<PAGE> 1
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.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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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:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
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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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<PAGE> 2
VITALCOM INC.
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 20, 1999
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 20, 1999 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 ratify the appointment of Deloitte & Touche LLP as independent
public accountants of the Company for the fiscal year ending December
31, 1999.
(3) 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, 1999 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,
/s/ Frank T. Sample
---------------------------------------
Frank T. Sample
Chairman of the Board, President
and Chief Executive Officer
Tustin, California April 26, 1999
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.
------------------------
PROXY STATEMENT FOR 1999
ANNUAL MEETING OF STOCKHOLDERS
------------------------
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 20, 1999 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 1998 Annual Report on
Form 10-K for the year ended December 31, 1998 were first mailed on or about
April 26, 1999 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, 1999 (the
"Record Date") are entitled to notice of and to vote at the meeting. On the
Record Date, 8,192,279 shares of the Company's Common Stock were issued and
outstanding and held of record by approximately 42 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
<PAGE> 4
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 46.2%
466 Lexington Avenue, 10th Floor
New York, NY 10017
ABS Capital Partners, L.P.(2)............................... 1,057,062 12.5
One South Street
Baltimore, MD 21202
Vertical Fund Associates, L.P.(3)........................... 539,582 6.4
18 Bank Street
Summit, NJ 07901
Frank T. Sample(4).......................................... 223,202 2.6
Patrick T. Hackett(5)....................................... 3,915,181 46.2
Jack W. Lasersohn(6)........................................ 755,782 8.9
Timothy T. Weglicki(7)...................................... 1,057,062 12.5
Warren J. Cawley(8)......................................... 97,343 1.1
John R. Graham(9)........................................... 173,865 2.1
Shelley B. Thunen(10)....................................... 66,564 *
All executive officers and directors as a Group (7
persons)(11).............................................. 6,288,999 74.3
</TABLE>
- ---------------
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, 1999
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.
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<PAGE> 5
(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 29,173 shares issuable upon exercise of stock options exercisable
within 60 days of the Record Date.
(9) Includes 32,707 shares issuable upon exercise of stock options exercisable
within 60 days of the Record Date.
(10) Includes 47,904 shares issuable upon exercise of stock options exercisable
within 60 days of the Record Date.
(11) Includes 304,784 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 2000 Annual Meeting of Stockholders must
be received by the Company no later than December 20, 1999 in order that they
may be considered for inclusion in the notice and proxy statement relating to
that meeting.
3
<PAGE> 6
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.
NOMINEES
The names of the nominees and certain information about them as of the
Record Date are set forth below:
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE POSITION WITH THE COMPANY SINCE
--------------- --- ------------------------- --------
<S> <C> <C> <C>
Frank T. Sample........ 53 President, Chief Executive Officer and 1997
Chairman of the Board of Directors
Patrick T. Hackett..... 37 Director 1997
Jack W. Lasersohn...... 46 Director 1995
Timothy T. Weglicki.... 46 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. 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 Eclipsys Corporation., 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 General Partner of The Vertical Group, L.P., 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
4
<PAGE> 7
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 Managing Member
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 ElderTrust, a healthcare Real Extate Investment Trust
and a number of privately held healthcare companies.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of seven (7) meetings
during fiscal 1998. Jack W. Lasersohn , Timothy T. Weglicki and Frank T. Sample
attended all meetings. 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 consisted of directors
Timothy T. Weglicki , Jack W. Lasersohn, and Patrick T. Hackett. The Audit
Committee met five (5) times in fiscal 1998.
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 Patrick T. Hackett and Timothy T. Weglicki. The Compensation
Committee met eight (8) times in fiscal 1998.
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 was at any time during the fiscal year ended December 31, 1998, 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.
DIRECTOR COMPENSATION
Directors of the Company do not receive any fees for serving as such, nor
do any directors receive any fees for serving on any committee of the Board of
Directors. Directors are reimbursed by the Company for their out-of-pocket
expenses in connection with attending any board or committee meeting. In
addition, the directors participate in the Company's 1996 Director Option Plan
(the "Director Plan"). The Director Plan provides for the grant of an option to
purchase a number of shares of Common Stock to be determined by the incumbant
Board of Directors to each non-employee director who first becomes a
non-employee director, and each outside director is automatically granted an
option to purchase 4,000 shares of Common Stock each year, provided he or she is
then a non-employee director and he or she has served on the Board of Directors
for at least the preceding six months. The first options and each subsequent
option have terms of ten years. One-quarter of the shares subject to a first
option will vest one year after its date of grant and an additional one-quarter
will vest at the end of each year thereafter, provided that the optionee
continues to serve as a director. Similarly, one-quarter of the shares subject
to a subsequent option will vest one year after the date of grant and
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<PAGE> 8
an additional one-quarter will vest at the end of each year thereafter, provided
that the optionee continues to serve as a director. The exercise price of such
options will be 100% of the fair market value per share of the Company's Common
Stock on the date of grant.
PROPOSAL TWO
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, 1999, 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.
MANAGEMENT
In addition to Mr. Sample, the following persons were executive officers of
the Company as of April 1, 1999:
<TABLE>
<CAPTION>
NAME OF OFFICER AGE POSITION WITH THE COMPANY
--------------- --- -------------------------
<S> <C> <C>
Warren J. Cawley....... 58 Vice President, Business Development
John R. Graham......... 53 Vice President, Corporate Alliances
Stephen E. Hannah...... 40 Vice President, Research and Development
Cheryl L. Isen......... 38 Vice President, Corporate Communications
Shelley B. Thunen...... 45 Vice President, Finance and Chief Financial Officer
Patric L. Wiesmann..... 37 Vice President, Sales
</TABLE>
WARREN J. CAWLEY has served as Vice President, Business Development of the
Company since July 1996. From 1989 through June 1996, 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.
JOHN R. GRAHAM has served as Vice President, Corporate Alliances of the
Company since January 1999 and Vice President, OEM Sales of the Company from
1989 through 1998. 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.
STEPHEN E. HANNAH joined the Company in December 1998 as Vice President,
Research and Development. Prior to joining the Company, Mr. Hannah led Product
Development, Systems Engineering at Sony Trans Com Inc. from December 1996 to
December 1998. Prior to Sony, Mr. Hannah developed hardware and software
products and managed large development projects at Hughes Aircraft Company from
February 1981 to December 1996. Mr. Hannah holds a B.S. degree in Computer
Engineering from the University of Michigan.
CHERYL L. ISEN joined the Company in January 1998 as Senior Director of
Corporate Communications and was promoted to Vice President in January 1999.
Prior to joining the Company, from February 1991 to October 1997, Ms. Isen
served as Senior Director of Corporate Communications at PHAMIS, Inc., which
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<PAGE> 9
merged with IDX Systems in 1997, where she was responsible for company-wide
communications. Prior to PHAMIS, Inc., Ms. Isen was Manager of Marketing
Communications for the Target Marketing Services division of TRW from February
1987 to February 1991. Ms. Isen holds a B.A. degree in Journalism and Marketing
from San Diego State University.
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.
PATRIC L. WIESMANN joined the Company in March 1999 as Vice President,
Sales. Prior to joining the Company, from January 1997 to March 1999, Mr.
Wiesmann served as Vice President of Sales and Marketing/Business Development at
Mackie Designs, Inc. where Mr. Wiesmann managed worldwide sales and marketing,
product management and sales administration. Prior to Mackie, Mr. Wiesmann was
Vice President of Sales and Marketing at Lang Manufacturing Company from May
1992 to December 1996, and Baxter Healthcare Corporation from March 1984 to May
1992. Mr. Wiesmann holds a B.A. degree in Biology and Economics from the
University of Puget Sound in Tacoma, Washington.
7
<PAGE> 10
EXECUTIVE COMPENSATION AND OTHER MATTERS
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by (i) the Company's
Chief Executive Officer, and (ii) 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, 1996, 1997 and 1998:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
OTHER -------------------------
ANNUAL COMPENSATION ANNUAL SECURITIES ALL OTHER
-------------------------- COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($)(4) BONUS($)(1) (2)($) OPTIONS(#) $(6)
--------------------------- ---- ------------ ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Frank T. Sample............... 1998 $294,958 $20,000 -- $2,112
President, Chief Executive 1997 38,434(7) 50,000 -- 780,000 --
Officer and Chairman -- -- -- -- -- --
of the Board
Warren J. Cawley.............. 1998 144,810 -- 8,500 1,842
Vice President, 1997 153,500 25,000 -- 30,000 1,800
Business Development 1996 143,082 -- -- -- 1,305
David R. Clare, Jr............ 1998 165,255 10,000 14,899(5) -- 510
Vice President, Direct
Sales(3) 1997 123,019(8) 72,500 72,925(5) 100,000 204
1996 -- -- -- -- --
John R. Graham................ 1998 145,000 18,764 12,000 1,325
Vice President, 1997 138,692 35,000 -- 40,000 1,162
Corporate Alliances 1996 128,308 10,305 -- -- 745
Shelley B. Thunen............. 1998 155,000 10,000 15,000 696
Vice President, Finance and 1997 153,068 45,000 -- 60,000 682
Chief Financial Officer 1996 128,255 10,305 -- 17,844 264
</TABLE>
- ---------------
(1) 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.
(2) 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.
(3) Mr. Clare stepped down from his position as Vice President, Sales in August
1998.
(4) Amounts include contributions paid by the Company under its 401(k) and
Profit Sharing Plan.
(5) Includes amounts paid in connection with the reimbursement by the Company of
certain relocation expenses.
(6) Represents premiums paid by the Company on a life insurance policy for the
benefit of the Named Executive Officer.
(7) Based on an annual salary of $250,000 commencing on October 24, 1997.
(8) Based on an annual salary of $140,000 commencing on March 7, 1997.
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<PAGE> 11
OPTION GRANTS IN FISCAL 1998
The following table sets forth information with respect to stock option
grants to each of the Named Executive Officers during the year ended December
31, 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES IN EXERCISE OR BASE EXPIRATION
NAME GRANTED(#)(1) FISCAL YEAR(%)(2) PRICE($/SH) DATE
---- ------------- ----------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Frank T. Sample.............. -- -- -- --
Warren J. Cawley............. 8,500 2.8% $4.000 04/07/2008
David R. Clare, Jr........... -- -- -- --
John R. Graham............... 12,000 3.9% $4.000 04/07/2008
Shelley B. Thunen............ 15,000 4.9% $4.000 04/07/2008
</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) Options are net of cancelled shares which were re-priced on 11/13/98 at
$3.00 and $4.00 per share.
AGGREGATED OPTION EXERCISES IN FISCAL 1998
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to exercises of
stock options during the year ended December 31, 1998 by each of the Named
Executive Officers, the number of options held at year end and the aggregate
value of the "in-the-money" options held at December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
SHARES UNDERLYING OPTIONS AT YEAR- THE-MONEY OPTIONS AT
ACQUIRED ON VALUE END(#) EXERCISABLE/ YEAR-END EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE(1)($)
---- ----------- ----------- --------------------------- ------------------------
<S> <C> <C> <C> <C>
Frank T. Sample............... -- -- 146,250/633,750 $0/$0
Warren J. Cawley.............. -- -- 25,477/34,140 $13,147/$0
David R. Clare, Jr............ -- -- 37,500/0 $0/$0
John R. Graham................ -- -- 28,065/45,052 $13,147/$0
Shelley B. Thunen............. 5,000 $17,345 36,758/74,242 $0/$0
</TABLE>
- ---------------
(1) The closing price of the Company's Common Stock on December 31, 1998 was
$2.625 per share.
REPORT ON REPRICING OF OPTIONS
On November 13, 1998, the Board of Directors authorized the reduction of
the exercise price of outstanding options granted pursuant to the Company's 1993
Stock Option Plan to employees, including executive officers, so that one-half
of such options would have an exercise price of $3.00 per share and one-half
would have an exercise price of $4.00 per share (the "Repricing"). The Repricing
was accomplished by an exchange of each option held by an optionee at the time
of the Repricing (the "Exchanged Options") for an option with a lower exercise
price and an extended vesting period and a black-out period during which
Exchanged Options could not be exercised (the "Repriced Options"). The purpose
of the Repricing was to incentivise, motivate and retain employees in order to
achieve the long term success for the Company. The Board of Directors believe
that the decline in the market price of the Company's Common Stock following the
grants of the exchanged option frustrated the purpose and intent of the
Exchanged Options and therefore
9
<PAGE> 12
deemed it to be in the best interest of the Company and its stockholders to
exchange such options for the Repriced Options.
EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTS
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 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 1998, all reporting persons complied with filing requirements
applicable to them.
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.
THE BOARD OF DIRECTORS
Dated: April 26, 1999
10
<PAGE> 13
EDGAR APPENDIX A
FORM OF PROXY
<PAGE> 14
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
VITALCOM INC.
1999 ANNUAL MEETING OF STOCKHOLDERS
MAY 20, 1999
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 26, 1999, 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 1999 Annual Meeting of
Stockholders of VitalCom Inc. to be held on Thursday, May 20, 1999 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 RATIFY THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE
INDEPENDENT PUBLIC ACCOUNTANTS OF THE COMPANY FOR FISCAL 1999:
[ ] 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 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: , 1999
--------------------------
---------------------------------------
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.)
