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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] 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 240.14a-11(c) or 240.14a-12
VITALCOM INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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VITALCOM INC.
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 21, 1998
TO THE STOCKHOLDERS:
You are cordially invited to attend the Annual Meeting of Stockholders of
VitalCom Inc. (the "Company") to be held on Thursday, May 21, 1998 at 9:00 a.m.,
local time, at the Company's headquarters, 15222 Del Amo Avenue, Tustin,
California 92780, for the following purposes:
(1) To elect four directors to serve until the next Annual Meeting of
Stockholders and until their successors are elected.
(2) To approve an amendment to the Company's 1996 Employee Stock Purchase
Plan (i) to increase the number of shares of Common Stock reserved for
issuance thereunder by 150,000 shares from 150,000 shares to 300,000
shares, and (ii) to make other administrative changes.
(3) To ratify the appointment of Deloitte & Touche LLP as independent
public accountants of the Company for the fiscal year ending December
31, 1998.
(4) To transact such other business as may properly come before the meeting
or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on April 1, 1998 are
entitled to notice of and to vote at the meeting and any adjournment thereof.
All stockholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed proxy card as promptly as possible in the
postage prepaid envelope enclosed for that purpose. Any stockholder attending
the meeting may vote in person even if he or she has returned a proxy card.
Sincerely,
LOGO
Frank T. Sample
Chairman of the Board, President
and Chief Executive Officer
Tustin, California
April 21, 1998
YOUR VOTE IS IMPORTANT. IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING,
YOU ARE REQUESTED TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AS PROMPTLY AS
POSSIBLE AND RETURN IT IN THE ENCLOSED ENVELOPE.
<PAGE> 3
VITALCOM INC.
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PROXY STATEMENT FOR 1998
ANNUAL MEETING OF STOCKHOLDERS
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INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
VitalCom Inc. (the "Company") for use at the Annual Meeting of Stockholders (the
"Annual Meeting") to be held on Thursday, May 21, 1998 at 9:00 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 Company's headquarters, 15222 Del Amo Avenue, Tustin, California
92780.
These proxy solicitation materials and the Company's 1997 Annual Report on
Form 10-K for the year ended December 31, 1997 were first mailed on or about
April 24, 1998 to all stockholders entitled to vote at the meeting. The
Company's principal executive offices are located at 15222 Del Amo Avenue,
Tustin, California 92780, and the Company's telephone number at that location is
(714) 546-0147.
RECORD DATE AND PRINCIPAL STOCK OWNERSHIP
Stockholders of record at the close of business on April 1, 1998 (the
"Record Date") are entitled to notice of and to vote at the meeting. On the
Record Date, 8,170,333 shares of the Company's Common Stock were issued and
outstanding and held of record by approximately 40 stockholders.
The following table sets forth certain information known to the Company
regarding the beneficial ownership of the Common Stock as of the Record Date as
to (i) each person known by the Company to own beneficially more than five
percent of the outstanding shares of Common Stock, (ii) each director and
nominee for director of the Company, (iii) each Named Executive Officer (as
defined below) of the Company and (iv) all directors and executive officers as a
group. Except as otherwise indicated, each of the stockholders has sole voting
and investment power with respect to the shares beneficially owned. Unless
otherwise indicated, the address for each stockholder is care of VitalCom Inc.,
15222 Del Amo Avenue, Tustin, California 92780.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
--------------------------
NAME AND ADDRESS NUMBER PERCENT
---------------- ------------ ----------
<S> <C> <C>
Warburg, Pincus Ventures, L.P.(1)........................... 3,915,181 47.9%
466 Lexington Avenue, 10th Floor
New York, NY 10017
ABS Capital Partners, L.P.(2)............................... 1,057,062 12.9
One South Street
Baltimore, MD 21202
Vertical Fund Associates, L.P.(3)........................... 539,582 6.6
18 Bank Street
Summit, NJ 07901
Frank T. Sample(4).......................................... 97,933 1.2
Patrick T. Hackett(5)....................................... 3,915,181 47.9
Jack W. Lasersohn(6)........................................ 755,782 9.3
Timothy T. Weglicki(7)...................................... 1,057,062 12.9
Warren J. Cawley(8)......................................... 95,037 1.1
John R. Graham(9)........................................... 164,331 2.0
Shelley B. Thunen(10)....................................... 50,823 *
David R. Clare, Jr.(11)..................................... 28,034 *
All executive officers and directors as a Group (9
persons)(12).............................................. 6,164,453 75.4
</TABLE>
<PAGE> 4
- ---------------
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of Common Stock subject to options,
warrants and convertible notes currently exercisable or convertible, or
exercisable or convertible within 60 days of April 1, 1998 are deemed
outstanding for computing the percentage of the person holding such option but
are not outstanding for purposes of computing the percentage of any other
person. Except as indicated by footnote, and subject to community property laws
where applicable, the persons named in the table above have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them.
* Less than one percent of the outstanding Common Stock.
(1) The sole general partner of Warburg, Pincus Ventures, L.P. ("Ventures") is
Warburg, Pincus & Co., a New York general partnership ("WP"). E.M. Warburg,
Pincus & Co., LLC, a New York limited liability company ("EMW LLC"),
manages Ventures. The members of EMW LLC are substantially the same as the
partners of WP. Lionel I. Pincus is the managing partner of WP and the
managing member of EMW LLC and may be deemed to control both WP and EMW
LLC. WP has a 15% interest in the profits of Ventures as the general
partner, and also owns approximately 1.5% of the limited partnership
interests in Ventures. Patrick T. Hackett, a director of the Company, is a
Managing Director and a member of EMW LLC and a general partner of WP. As
such, Mr. Hackett may be deemed to have an indirect pecuniary interest
(within the meaning of Rule 16a-1 under the Exchange Act) in an
indeterminate portion of the shares beneficially owned by Ventures and WP.
See Note 5 below.
(2) The sole general partner of ABS Capital Partners, L.P. ("ABS Capital") is
ABS Partners, L.P. ("ABS Partners"). Timothy T. Weglicki is a general
partner of ABS Partners.
(3) The sole general partner of Vertical Fund Associates, L.P. ("Vertical
Fund") is The Vertical Group, Inc. ("Vertical"). Jack W. Lasersohn is a
Managing Director of Vertical.
(4) Includes 97,500 shares issuable upon exercise of vested options within 60
days of the Record Date.
(5) All of the shares indicated as owned by Mr. Hackett are owned directly by
Ventures and are included because of his affiliation with Ventures. Mr.
Hackett disclaims "beneficial ownership" of these shares within the meaning
of Rule 13d-3 under the Exchange Act. See Note 1 above.
(6) Of the shares indicated as owned by Mr. Lasersohn, 216,200 are owned
directly by Vertical Life Sciences, L.P., of which Vertical is the sole
general partner, and 539,582 are owned directly by Vertical Fund, and all
of such shares are included because of Mr. Lasersohn's affiliation with
those entities. As such, Mr. Lasersohn may be deemed to have an indirect
pecuniary interest in an indeterminate portion of the shares beneficially
owned by Vertical Life Sciences, L.P., Vertical Fund and Vertical. Mr.
Lasersohn disclaims "beneficial ownership" of these shares within the
meaning of Rule l3d-3 under the Exchange Act.
(7) All of the shares indicated as owned by Mr. Weglicki are owned directly by
ABS Capital and are included because of his affiliation with that entity.
As such, Mr. Weglicki may be deemed to have an indirect pecuniary interest
in an indeterminate portion of the shares beneficially owned by ABS Capital
and ABS partners. Mr. Weglicki disclaims "beneficial ownership" of these
shares within the meaning of Rule 13d-3 under the Exchange Act.
(8) Includes 22,323 shares issuable upon exercise of stock options exercisable
within 60 days of the Record Date.
(9) Includes 24,393 shares issuable upon exercise of stock options exercisable
within 60 days of the Record Date.
(10) Includes 33,369 shares issuable upon exercise of stock options exercisable
within 60 days of the Record Date.
(11) Includes 25,000 shares issuable upon exercise of stock options exercisable
within 60 days of the Record Date.
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(12) Includes 202,585 shares issuable upon exercise of stock options exercisable
within 60 days of the Record Date and 3,915,181, 1,057,062, 539,582 and
216,200 shares owned directly by Ventures, ABS, Vertical Fund and Vertical
Life Sciences, L.P., respectively. See notes 5, 6 and 7 above.
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 Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a later
date or by attending the meeting and voting in person.
VOTING AND SOLICITATION
Each holder of Common Stock is entitled to one vote for each share of stock
held on all matters to be voted on by the stockholders. In all matters other
than the election of directors, the affirmative vote of the majority of shares
present in person or represented by proxy at the meeting and entitled to vote on
the subject matter shall be the act of the stockholders. Directors shall be
elected by a plurality of the votes of the shares present in person or
represented by proxy at the Annual Meeting and entitled vote on the election of
directors.
This solicitation of proxies is made by the Company, and all related costs
will be borne by the Company. In addition, the Company may reimburse brokerage
firms and other persons representing beneficial owners of stock for their
expenses in forwarding solicitation material 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,
telegram or facsimile.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be presented
by such stockholders at the Company's 1999 Annual Meeting of Stockholders must
be received by the Company no later than December 21, 1998 in order that they
may be considered for inclusion in the notice and proxy statement relating to
that meeting.
PROPOSAL ONE
ELECTION OF DIRECTORS
A board of four directors is to be elected at the Annual Meeting. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for the Company's four (4) nominees named below, all of whom are presently
directors of the Company. In the event that any nominee of the Company is unable
or declines to serve as a director at the time of the Annual Meeting, the
proxies will be voted for any nominee who shall be designated by the present
Board of Directors to fill the vacancy. The Company is not aware of any nominee
who will be unable or will decline to serve as a director. In the event that
additional persons are nominated for election as directors, the proxy holders
intend to vote all proxies received by them in such a manner as will assure the
election of as many of the nominees listed below as possible, and, in such
event, the specific nominees to be voted for will be determined by the proxy
holders. The term of office for each person elected as a director will continue
until the next Annual Meeting or until a successor has been elected and
qualified.
VOTE REQUIRED
If a quorum is present, the four (4) nominees receiving the highest number
of votes will be elected to the Board of Directors. Votes withheld from any
nominee, abstentions and shares held by brokers that are present but not voted
because the brokers are prohibited from exercising discretionary authority
(broker non-votes) will be counted only for the purpose of determining if a
quorum is present.
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NOMINEES
The names of the nominees and certain information about them as of the
Record Date are set forth below:
<TABLE>
<CAPTION>
NAME OF NOMINEE AGE POSITION WITH THE COMPANY DIRECTOR SINCE
--------------- --- ------------------------- --------------
<S> <C> <C> <C>
Frank T. Sample........ 52 President, Chief Executive Officer and 1997
Chairman of the Board of Directors
Patrick T. Hackett..... 36 Director 1997
Jack W. Lasersohn...... 45 Director 1995
Timothy T. Weglicki.... 45 Director 1995
</TABLE>
FRANK T. SAMPLE has served as a director of the Company and also has served
as its President and Chief Executive Officer since October 1997. In February
1998, Mr. Sample was appointed Chairman of the Board. From August 1997 to
October 1997, Mr. Sample served as Executive Vice President at IDX Systems
Corporation, a leading provider of information technology to the healthcare
industry. From December 1990 to July 1997, when PHAMIS, Inc., a provider of
patient-centered medical record information systems, was merged into IDX Systems
Corporation, Mr. Sample served as President and Chief Executive Officer of
PHAMIS, Inc. He is a director of IDX Systems Corporation and two privately held
companies. Mr. Sample holds a B.B.A. in Business Administration from Cleveland
State University.
PATRICK T. HACKETT has served as a director of the Company since December
1997. Since 1995, Mr. Hackett has been a Managing Director of Warburg, Pincus &
Co., Inc., a private investment firm. Mr. Hackett served as Vice President at
Warburg, Pincus & Co., Inc., from 1991 to 1993 and as an associate from 1990 to
1991. He is currently a director of Transition Systems, Inc., Coventry
Corporation and several privately held companies. Mr. Hackett holds a BA degree
in Chemistry and a BSE in Economics from the University of Pennsylvania.
JACK W. LASERSOHN has served as a director of the Company since June 1995.
He has been a Managing Director of The Vertical Group, Inc., a private venture
capital and investment management firm, since its formation in 1989 by former
principals of F. Eberstadt & Co., Inc. From 1981 to 1989, he was a Vice
President and later a Managing Director of the venture capital division of F.
Eberstadt & Co., Inc. Mr. Lasersohn also serves as a director of Cardiothoracic
Systems, Inc., UroQuest Medical Corporation and Massimo Corporation and of a
number of privately held healthcare companies. He holds a B.S. and a M.A. in
Physics from Tufts University, and a J.D. from Yale University.
TIMOTHY T. WEGLICKI has served as a director of the Company since June
1995. Since December 1993, he has been principally employed as a general partner
of ABS Partners, L.P., the general partner of ABS Capital Partners, L.P., a
private equity fund. Prior to that date, he was principally employed as a
Managing Director of Alex. Brown & Sons Incorporated where he established and
headed its Capital Markets Group. Mr. Weglicki holds an M.B.A. from the Wharton
Graduate School of Business and a B.A. from Johns Hopkins University. Mr.
Weglicki is a director of a number of privately held healthcare companies.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of six (6) meetings
during fiscal 1997. Jack W. Lasersohn and Timothy T. Weglicki attended all
meetings, Elizabeth H. Weatherman attended all meetings scheduled prior to her
resignation from the Board and Frank T. Sample and Patrick T. Hackett attended
all meetings scheduled subsequent to their appointments to the Board. No
director attended fewer than 75% of the meetings of the Board of Directors and
committees thereof, if any, upon which such director served. The Board of
Directors has an Audit Committee and an Executive Compensation Committee which
is responsible for administering the Company's Option Plans and reviewing and
approving appropriate Company compensation recommendations and plans.
The Audit Committee was established in June 1995 and is responsible for
reviewing the results and scope of the audit and other services provided by the
Company's independent auditors. The Audit Committee
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consisted of directors Elizabeth H. Weatherman, Timothy T. Weglicki and Jack W.
Lasersohn until December 1997. Elizabeth H. Weatherman resigned from the Audit
Committee in December 1997, and the vacancy created by her resignation was
filled by Patrick T. Hackett. The Audit Committee met six (6) times in fiscal
1997.
The Executive Compensation Committee and the Option Plan Committee were
combined into one committee in 1997 (the "Compensation Committee"). The
Compensation Committee is responsible for the administration of the Company's
1993 Stock Option Plan, the Company's 1996 Stock Option Plan, the Company's 1996
Director Option Plan and any future option plans of the Company, as well as
determining which persons are to be granted options under such plans and the
number of shares subject to such options. The Compensation Committee consisted
of directors Elizabeth H. Weatherman and Timothy T. Weglicki until December
1997. Elizabeth H. Weatherman resigned from the Compensation Committee in
December 1997, and the vacancy created by her resignation was filled by Patrick
T. Hackett. The Compensation Committee met seven (7) times in fiscal 1997.
COMPENSATION COMMITTEE INTERLOCKS
The Compensation Committee was formed in December 1997 and the members of
the Compensation Committee are Mr. Hackett and Mr. Weglicki. Neither of these
individuals, and Elizabeth H. Weatherman, Mr. Hackett's predecessor on the
Compensation Committee, was at any time during the fiscal year ended December
31, 1997, or at any other time, an officer or employee of the Company. No member
of the Compensation Committee of the Company's Board serves as a member of the
board of directors or compensation committee of any entity that has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee.
PROPOSAL 2
AMENDMENT TO THE
1996 EMPLOYEE STOCK PURCHASE PLAN
PROPOSED AMENDMENT
The 1996 Employee Purchase Plan (the "Purchase Plan") was adopted by the
Board of Directors in January 1996 and approved by the stockholders in February
1996. A total of 150,000 shares of Common Stock was initially reserved for
issuance under the Purchase Plan. In February 1998, the Board of Directors
approved amendments to the Purchase Plan (i) to increase the number of shares
reserved for issuance thereunder by 150,000 shares from 150,000 shares to a
total of 300,000 shares, and (ii) to make other administrative changes.
The Company's stockholders are requested to approve the amendments to the
Purchase Plan (i) to increase the number of shares reserved for issuance
thereunder by 150,000 shares from 150,000 shares to a total of 300,000 shares,
and (ii) to make other administrative changes.
REQUIRED VOTE; RECOMMENDATION OF BOARD OF DIRECTORS
The affirmative vote of the majority of the outstanding shares of Common
Stock entitled to vote will be required to approve the amendment to the Purchase
Plan. Abstentions and broker non-votes will have the same effect as votes
against the proposal.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS
PROPOSAL.
A description of the principal features of the Purchase Plan, a copy of
which may be obtained from the Company, is set forth below.
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PURPOSE
The purpose of the Purchase Plan is to provide employees with an
opportunity to purchase Common Stock of the Company through payroll deductions
in a manner that qualifies under Section 423 of the Internal Revenue Code (the
"Code").
ADMINISTRATION
The Purchase Plan is administered by the Board of Directors or a Committee
of the Board (collectively, the "Administrator").
ELIGIBILITY
Only employees employed by the Company or its subsidiaries on the first day
of an offering period may participate in the Purchase Plan. For this purpose, an
"employee" is any person who is regularly employed at least twenty hours per
week and at least five months per calendar year by the Company or any of its
subsidiaries. No employee shall be granted an option under the Purchase Plan if:
(i) immediately after the grant of the option, the employee (or any other person
whose stock would be attributed to the employee pursuant to Section 424(d) of
the Code) would own five percent or more of the total combined voting power or
value of the stock of the Company or any of its subsidiaries; or (ii) which
permits such participant's rights to purchase stock under all employee stock
purchase plans of the Company and its subsidiaries to accrue at a rate which
exceeds $25,000 worth of stock (determined with reference to the fair market
value of the Common Stock at the time of grant) in a calendar year. Subject to
these eligibility criteria, the Purchase Plan permits eligible employees to
purchase Common Stock through payroll deductions subject to certain limitations
described below. See "Payment of Purchase Price; Payroll Deductions."
At the Record Date, the Company employed approximately 141 people,
approximately 131 of whom were eligible to participate in the Purchase Plan.
Approximately 37 employees were participating in the Purchase Plan as of the
Record Date.
OFFERING PERIOD
The Purchase Plan is implemented by offering periods lasting six months
with a new offering period commencing every six months. Normally, a
participant's payroll deductions are accumulated throughout an offering period
and, at the end of the offering period, shares of the Company's Common Stock are
purchased with the accumulated payroll deductions. Offering periods commence on
or about May 1 and November 1 of each year.
ENROLLMENT IN THE PLAN
Eligible employees become participants in the Purchase Plan by delivering
to the Company's payroll office a subscription agreement authorizing payroll
deductions. Employees hired after the first day of an offering period (or who
otherwise become eligible after such date) may begin participation in the next
offering period. Under the Purchase Plan, once an employee elects to participate
in the Purchase Plan, enrollment in each successive offering period occurs
automatically unless the employee withdraws from participation in the Purchase
Plan.
PURCHASE PRICE
The purchase price per share at which shares will be sold in an offering
under the Purchase Plan is the lower of (i) 85% of the fair market value of a
share of Common Stock on the first day of an offering period or (ii) 85% of the
fair market value of a share of Common Stock on the last day of each offering
period. The fair market value of the Common Stock on a given date is generally
the closing sale price of the Common Stock as reported on the Nasdaq National
Market for such date.
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<PAGE> 9
PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS
The purchase price of the shares is accumulated by payroll deductions over
the offering period. The Purchase Plan provides that the aggregate of such
payroll deductions during the offering period shall not exceed 10% of the
participant's compensation during any offering period. During the offering
period, a participant may discontinue his or her participation in the Purchase
Plan, and may decrease or increase the rate of payroll deductions in an offering
period within limits set by the Administrator.
All payroll deductions made for a participant are credited to the
participant's account under the Purchase Plan, are withheld in whole percentages
only and are included with the general funds of the Company. Funds received by
the Company pursuant to exercises under the Purchase Plan are also used for
general corporate purposes. A participant may not make any additional payments
into his or her account.
PURCHASE OF STOCK; EXERCISE OF OPTION
By executing a subscription agreement to participate in the Purchase Plan,
the employee is entitled to have shares placed under option to him. An employee
may purchase up to a number of shares of the Company's Common Stock determined
by dividing such employee's payroll deductions accumulated prior to such
exercise date and retained in the participant's account as of the exercise date
by the applicable Purchase Price; provided that in no event shall an employee be
permitted to purchase during any two offering periods more than a number of
shares determined by dividing $12,500 by the fair market value of a share of the
Company's Common Stock on the enrollment date. Unless the employee's
participation is discontinued, the option for the purchase of shares will be
exercised automatically at the end of the offering period at the applicable
price. No fractional shares will be issued upon exercise of the option. Any
amounts insufficient to purchase a full share remaining in a participant's
account after exercise of the option will be credited to the participant and
used in a future offering period. No interest will accrue on the payroll
deductions of a participant in the Purchase Plan.
WITHDRAWAL
A participant may terminate his or her participation in the Purchase Plan
at any time by giving the Company a written notice of withdrawal. In such event,
the payroll deductions credited to the participant's account will be returned,
without interest, to such participant. Payroll deductions will not resume unless
a new subscription agreement is delivered in connection with a subsequent
offering period.
TERMINATION OF EMPLOYMENT
Termination of a participant's employment for any reason, including death,
cancels his or her participation in the Purchase Plan immediately. In such event
the payroll deductions credited to the participant's account will be returned
without interest to such participant, his or her designated beneficiaries or the
executors or administrators of his or her estate.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event of any changes in the capitalization of the Company effected
without receipt of consideration by the Company, such as a stock split, stock
dividend, combination or reclassification of the Common Stock, resulting in an
increase or decrease in the number of shares of Common Stock, proportionate
adjustments will be made by the Board in the shares subject to purchase and in
the price per share under the Purchase Plan. Notwithstanding the above, in
connection with any merger or acquisition of assets involving the Company, any
offering period then in progress shall be shortened to a new exercise date and
the Board shall notify each participant that his or her option shall be
exercised automatically on the new exercise date, unless prior to such date the
participant has withdrawn from the offering period.
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EFFECT OF LIQUIDATION, DISSOLUTION, SALE OF ASSETS OR MERGER
In the event of a liquidation or dissolution of the Company, an offering
period will terminate immediately prior to the consummation of such proposed
action, unless otherwise proposed by the Board. In the event of a sale of all or
substantially all of the assets of the Company or a merger of the Company with
or into another corporation, the Offering Period then in progress shall be
shortened by setting a new Exercise Date. The Board shall notify each
participant in writing at least ten (10) business days prior to the termination
date on which date all options subject to the Purchase Plan will be exercised
automatically.
NON-ASSIGNABILITY
No rights or accumulated payroll deductions of an employee under the
Purchase Plan may be pledged, assigned or transferred for any reason, and any
such attempt may be treated by the Company as an election to withdraw from the
Purchase Plan.
REPORTS
Individual accounting will be maintained for each participant in the
Purchase Plan. Each participant receives as a report showing the details of the
participant's account at least once every 12 months.
AMENDMENT AND TERMINATION
The Board may at any time and for any reason amend or terminate the
Purchase Plan, except that no such termination shall affect options previously
granted and no amendment shall make any change in an option granted prior
thereto which adversely affects the rights of any participant. Stockholder
approval for amendments to the Purchase Plan shall be obtained in such a manner
and to such a degree as required to comply with all applicable laws or
regulations. The Plan will terminate in the year 2006, unless terminated earlier
by the Board in accordance with the Purchase Plan.
CERTAIN FEDERAL INCOME TAX INFORMATION
The following brief summary of the effect of federal income taxation upon
the participant and the Company with respect to the shares purchased under the
Purchase Plan does not purport to be complete, and does not discuss the tax
consequences of a participant's death or the income tax laws of any state or
foreign country in which the participant may reside.
The Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Sections 421 and 423
of the Code. Under these provisions, no income will be taxable to a participant
until the shares purchased under the Purchase Plan are sold or otherwise
disposed of. Upon sale or other disposition of the shares, the participant will
generally be subject to tax in an amount that depends upon the holding period.
If the shares are sold or otherwise disposed of more than two years from the
Enrollment Date and one year from the applicable Exercise Date, the participant
will recognize ordinary income measured as the lesser of (a) the excess of the
fair market value of the shares at the time of such sale or disposition over the
purchase price, or (b) an amount equal to 15% of the fair market value of the
shares as of the Enrollment Date. Any additional gain will be treated as
long-term capital gain. If the shares are sold or otherwise disposed of before
the expiration of these holding periods, the participant will recognize ordinary
income generally measured as the excess of the fair market value of the shares
on the date the shares are purchased over the purchase price. Any additional
gain or loss on such sale or disposition will be long-term or short-term capital
gain or loss, depending on the holding period. The Company generally is not
entitled to a deduction for amounts taxed as ordinary income or capital gain to
a participant except to the extent of ordinary income recognized by participants
upon a sale or disposition of shares prior to the expiration of the holding
periods described above.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION
UPON THE PARTICIPANT AND THE COMPANY WITH RESPECT TO THE SHARES PURCHASED UNDER
THE PURCHASE PLAN AND DOES NOT PURPORT TO BE COMPLETE. REFERENCE SHOULD BE MADE
TO THE APPLICABLE PROVISIONS OF THE TAX CODE. IN ADDITION, THIS SUMMARY DOES NOT
8
<PAGE> 11
DISCUSS THE TAX CONSEQUENCES OF A PARTICIPANT'S DEATH OR THE INCOME TAX LAWS OF
ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE PARTICIPANT MAY RESIDE.
Participation in the Purchase Plan. The Company is unable to predict the
amount of benefits that will be received or allocated to any particular
participant under the Purchase Plan. The following table sets forth the dollar
amount and the number of shares purchased under the Purchase Plan during the
last fiscal year by (i) each of the Company's Named Executive Officers, (ii) all
executive officers as a group, (iii) all non-employee directors as a group and
(iv) all employees other than executive officers as a group.
<TABLE>
<CAPTION>
PURCHASE PLAN
---------------------------
NUMBER OF DOLLAR VALUE OF
NAME AND POSITION SHARES(1) BENEFIT(2)($)
- ------------------------------------------------------------ --------- ---------------
<S> <C> <C>
Frank T. Sample............................................. -- --
President and Chief Executive Officer
Warren J. Cawley............................................ 3,644 $ 3,092
Vice President, Business Development
David R. Clare, Jr.......................................... 2,632 2,533
Vice President, Direct Sales
John R. Graham.............................................. -- --
Vice President, OEM Sales
Shelley B. Thunen........................................... 1,765 2,026
Vice President, Finance and Chief Financial Officer
Donald W. Judson(3)......................................... 4,958 4,191
Former President and Chief Executive Officer
David L. Schlotterbeck...................................... -- --
Former President and Chief Executive Officer(4)
All current executive officers as a group (6 persons)....... 8,041 7,651
All current non-executive directors as a group (3 -- --
persons)..................................................
All other employees (excluding current executive officers) 38,921 25,809
as a group................................................
</TABLE>
- ---------------
(1) Includes shares of Common Stock of the Company purchased under the Purchase
Plan for a purchase price of $4.0375 per share, which represents the lower
of (i) 85% of the fair market value of a share of Common Stock on the first
day of an offering period, or (ii) 85% of the fair market value of a share
of Common Stock on the last day of such offering period in the offering
periods ended April 30, 1997 and October 31, 1997.
(2) The dollar value of the benefit represents the number of shares purchased
multiplied by the difference between the fair market value of a share of
Common Stock on the date of purchase and the purchase price of $4.0375 per
share.
(3) Mr. Judson was reinstated as President and Chief Executive Officer in
January 1997 and served as such until October 24, 1997.
(4) Mr. Schlotterbeck stepped down as the President and Chief Executive Officer
on January 1, 1997.
PROPOSAL THREE
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected Deloitte & Touche LLP, independent
public accountants, to audit the financial statements of the Company for the
fiscal year ending December 31, 1998, and recommends that stockholders vote for
ratification of such appointment. In the event of a negative vote on
ratification, the Board of Directors will reconsider its selection.
Deloitte & Touche LLP has audited the Company's financial statements
annually since 1992. Representatives of Deloitte & Touche LLP are expected to be
present at the meeting, will have an opportunity to make a statement if they
desire to do so and are expected to be available to respond to appropriate
questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE RATIFICATION
OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS INDEPENDENT PUBLIC ACCOUNTANTS.
9
<PAGE> 12
MANAGEMENT
In addition to Mr. Sample, the following persons were executive officers of
the Company as of April 1, 1998:
<TABLE>
<CAPTION>
NAME OF OFFICER AGE POSITION WITH THE COMPANY
--------------- --- -----------------------------------------------------
<S> <C> <C>
Warren J. Cawley............... 56 Vice President, Business Development
David R. Clare, Jr............. 40 Vice President, Direct Sales
John R. Graham................. 51 Vice President, OEM Sales
Stanley H. Reese............... 48 Vice President, Research and Development
Shelley B. Thunen.............. 45 Vice President, Finance and Chief Financial Officer
</TABLE>
WARREN J. CAWLEY has served as Vice President, Business Development of the
Company since April 1997. From 1989 through April 1997, Mr. Cawley served as
Vice President, Direct Sales for the Company. From 1985 through 1989, Mr. Cawley
served as Vice President, OEM Sales for the Company. Prior to 1985, Mr. Cawley
held sales and management positions at several medical device companies. Mr.
Cawley holds an M.B.A. degree and a B.S. degree from the University of Southern
California.
DAVID R. CLARE, JR. joined the Company in March 1997 as Vice President,
Direct Sales. From October 1995 to September 1996, Mr. Clare served as Vice
President and General Manager, Radiology Division, for ADAC Laboratories, a
medical device company. From December 1987 to October 1995 he held sales and
sales management positions, most recently Vice President Sales, Southeast Region
for HBO & Company, a healthcare information systems company. Mr. Clare holds a
B.A. degree in Economics from Ursinus College, Collegeville, PA.
JOHN R. GRAHAM has served as Vice President, OEM Sales of the Company since
1989. Prior to joining the Company in 1989, he acted as a consultant and held
various positions at a number of healthcare organizations and technology-based
companies, including serving as President and Chief Executive Officer of a
medical device company. Mr. Graham holds an M.S. degree in Bioengineering from
Columbia University and a B.S.E.E. degree from Northeastern University.
STANLEY H. REESE joined the Company in July 1997 as Vice President,
Research and Development. Prior to joining the Company, from 1989 to 1997, Mr.
Reese directed all product development activities as Vice President, Engineering
for Cubix Corp., a leading supplier of remote access fault tolerant systems. Mr.
Reese holds a B.S. in Electrical Engineering from The Citadel, an M.S. in
Electrical Engineering from The Georgia Institute of Technology and is a
graduate of the Executive Management Program at the University of California at
Irvine.
SHELLEY B. THUNEN has served as Vice President, Finance and Chief Financial
Officer of the Company since August 1992. Prior to joining the Company, Ms.
Thunen served as the Vice President, Finance of Hybrid Designs, Inc., a
manufacturer of hybrid microelectronic circuits, from August 1990 to August 1992
and concurrently from January 1992 through August 1992 served as General Manager
of a related company. Prior to August 1990, Ms. Thunen was a financial
consultant specializing in company turnarounds and served in various financial
management capacities at several technology-based companies, including as Chief
Financial Officer of a publicly traded computer company. Ms. Thunen holds an
M.B.A. degree and a B.A. degree in Economics from the University of California
at Irvine.
10
<PAGE> 13
EXECUTIVE COMPENSATION AND OTHER MATTERS
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by (i) the Company's
Chief Executive Officer, (ii) the Company's former Chief Executive Officer from
January 2, 1997 through October 24, 1997, (iii) the Company's former Chief
Executive Officer on January 1, 1997 and (iv) the four most highly compensated
other executive officers of the Company (collectively, the "Named Executive
Officers") for services rendered in all capacities to the Company during the
fiscal years ended December 31, 1995, 1996 and 1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
OTHER COMPENSATION AWARDS
ANNUAL -------------------------
ANNUAL COMPENSATION COMPENSATION SECURITIES ALL OTHER
-------------------------- ------------ UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($)(6) BONUS($)(2) (3)($) OPTIONS(#) $(9)
--------------------------- ---- ------------ ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Frank T. Sample............... 1997 $38,434(1) $50,000 -- 780,000 $ 96
President, Chief Executive -- -- -- -- -- --
Officer and Chairman -- -- -- -- -- --
of the Board
Warren J. Cawley.............. 1997 153,500 25,000 -- 30,000 1,800
Vice President, Business 1996 143,082 -- -- -- 1,305
Development 1995 126,990 79,671 -- 13,617 421
David R. Clare, Jr............ 1997 123,019 72,500 72,925(8) 100,000 204
Vice President, Direct Sales 1996 -- -- -- -- --
1995 -- -- -- -- --
John R. Graham................ 1997 138,692 35,000 -- 40,000 1,162
Vice President, OEM Sales 1996 128,308 10,305 -- -- 745
1995 111,530 70,263 -- 13,617 380
Shelley B. Thunen............. 1997 153,068 45,000 -- 60,000 682
Vice President, Finance and 1996 128,255 10,305 -- 17,844 264
Chief Financial Officer 1995 110,683 69,948 -- 18,156 378
Donald W. Judson.............. 1997 239,155 30,000 -- 100,000 1,800
Former President, Chief 1996 227,101 -- -- -- 2,212
Executive Officer and 1995 205,171 129,497 -- 27,696 612
Chairman of the Board (4)
David L. Schlotterbeck........ 1997 110,250 -- -- -- 672
Former President, Chief 1996 222,179 -- 81,933(8) -- 616
Executive Officer and 1995 79,538(7) 74,055 18,955(8) 302,010 47
Director(5)
</TABLE>
- ---------------
(1) Based on an annual salary of $250,000 commencing on October 24, 1997.
(2) Represents amounts paid or accrued under the Company's Management Bonus Plan
for which senior management is eligible. The amount of a particular
employee's bonus varies depending on salary level, position with the Company
and the operating results of the Company.
(3) In accordance with the rules of the Securities and Exchange Commission,
other compensation in the form of prerequisites and other personal benefits
has been omitted in those cases where the aggregate amount of such
prerequisites and other personal benefits constituted less than the lesser
of $50,000 or 10% of the total annual salary and bonus for the Named
Executive Officer for such year.
(4) Mr. Judson was reinstated as the President and Chief Executive Officer in
January 1997 and served as such until October 24, 1997. All compensation
paid to Mr. Judson during fiscal 1996 was paid to him in his capacity as
Chairman of the Board.
(5) Mr. Schlotterbeck stepped down from his position as President and Chief
Executive Officer in January 1997. $109,489 of Mr. Schlotterbeck's 1997
salary was attributable to continuance pay under Mr. Schlotterbeck's
Employment Agreement with the Company.
11
<PAGE> 14
(6) Other than Mr. Sample's 1997 salary and Mr. Schlotterbeck's 1995 and 1997
compensation, amounts include contributions paid by the Company under its
401(k) and Profit Sharing Plan.
(7) Based on an annual salary of $225,000 commencing on August 1, 1995.
(8) Includes amounts paid in connection with the reimbursement by the Company of
certain relocation expenses.
(9) Represents premiums paid by the Company on a life insurance policy for the
benefit of the Named Executive Officer.
OPTION GRANTS IN FISCAL 1997
The following table sets forth information with respect to stock option
grants to each of the Named Executive Officers during the year ended December
31, 1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS/SARS
OPTIONS/SARS GRANTED TO
GRANTED EMPLOYEES IN EXERCISE OR BASE
NAME (#)(1) FISCAL YEAR(%) PRICE ($/SH) EXPIRATION DATE
---- ------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Frank T. Sample......................... 780,000(2) 59.8% $4.500 10/24/2007
Warren J. Cawley........................ 24,842 1.9% $4.750 03/20/2007
5,158 0.4% $4.750 07/16/2007
David R. Clare, Jr...................... 100,000 7.7% $5.500 03/18/2007
John R. Graham.......................... 33,122 2.5% $4.750 03/20/2007
6,878 0.5% $4.750 07/16/2007
Shelley B. Thunen....................... 28,982(3) 2.2% $4.750 03/20/2007
25,000 1.9% $4.750 07/16/2007
6,018 0.5% $3.875 10/08/2007
Donald W. Judson........................ 82,805 6.3% $4.750 03/20/2007
17,195 1.3% $4.750 07/16/2007
David L. Schlotterbeck.................. 6,000 0.5% $4.970 02/19/2007
</TABLE>
- ---------------
(1) All of these stock option grants were pursuant to the Company's 1993 Stock
Option Plan, as amended, and are subject to the terms of such plan. These
options were granted at exercise prices equal to the fair market value of
the Common Stock as determined by the Board of Directors of the Company on
the date of grant. Unless otherwise indicated, options granted vest as to
25% of the shares subject to the option on the first anniversary of the date
of grant and as to 6.25% of the shares subject to the option quarterly
thereafter.
(2) The option grant to Mr. Sample is exercisable as follows: (a) 97,500 options
are exercisable six months from Mr. Sample's acceptance of employment with
the Company and (b) 48,750 options are exercisable on the last day of each
calendar quarter thereafter, so that all such options shall be fully
exercisable four (4) years from the grant date.
(3) The option grant to Ms. Thunen is exercisable as follows: (a) 750 options
are exercisable on the date of grant; (b) 5,000 options are exercisable on
June 30, 1997; (c) 5,000 options are exercisable on September 30, 1997; (d)
4,558 options are exercisable on March 20, 1998; and (e) 1,140 options are
exercisable on the last day of each calendar quarter thereafter, so that all
such options shall be fully exercisable four years (4) from the grant date.
12
<PAGE> 15
AGGREGATED OPTION EXERCISES IN FISCAL 1997
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to exercises of
stock options during the year ended December 31, 1997 by each of the Named
Executive Officers, the number of options held at year end and the aggregate
value of the "in-the-money" options held at December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF UNEXERCISED
UNDERLYING OPTIONS IN-THE-MONEY
SHARES AT YEAR-END (#) OPTIONS AT YEAR-END
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE(1)($)
---- ------------ ------------ ------------------ --------------------
<S> <C> <C> <C> <C>
Frank T. Sample................... -- -- 97,500/682,500 $24,375/$170,625
Warren J. Cawley.................. -- -- 15,261/35,856 $26,482/$2,603
David R. Clare, Jr................ -- -- 25,000/75,000 $0/$0
John R. Graham.................... -- -- 15,261/45,856 $26,482/$2,603
Shelley B. Thunen................. 2,750 $12,014 31,560/69,440 $19,220/$5,265
Donald W. Judson.................. -- -- 21,188/111,008 $27,025/$8,350
David L. Schlotterbeck............ -- -- 132,110/0 $0/$0
</TABLE>
- ---------------
(1) The closing price of the Company's Common Stock on December 31, 1997 was
$4.750 per share.
COMPENSATION OF DIRECTORS
In January 1997 the Company entered into an agreement with David
Schlotterbeck pursuant to which the Company agreed to pay Mr. Schlotterbeck for
consulting services provided to the Company. During 1997, the Company paid Mr.
Schlotterbeck an aggregate of $35,725 under this agreement. In February 1997 the
Company entered into an agreement with David Schlotterbeck pursuant to which the
Company agreed to pay Mr. Schlotterbeck $1,000 plus reasonable expenses for each
meeting of the Board of Directors (excluding the telephonic board meetings)
attended by Mr. Schlotterbeck. During 1997, the Company paid Mr. Schlotterbeck
an aggregate of $1,610 under this agreement.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with several of its
executive officers, including all but one of the Named Executive Officers. All
of the Company's employment agreements with its executive officers are
substantially similar, varying principally in title, compensation level and
certain health, pension and other benefits. The employment agreements for all
but Frank T. Sample, the Company's President and CEO, provide for three-year
employment terms (in each case expiring in mid-1998), subject to early
termination in the event of the death or disability of the executive or as
otherwise provided therein. The Company may terminate the executive's employment
with or without "Just Cause" (as defined therein), but in the event such
termination is without "Just Cause" the executive will be entitled to receive
severance pay at the executive's then current salary for a period of twelve
months following such termination.
In October 1997, the Company entered into an employment agreement with Mr.
Sample in connection with his appointment as President and Chief Executive
Officer. The agreement provides for a three-year employment term, subject to
early termination in the event of the death or disability of Mr. Sample as
otherwise provided therein. The Company may terminate Mr. Sample's employment
with or without "Just Cause" (as defined therein), but in the event such
termination is without "Just Cause" Mr. Sample will be entitled to receive
severance pay at his then current salary for a period of twelve months following
such termination.
In January 1997, in connection with Mr. Schlotterbeck's stepping down as
the Company's President and Chief Executive Officer, the Company entered into a
consulting agreement with Mr. Schlotterbeck pursuant to which Mr. Schlotterbeck
received compensation of $850.00 per day for services rendered. The consulting
agreement was terminated in June 1997.
13
<PAGE> 16
In March 1997, the employment of Mr. Waite the then Vice President,
Operations was terminated and as such he was entitled to and received salary
continuance for twelve months following termination. In 1997, Ms. Claudia
Russell terminated her employment with the Company and in June 1997, Mr. Stoop,
the former Vice President, Research and Development terminated his employment
with the Company. In October 1997, Mr. Judson stepped down as President and
Chief Executive Officer and in February 1998 relinquished his positions on the
Company's Board of Directors and as Chairman of the Board. All three of these
former officers, Ms. Russell, Mr. Stoop and Mr. Judson voluntarily terminated
their employment with the Company and as such were not entitled to severance pay
under employment agreements.
CERTAIN TRANSACTIONS
On June 1, 1995, the Company entered into a Securities Purchase Agreement
(the "Securities Purchase Agreement") with Warburg, Pincus Ventures, L.P. ("WP
Ventures"), ABS Capital Partners, L.P. ("ABS") and certain other investors
(together with WP Ventures and ABS, the "Investors") and BT Capital Partners,
Inc. ("BT Capital"). Pursuant to the Securities Purchase Agreement, (i) the
Investors purchased from BT Capital and certain other stockholders of the
Company (A) all of the issued and outstanding shares of Series A Preferred Stock
of the Company held by BT Capital for a purchase price of $1.00 per share, (B)
all of the issued and outstanding shares of Series B Preferred Stock of the
Company held by various stockholders for a purchase price of $1.00 per share,
(C) 1,271,864 shares of Series B Common Stock of the Company from BT Capital,
representing approximately 51% of the outstanding shares of Series B Common
Stock, for a purchase price of $4.79 per share, and (D) 1,871, 232.89 shares of
Series A Common Stock of the Company from BT Capital and other stockholders
representing approximately 73.24% of the outstanding shares of Series A Common
Stock, for a purchase price of $4.7865 per share; (ii) the Company purchased
1,233,136 shares of Series B Common Stock of the Company held by BT Capital,
representing the balance of the issued and outstanding shares of Series B Common
Stock, for a purchase price of $123,314; and (iii) immediately following such
purchases and sales, the Company effected a 1.612 for 1 stock split on the
Common Stock of the Company in the form of a stock dividend. In connection with
each of the foregoing primary transactions, the Company amended its Certificate
of Incorporation to, among other things, increase the authorized number of
shares of Common Stock to 6,200,000 shares and the Preferred Stock to 14,377,568
shares and to effect a reclassification of the Common Stock, eliminating any
distinction between the Series A Common Stock and the Series B Common Stock.
Furthermore, pursuant to the Securities Purchase Agreement, (i) the Company
authorized, designated and created the Series C Convertible Preferred Stock and
the Series D Convertible Preferred Stock; (ii) immediately following the stock
split, the Investors exchanged all of the shares of the Common Stock and the
Series A and Series B Preferred Stock purchased by them for an aggregate of
1,985,919 and 1,996,649 shares of Series C Convertible Preferred Stock and
Series D Convertible Preferred Stock, respectively; and (iii) immediately
following the stock split, the Investors purchased an additional 114,054 shares
of Series C Convertible Preferred Stock, 279,301 shares of Series D Convertible
Preferred Stock and 43,707 shares of Common Stock for an aggregate purchase
price of $2,499,995. All outstanding Preferred Stock converted to Common Stock
in connection with the Company's initial public offering in February 1996.
In connection with the Securities Purchase Agreement, the Company, the
Investors and the other stockholders of the Company entered into a Stockholders
Agreement (the "Stockholders Agreement") providing for, among other things,
certain restrictions on the transfer of shares of Common Stock or Preferred
Stock, rights of first refusal, and certain rights with respect to the
repurchase of such shares by the Company in the event of the death or total
disability of the holder thereof. Pursuant to the Stockholders' Agreement, the
Investors and the other stockholders agree to vote their respective shares in a
certain manner in connection with the election of directors, including the
directors elected solely by the holders of the Series C Convertible Preferred
Stock. The Stockholders Agreement terminated automatically upon the effective
date of the Company's initial public offering in February 1996.
In September 1995, in connection with the hiring of Mr. Schlotterbeck as
its President and Chief Executive Officer, the Company sold to Mr. Schlotterbeck
34,965 shares of Common Stock and 43,706 shares of Series C Convertible
Preferred Stock at a purchase price of $5.72 per share.
14
<PAGE> 17
In October 1996, in connection with the relocation of Mr. Schlotterbeck,
the Company's then current President and Chief Executive Officer, the Company
loaned to Mr. Schlotterbeck $100,000.00 together with interest thereon at a rate
of 5.94% per annum. The loan was secured by a deed of trust on Mr.
Schlotterbeck's house in Northern California. Mr. Schlotterbeck repaid the loan
on November 26, 1996.
In April 1997, in connection with the relocation of David R. Clare, Jr.,
the Company's Vice President, Direct Sales, the Company loaned Mr. Clare
$175,000.00 together with interest thereon at a rate of 8.50% per annum. The
loan was secured by deed of trusts on Mr. Clare's residences in California and
Texas. Mr. Clare repaid the loan on November 21, 1997.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act ("Section 16(a)") requires the Company's
executive officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities to file reports of ownership
and changes in ownership with the Securities and Exchange Commission ("SEC") and
the National Association of Securities Dealers, Inc. Executive officers,
directors and greater than ten percent stockholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file. Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons, the Company believes
that during fiscal 1997, all reporting persons complied with filing requirements
applicable to them, except that Vertical Life Sciences/Vertical Fund Associates
did not timely file a Form 4 with respect to its purchase of stock in January
1997.
OTHER MATTERS
The Company knows of no other matters to be submitted at the meeting. If
any other matters properly come before the meeting, it is the intention of the
persons named in the enclosed form of Proxy to vote the stock they represent as
the Board of Directors may recommend.
Dated: April 21, 1998 THE BOARD OF DIRECTORS
15
<PAGE> 18
EDGAR APPENDIX A
1996 EMPLOYEE STOCK PURCHASE PLAN
<PAGE> 19
VITALCOM INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1996 Employee Stock
Purchase Plan of VitalCom Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean VitalCom Inc. and any Designated
Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross
earnings and sales commissions, including payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiaries" shall mean the Subsidiaries which
have been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of
the Company for tax purposes whose customary employment with the Company is at
least twenty (20) hours per week and more than five (5) months in any calendar
year. For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship will be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each Offering
Period.
(i) "Exercise Date" shall mean the last day of each Offering
Period.
<PAGE> 20
(j) "Fair Market Value" shall mean, as of any date, the value of
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sale price for such stock (or the closing
bid, if no sales were reported) as quoted on such exchange or system for the
last market trading day prior to the time of determination, as reported in The
Wall Street Journal or such other source as the Administrator deems reliable,
or;
(2) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Common Stock on the date of such determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable, or;
(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(4) For the purposes of the Enrollment Date under the
first Offering Period under the Plan, the Fair Market Value of the Common Stock
shall be the price to public as set forth in the final prospectus included
within the Registration Statement on Form SB-2 filed with the Securities and
Exchange Commission for the initial public offering of the Common Stock.
(k) "Offering Period" shall mean a period of approximately six
(6) months, commencing on the first Trading Day on or after November 1
terminating on the last Trading Day in the period ending the following April 30,
or commencing on the first Trading Day on or after May 1 and terminating on the
last Trading Day in the period ending the following October 31, during which an
option granted pursuant to the Plan may be exercised; provided, however, that
the first Offering Period shall be the period of approximately nine (9) months,
commencing with the first Trading Day on or after the date on which the
Company's Registration Statement on Form SB-2 (or any successor form thereof) is
declared effective by the Securities and Exchange Commission and terminating on
the last Trading Day in the period ending October 31, 1996. The duration of
Offering Periods may be changed pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
(m) "Purchase Price" shall mean an amount equal to 85% of the
Fair Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(n) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
-2-
<PAGE> 21
(o) "Subsidiary" shall mean a corporation, domestic or foreign,
of which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(p) "Trading Day" shall mean a day on which national stock
exchanges and the Nasdaq System are open for trading.
3. Eligibility.
(a) Any Employee (as defined in Section 2(g)), who shall be
employed by the Company on a given Enrollment Date shall be eligible to
participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding,
no Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrue at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive
Offering Periods with a new Offering Period commencing on the first Trading Day
on or after November 1 and May 1 each year, or on such other date as the Board
shall determine, and continuing thereafter until terminated in accordance with
Section 19 hereof; provided, however, that the first Offering Period shall be
the period of approximately nine (9) months, commencing with the first Trading
Day on or after the date on which the Company's registration statement on Form
SB-2 (or any successor form thereof) is declared effective by the Securities and
Exchange Commission and terminating on the last Trading Day in the Period ending
October 31, 1996. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without shareholder approval if such change is announced at
least fifteen (15) days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
5. Participation.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
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<PAGE> 22
6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding ten percent (10%) of the
Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and will be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to 0% at such time during any
Offering Period which is scheduled to end during the current calendar year (the
"Current Offering Period") that the aggregate of all payroll deductions which
were previously used to purchase stock under the Plan in a prior Offering Period
which ended during that calendar year plus all payroll deductions accumulated
with respect to the Current Offering Period equal $21,250. Payroll deductions
shall recommence at the rate provided in such participant' s subscription
agreement at the beginning of the first Offering Period which is scheduled to
end in the following calendar year, unless terminated by the participant as
provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or
at the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but will not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding necessary to make available to the
Company any tax deductions or benefits attributable to sale or early disposition
of Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on the Exercise Date of such Offering Period (at the
applicable Purchase Price) up to a number of shares of
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<PAGE> 23
the Company's Common Stock determined by dividing such Employee's payroll
deductions accumulated prior to such Exercise Date and retained in the
Participant's account as of the Exercise Date by the applicable Purchase Price;
provided that in no event shall an Employee be permitted to purchase during each
Offering Period more than a number of Shares determined by dividing $12,500 by
the Fair Market Value of a share of the Company's Common Stock on the Enrollment
Date, and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 12 hereof. Exercise of the option
shall occur as provided in Section 8 hereof, unless the participant has
withdrawn pursuant to Section 10 hereof. The Option shall expire on the last day
of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as
provided in Section 10 hereof, his or her option for the purchase of shares
shall be exercised automatically on the Exercise Date, and the maximum number of
full shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Offering Period, subject to earlier withdrawal by the participant as provided in
Section 10 hereof. Any other monies left over in a participant's account after
the Exercise Date shall be returned to the participant. During a participant's
lifetime, a participant's option to purchase shares hereunder is exercisable
only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. Withdrawal; Termination of Employment.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the participant's payroll
deductions credited to his or her account will be paid to such participant
promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period will be automatically terminated, and no further payroll
deductions for the purchase of shares will be made during the Offering Period.
If a participant withdraws from an Offering Period, payroll deductions will not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
(b) Upon a participant's ceasing to be an Employee (as defined in
Section 2(g) hereof) for any reason, he or she will be deemed to have elected to
withdraw from the Plan and the payroll deductions credited to such participant's
account during the Offering Period but not yet used to exercise the option will
be returned to such participant or, in the case of his or her death, to the
person or persons entitled thereto under Section 14 hereof, and such
participant's option will be automatically terminated. The preceding sentence
notwithstanding, a participant who receives payment in lieu of notice of
termination of employment shall be treated as continuing to be an
-5-
<PAGE> 24
Employee for the participant's customary number of hours per week of employment
during the period in which the participant is subject to such payment in lieu of
notice.
(c) A participant's withdrawal from an Offering Period will not
have any effect upon his or her eligibility to participate in any similar plan
which may hereafter be adopted by the Company or in succeeding Offering Periods
which commence after the termination of the Offering Period from which the
participant withdraws.
11. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
12. Stock.
(a) The maximum number of shares of the Company's Common Stock
which shall be made available for sale under the Plan shall be three hundred
thousand (300,000) shares, subject to adjustment upon changes in capitalization
of the Company as provided in Section 18 hereof. If, on a given Exercise Date,
the number of shares with respect to which options are to be exercised exceeds
the number of shares then available under the Plan, the Company shall make a pro
rata allocation of the shares remaining available for purchase in as uniform a
manner as shall be practicable and as it shall determine to be equitable.
(b) The participant will have no interest or voting right in
shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will
be registered in the name of the participant or in the name of the participant
and his or her spouse.
13. Administration. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
14. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to an
Exercise Date on which the option is exercised but prior to delivery to such
participant of such shares and cash. In addition, a participant may file a
written designation of a beneficiary who is to receive any cash from the
participant's account under the Plan in the event of such participant's death
prior to exercise of the option. If a participant is married and the designated
beneficiary is not the spouse, spousal consent shall be required for such
designation to be effective.
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<PAGE> 25
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
15. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 14 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
16. Use of Funds. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts will be maintained for each participant
in the Plan. Statements of account will be given to participating Employees at
least annually, which statements will set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
18. Adjustments Upon Changes in Capitalization, Dissolution,
Liquidation, Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the Reserves, as well as the price per share
and the number of shares of Common Stock covered by each option under the Plan
which has not yet been exercised, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of shares of Common Stock effected without receipt of consideration by
the Company; provided, however, that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration". Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period shall terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Board.
-7-
<PAGE> 26
(c) Merger or Asset Sale. In the event of a proposed sale of all
or substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, the Offering Period then in progress shall be
shortened by setting a new Exercise Date (the "New Exercise Date"). The New
Exercise Date shall be before the date of the Company's proposed sale or merger.
The Board shall notify each participant in writing, at least ten (10) business
days prior to the New Exercise Date, that the Exercise Date for the
participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
19. Amendment or Termination.
(a) The Board of Directors of the Company may at any time and for
any reason terminate or amend the Plan. Except as provided in Section 18 hereof,
no such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Plan is in the best
interests of the Company and its shareholders. Except as provided in Section 18
hereof, no amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Rule 16b-3 or under Section 423 of the Code (or any successor rule
or provision or any other applicable law or regulation), the Company shall
obtain shareholder approval in such a manner and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
20. Notices. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock
-8-
<PAGE> 27
exchange upon which the shares may then be listed, and shall be further subject
to the approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
22. Term of Plan. The Plan shall become effective upon the approval by
the Board of Directors and the first sale of the Company's Common Stock to the
general public pursuant to a registration statement declared effective by the
Securities and Exchange Commission. It shall continue in effect for a term of
ten (10) years unless sooner terminated under Section 19 hereof.
-9-
<PAGE> 28
EXHIBIT A
VITALCOM INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: __________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ____________________________________ hereby elects to participate in the
1996 VitalCom Inc. Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan") and subscribes to purchase shares of the Company' s
Common Stock in accordance with this Subscription Agreement and the
Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of __% of my Compensation on each payday (1 to 10%) during the Offering
Period in accordance with the Employee Stock Purchase Plan. (Please note
that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete "Employee Stock Purchase Plan." I
understand that my participation in the Employee Stock Purchase Plan is
in all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is
subject to obtaining shareholder approval of the Employee Stock Purchase
Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse Only):
________________________________________________________________________
6. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares), I will be treated
for federal income tax purposes as having received ordinary income at
the time of such disposition in an amount equal to the excess of the
fair market value of the shares at the time such shares were purchased
by me over the price
<PAGE> 29
which I paid for the shares. I HEREBY AGREE TO NOTIFY THE COMPANY IN
WRITING WITHIN 30 DAYS AFTER THE DATE OF ANY DISPOSITION OF SHARES AND I
WILL MAKE ADEQUATE PROVISION FOR FEDERAL, STATE OR OTHER TAX WITHHOLDING
OBLIGATIONS, IF ANY, WHICH ARISE UPON THE DISPOSITION OF THE COMMON
STOCK. The Company may, but will not be obligated to, withhold from my
compensation the amount necessary to meet any applicable withholding
obligation including any withholding necessary to make available to the
Company any tax deductions or benefits attributable to sale or early
disposition of Common Stock by me. If I dispose of such shares at any
time after the expiration of the 2-year holding period, I understand
that I will be treated for federal income tax purposes as having
received income only at the time of such disposition, and that such
income will be taxed as ordinary income only to the extent of an amount
equal to the lesser of (1) the excess of the fair market value of the
shares at the time of such disposition over the purchase price which I
paid for the shares, or (2) 15% of the fair market value of the shares
on the first day of the Offering Period. The remainder of the gain, if
any, recognized on such disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)
-----------------------------------------------------------
(First) (Middle) (Last)
- ------------------------- --------------------------------------------
Relationship
--------------------------------------------
(Address)
Employee's Social
Security Number:
--------------------------------------------
Employee's Address:
--------------------------------------------
--------------------------------------------
--------------------------------------------
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
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<PAGE> 30
Dated:
--------------------- --------------------------------------------------
Signature of Employee
--------------------------------------------------
Spouse's Signature (If beneficiary
other than spouse)
-3-
<PAGE> 31
EXHIBIT B
VITALCOM INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the VitalCom Inc.
1996 Employee Stock Purchase Plan which began on ___________________________
19____ (the "Enrollment Date") hereby notifies the Company that he or she hereby
withdraws from the Offering Period. He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
--------------------------------------------
--------------------------------------------
--------------------------------------------
Signature:
--------------------------------------------
Date:
---------------------------------------
<PAGE> 32
EDGAR APPENDIX B
FORM OF PROXY
<PAGE> 33
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
VITALCOM INC.
1998 ANNUAL MEETING OF STOCKHOLDERS
MAY 21, 1998
The undersigned stockholder of VitalCom Inc., a Delaware corporation,
hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders and
Proxy Statement, each dated April 21, 1998, and hereby appoints Frank T. Sample
and Shelley B. Thunen, and each of them, proxies and attorneys-in-fact, with
full power to each of substitution, on behalf and in the name of the
undersigned, to represent the undersigned at the 1998 Annual Meeting of
Stockholders of VitalCom Inc. to be held on Thursday, May 21, 1998 at 9:00 a.m.
local time, at the Company's headquarters, 15222 Del Amo Avenue, Tustin,
California 92780, and at any adjournment or adjournments thereof, and to vote
all shares of Common Stock which the undersigned would be entitled to vote if
then and there personally present, on the matters set forth below:
(1 ELECTION OF DIRECTORS:
[ ] FOR all nominees listed below [ ] WITHHOLD
(except as indicated)
IF YOU WISH TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, STRIKE A LINE THROUGH THAT NOMINEE'S NAME IN THE LIST
BELOW:
Patrick T. Hackett Jack W. Lasersohn
Frank T. Sample Timothy T. Weglicki
(2 PROPOSAL TO APPROVE AND RATIFY AMENDMENTS TO THE 1996 EMPLOYEE STOCK
PURCHASE PLAN (1) TO INCREASE THE SHARES RESERVED FOR ISSUANCE
THEREUNDER FROM 150,000 TO 300,000, AND (2) TO MAKE OTHER ADMINISTRATIVE
CHANGES:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3 PROPOSAL TO RATIFY THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE
INDEPENDENT PUBLIC ACCOUNTANTS OF THE COMPANY FOR FISCAL 1998:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
and, in their discretion, upon such other matter or matters which may properly
come before the meeting or any adjournment or adjournments thereof.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED FOR THE ELECTION OF DIRECTORS, FOR THE AMENDMENTS TO THE 1996
EMPLOYEE STOCK PURCHASE PLAN AND FOR THE RATIFICATION OF THE APPOINTMENT OF
DELOITTE & TOUCHE LLP AS INDEPENDENT PUBLIC ACCOUNTANTS AND AS SAID PROXIES DEEM
ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
Dated: ____________________ , 1998
----------------------------------
Signature
----------------------------------
Signature
(This Proxy should be marked, dated and signed by the stockholder(s) exactly as
his or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.)
