option to renew for an additional
ten-year term on the same terms and conditions. Pursuant to the terms of the
lease, HIPSL is obligated to pay $349,411.68 per year in rent, payable in equal
monthly installments on the first day of each month. The rent is adjustable
beginning in 2002 based on the change, if any, in the interest rate on the loan
secured by the real property. HIPSL is also responsible for all real estate
taxes on the tenant improvements and personal property located on the premises,
as well as all operating costs, such as utilities, heating, ventilation and air
conditioning and all condominium association fees.
Through an affiliated medical group, the Company and Granada Hills
Community Hospital have entered into an agreement for the Company to be the
exclusive provider of cardiac surgery services at the hospital and to manage the
hospital's cardiovascular surgery program. The Company has also entered into an
agreement with a leading cardiothoracic surgeon to provide the cardiac surgery
services at the hospital. The initial term of both agreements is nine years. The
affiliated medical group is owned by F. David Rollo, M.D., who serves as the
Company's Senior Vice President and Executive Medical Director. The Company,
through a subsidiary, provides management services to the affiliated medical
group through a management services agreement. Dr. Rollo has also entered into a
succession agreement which permits the Company to appoint the successor
shareholder of the affiliated medical group in the event Dr. Rollo is no longer
employed by the Company.
Through an affiliated medical group, the Company has entered into a
professional services arrangement with an independent medical group to provide
radiology services at one of the diagnostic imaging centers owned and managed by
the Company. The affiliated medical group is owned by David E. Wertheimer, M.D.,
who serves as the Company's Senior Vice President-Heart Center Development and
as a member of the Company's Board of Directors. The Company, through a
subsidiary, provides management services to the affiliated medical group through
a management services agreement. Dr. Wertheimer has also entered into a
succession agreement which permits the Company to appoint the successor
shareholder of the affiliated medical group in the event Dr. Wertheimer is no
longer employed by the Company.
For a description of the compensation of officers and directors of the
Company, employment agreements between certain officers and the Company and the
eligibility of the Company's officers and directors to participate in the
Company's employee benefit plans, see "Proposal No. 1 -- Election of
Directors -- Director Compensation" and "Executive Compensation -- Employment
Agreements".
PROPOSAL NO. 2
AMENDMENT OF THE 1990 STOCK OPTION PLAN
At the Annual Meeting, the stockholders are being asked to approve an
amendment to the Company's 1990 Stock Option Plan (the "Option Plan") to
increase the number of shares of Common Stock reserved for issuance thereunder
by 400,000 shares, to a total of 1,684,000 shares (which includes shares
previously issued upon the exercise of options granted under the Option Plan).
Management believes that the availability of additional options to purchase
Common Stock is necessary to enable the Company to continue to provide its
employees with equity ownership as an incentive to contribute to the Company's
success. The Board has approved the increase, subject to stockholder approval.
16
<PAGE> 19
The Option Plan currently provides for the issuance of 1,284,000 shares of
Common Stock upon the exercise of options granted thereunder. As of January 11,
1999, options for 856,564 shares were outstanding at a weighted average exercise
price of $4.192 per share and options for 53,316 shares had been exercised. The
closing price of the Company's Common Stock reported on The Nasdaq National
Market on January 11, 1999, was $4.875 per share.
SUMMARY OF THE 1990 STOCK OPTION PLAN
Set forth below is a summary of the principal features of the Option Plan.
This summary is qualified in its entirety by the specific language of the Option
Plan, a copy of which is available to any stockholder upon request. Additional
information concerning options outstanding under the Option Plan is set forth
under "Executive Compensation".
Purpose
The purpose of the Option Plan is to advance the interests of the Company
and its stockholders by giving employees, non-employee directors and consultants
a proprietary interest in the success of the Company, thus providing them with
an additional incentive to contribute toward the Company's success.
Administration
The Option Plan is administered by the Board of Directors of the Company,
or by a committee of the Board. The Option Plan is currently being administered
by the Compensation Committee, which consists of two non-employee directors. In
addition, the Board has authorized the Employee Stock Option Committee, which
consists of Messrs. Bader and Zinberg, to grant options to non-officer employees
under certain circumstances. The interpretation and construction of any
provision of the Option Plan by the Board or the Compensation Committee shall be
final and conclusive.
Eligibility
The Option Plan provides that options may be granted to employees
(including officers and employee directors), non-employee directors and
consultants of the Company and its majority-owned subsidiaries. The Committee
selects the participants and determines the number of shares to be subject to
each option. As of November 30, 1998, the Company had approximately 849
full-time employees, including six executive officers, three non-employee
directors and no consultants eligible to participate in the Option Plan.
The Option Plan does not currently provide for a maximum or minimum number
of shares of Common Stock which may be granted under option to any one employee
or other eligible participant, although the value of the shares subject to all
incentive stock options held by an optionee that become exercisable for the
first time during any calendar year cannot exceed $100,000 (determined as of the
date of grant).
Terms of Option
Each option is evidenced by a stock option agreement between the Company
and the person to whom such option is granted, which sets forth the terms and
conditions of the option. The following terms and conditions generally apply to
all options, unless the stock option agreement provides otherwise.
Exercise of Option. Options granted under the Option Plan are exercisable
at such times and under such conditions as may be determined by the Board or the
Compensation Committee. In general, Options granted under the Option Plan vest
in quarterly installments over two to four years following the date of grant (as
determined by the Board or the Compensation Committee). The Option Plan
currently provides that, unless otherwise determined at the time of grant, each
option granted under the Option Plan is fully exercisable on and after the date
of grant, subject to the Company's right to repurchase from the optionee, at the
optionee's cost per share, any unvested shares that the optionee purchases and
holds in the event of the optionee's termination of service with or without
cause. As permitted by the Option Plan, the Board has adopted the practice of
granting options under the Option Plan that are exercisable only to the extent
vested. An option is
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exercised through the giving of written notice of exercise to the Company
specifying the number of full shares of Common Stock (which may not be less than
50 shares), along with tender of payment to the company of the purchase price.
The purchase price of shares purchased upon exercise of an option may be paid
by: (i) cash; (ii) check; (iii) and if authorized by the Compensation Committee
at the time the option grant, by delivery to the Company of other shares of the
Company's Common Stock having a fair market value equal to the exercise price;
(iv) written authorization of the Company to withhold, from the shares that
would otherwise be issued upon exercise of the option, that number of whole
shares having a fair market value equal to the exercise price; (v) by promissory
note; or (vi) by the assignment of the proceeds of sale of some or all of the
shares acquired upon exercise of the option.
Exercise Price. The exercise price of options granted under the Option Plan
is determined by the Compensation Committee and must not be less than: (i) the
fair market value of the Common Stock on the date the option is granted in the
case of incentive stock options; or (ii) 85% of such fair market value in the
case of nonstatutory stock options. Where the optionee owns stock representing
more than 10% of the total combined voting power of the Company's outstanding
capital stock, the exercise price for an incentive stock option must not be less
than 110% of such fair market value.
Termination of Employment. If an optionee's employment or other service
with the Company terminates for any reason other than permanent and total
disability or death, options under the Option Plan may be exercised not later
than 90 days (or such other period of time as is determined by the Compensation
Committee) after such termination, but may be exercised only to the extent the
options were exercisable on the date of termination, subject to the condition
that no option may be exercised after expiration of its term.
Disability. If an optionee should become permanently and totally disabled
while employed by or engaged in other service for the Company, or within 90 days
after termination of employment or other service, and such employment or other
service was not interrupted from the date of the option grant through the date
of disability or termination, options may be exercised at any time within one
year following the date of disability, but only to the extent the options were
exercisable on the date of termination or disability, whichever occurs first,
subject to the condition that no option may be exercised after expiration of its
term.
Death. If an optionee should die while employed by or engaged in other
service to the Company, or within 90 days after termination of employment or
other service, and such employment or other service was not interrupted from the
date of the option grant through the date of death or termination, options may
be exercised at any time prior to the expiration of the option term, but only to
the extent the options were exercisable on the date of termination or death,
whichever occurs first.
Termination of Options. All options granted under the Option Plan expire on
the date specified in the option agreement. Unless otherwise authorized by the
Board or its committee, each option shall expire 10 years from the date of
grant; in no event, however, shall the term of such options exceed 10 years, or
5 years in the case of an incentive stock option granted to any participant who
owns stock possessing more than 10% of the total combined voting power of the
Company's outstanding capital stock.
Nontransferability of Options. An option is not transferable by the
optionee other than by will or the laws of descent and distribution and is
exercisable during the optionee's lifetime only by him or her, or in the event
of the optionee's death, by a person who acquires the right to exercise the
option by bequest or inheritance or by reason of the death of the optionee.
Adjustments Upon Changes in Capitalization
In the event of any change in the Company's capital structure (whether by
reason of any recapitalization, stock dividend, stock split, combination of
shares or other similar change in corporate structure), appropriate adjustments
shall be made in the class and number of shares subject to each option and the
per share exercise price therefor.
Unless otherwise determined by the Board, upon the dissolution or
liquidation of the Company or upon any merger or consolidation in which the
Company is not the surviving corporation, all outstanding options shall
terminate.
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Amendment and Termination of the Option Plan
The Board of Directors may amend the Option Plan at any time or from time
to time or may terminate it without the approval of the stockholders; provided,
however, that stockholder approval is required for any amendment that increases
the maximum number of shares for which options may be granted, changes the
standards of eligibility, or materially increases the benefits which may accrue
to participants under the Option Plan. However, no such action by the Board of
Directors or stockholders may alter or impair any option previously granted
under the Option Plan. In any event, the Option Plan shall terminate in December
2000.
Summary of Federal Income Tax Consequences of the Option Plan
The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law with respect to
participation in the Option Plan and does not attempt to describe all possible
federal or other tax consequences of such participation.
Incentive Stock Options
Options designated as incentive stock options are intended to comply with
the provisions of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"). An optionee recognizes no taxable income for regular income tax
purposes as the result of the grant or exercise of such an option.
For optionees who do not dispose of their shares for two years following
the date the option was granted nor within one year following the exercise of
the option, the gain on sale of the shares (which is the difference between the
sale price and the purchase price of the shares) will be taxed as long-term
capital gain. If an optionee satisfies such holding periods upon a sale of the
shares, the Company will not be entitled to any deduction for federal income tax
purposes. If an optionee disposes of shares within two years after the date of
grant or within one year from the date of exercise (a "disqualifying
disposition"), the difference between the fair market value of the shares on the
determination date (see discussion under "Nonstatutory Stock Options" below) and
the option exercise price (not to exceed the gain realized on the sale if the
disposition is a transaction with respect to which a loss, if sustained, would
be recognized) will be taxed as ordinary income at the time of disposition. Any
gain in excess of that amount will be a capital gain. If a loss is recognized,
there will be no ordinary income, and such loss will be a capital loss. A
capital gain or loss will be long-term if the optionee's holding period is more
than 12 months. Any ordinary income recognized by the optionee upon the
disposition of the shares should be deductible by the Company for federal income
tax purposes, except to the extent such deduction is limited by Section 162(m)
of the Code. Section 162(m) imposes a $1 million cap on the amount of
compensation paid to each of a corporation's five most highly-compensated
officers that the corporation may deduct in any year for federal income tax
purposes, subject to the exclusion of certain forms of performance-based
compensation.
Alternative Minimum Tax for Non-Corporate Taxpayers
The excess of the stock's fair market value over the exercise price of an
incentive stock option, which is generally not subject to regular tax at the
time of exercise, is treated as an item of income in determining an individual
taxpayer's alternative minimum tax liability. In determining alternative minimum
tax liability in subsequent years, however, the optionee will be entitled to
increase the basis of the stock by the amount of this income adjustment.
Furthermore, if there is a disqualifying disposition of the stock in the
calendar year of exercise, the alternative minimum taxable income adjustment
will be limited to the gain on the sale.
Nonstatutory Stock Options
Options not designated as incentive stock options will be nonstatutory
stock options. Nonstatutory stock options have no special tax status. An
optionee generally recognizes no taxable income as the result of the grant of
such an option.
Upon exercise of a nonstatutory stock option, the optionee normally
recognizes ordinary income in the amount of the difference between the option
exercise price and the fair market value of the shares on the
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determination date (as defined below). If the optionee is an employee, such
ordinary income generally is subject to withholding of income and employment
taxes. The "determination date" is the date on which the option is exercised
unless the shares are not vested and/or the sale of the shares at a profit would
subject the optionee to suit under Section 16(b) of the Exchange Act, in which
case the determination date is the later of (i) the date on which the shares
vest, or (ii) the date the sale of the shares at a profit would no longer
subject the optionee to suit under Section 16(b) of the Exchange Act. Section
16(b) of the Exchange Act generally is applicable only to officers, directors
and beneficial owners of more than 10% of the Common Stock of the Company. If
the determination date is after the exercise date, the optionee may elect,
pursuant to Section 83(b) of the Code, to have the exercise date be the
determination date by filing an election with the Internal Revenue Service not
later than 30 days after the date the option is exercised. Upon the sale of
stock acquired by the exercise of a nonstatutory stock option, any gain or loss,
based on the difference between the sale price and the fair market value on the
date of recognition of ordinary income, will be taxed as capital gain or loss. A
capital gain or loss will be long-term if the optionee's holding period is more
than 12 months. No tax deduction is available to the Company with respect to the
grant of a nonstatutory option or the sale of the stock acquired pursuant to
such grant. The Company should be entitled to a deduction equal to the amount of
ordinary income recognized by the optionee as a result of the exercise of a
nonstatutory option, except to the extent such deduction is limited by Section
162(m) of the Code, as discussed above under "Incentive Stock Options".
The affirmative vote of a majority of the shares outstanding and entitled
to vote at the Annual Meeting of Stockholders is required for approval of this
proposal. Abstentions and broker non-votes will each be counted as present for
purposes of determining the presence of a quorum. Abstentions will have the same
effect as a negative vote on this proposal. Broker non-votes will have no effect
on the outcome of this vote.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
APPROVAL OF THE AMENDMENT TO THE 1990 STOCK OPTION PLAN.
PROPOSAL NO. 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Arthur Andersen LLP as the independent
auditors of the Company for the current fiscal year ending September 30, 1999.
The selection of the independent auditors is being submitted to the stockholders
for ratification at the Annual Meeting. In the event that ratification by the
stockholders of the selection of Arthur Andersen LLP as the Company's
independent auditors is not obtained, the Board of Directors will reconsider
such selection. Arthur Andersen LLP has audited the Company's financial
statements since 1993.
The ratification of the selection of Arthur Andersen LLP will require the
affirmative vote of not less than a majority of the shares of the Company's
Common Stock represented and voting at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
RATIFICATION OF THE SELECTION OF ARTHUR ANDERSEN LLP.
OTHER BUSINESS
The Company currently knows of no other matters to be submitted at the
Annual Meeting. If any other matters properly come before the Annual Meeting, it
is the intention of the persons named in the enclosed form of Proxy to vote the
shares they represent as the Board of Directors may recommend.
THE BOARD OF DIRECTORS
Dated: January 25, 1999
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PROXY
RAYTEL MEDICAL CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned, revoking all prior proxies, hereby appoints Richard F.
Bader and E. Payson Smith, Jr., or either of them, with full power of
substitution, as proxies to represent and vote as designated in the proxy any
and all of the shares of stock of Raytel Medical Corporation, held or owned by
or standing in the name of the undersigned on the Company's books on January 11,
1999 at the Annual Meeting of Stockholders of the Company to be held at the
Hyatt Regency San Francisco Airport, 1333 Bayshore Highway, Burlingame,
California at 10:30 a.m. on February 25, 1999, and any continuation or
adjournment thereof, with all powers the undersigned would possess if personally
present at the meeting.
THE UNDERSIGNED HEREBY DIRECTS AND AUTHORIZES SAID PROXIES, AND EACH OF
THEM, OR THEIR SUBSTITUTE OR SUBSTITUTES, TO VOTE AS SPECIFIED BELOW WITH
RESPECT TO THE PROPOSALS LISTED IN PARAGRAPHS 1, 2 AND 3 ON THE REVERSE SIDE, OR
IF NO SPECIFICATION IS MADE, TO VOTE IN FAVOR THEREOF.
The undersigned hereby further confers upon said proxies, and each of them,
or their substitute or substitutes, discretionary authority to vote with respect
to all other matters, which may properly come before the meeting or any
continuation or adjournment thereof.
The undersigned hereby acknowledges receipt of: (a) Notice of Annual
Meeting of Stockholders of the Company, (b) accompanying Proxy Statement, and
(c) Annual Report to Stockholders for the fiscal year ended September 30, 1998.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
SEE REVERSE SIDE SEE REVERSE SIDE
<PAGE> 24
[X] PLEASE MARK
VOTES AS IN
THIS EXAMPLE.
THE UNDERSIGNED HEREBY VOTES ALL THE SHARES OF THE STOCK OF RAYTEL MEDICAL
CORPORATION WHICH THE UNDERSIGNED IS ENTITLED TO VOTE AS HEREINAFTER
SPECIFIED UPON THE PROPOSALS LISTED BELOW:
1. Election of one (1) director to Class I of the Board of Directors.
NOMINEE: Thomas J. Fogarty, MD
FOR WITHHELD
[ ] [ ]
2. To approve amendments to the 1990 Stock Option Plan to increase the
number of shares reserved for issuance thereunder by 400,000 shares.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. To approve the appointment of Arthur Andersen LLP as independent auditors
of the Company for the fiscal year ending September 30, 1999.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
Sign exactly as your name(s) appear(s) on your stock certificate. If shares
of stock stand of record in the names of two or more persons or in the name
of husband and wife, whether as joint tenants or otherwise, both or all of
such persons should sign this ballot. If shares of stock are held of record
by a corporation, this ballot should be executed by the President or Vice
President and the Secretary or Assistant Secretary, and the corporate seal
should be affixed thereto. Executors or administrators or other fiduciaries
who execute this ballot for a deceased stockholder should give their full
title.
Signature: Date: Signature: Date:
