<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
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 Rule 14a-11(c) or Rule 14a-12
Criticare Systems, 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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Not Applicable
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
Not Applicable
- --------------------------------------------------------------------------------
(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):
Not Applicable
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
Not Applicable
- --------------------------------------------------------------------------------
(5) Total fee paid:
Not Applicable
- --------------------------------------------------------------------------------
[ ] 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:
Not Applicable
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
Not Applicable
- --------------------------------------------------------------------------------
(3) Filing Party:
Not Applicable
- --------------------------------------------------------------------------------
(4) Date Filed:
Not Applicable
- --------------------------------------------------------------------------------
<PAGE> 2
CRITICARE SYSTEMS, INC.
20925 CROSSROADS CIRCLE
WAUKESHA, WISCONSIN 53186
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The Annual Meeting of Stockholders of Criticare Systems, Inc., will be held
at the Milwaukee Athletic Club, 758 North Broadway, Milwaukee, Wisconsin, on
Thursday, November 12, 1998 at 9:00 a.m. for the following purposes:
1. To elect one director, to serve for a three-year term.
2. To consider and vote upon the approval of a proposed amendment to the
Company's Restated Certificate of Incorporation which increases the total number
of authorized shares of the Company's common stock, par value $.04 per share,
from 10,000,000 to 15,000,000 shares.
3. To ratify the appointment of Deloitte & Touche LLP, independent
certified public accountants, as auditors of the Company for its fiscal year
ending June 30, 1999.
4. To transact any other business as may properly come before the meeting
and any adjournment or adjournments thereof.
The transfer books of the Company will not be closed for the Annual
Meeting. Stockholders of record at the close of business on October 6, 1998 are
entitled to receive notice of, and to vote at, the meeting.
All stockholders are cordially invited to attend the meeting in person, if
possible. Stockholders who are unable to be present in person are requested to
execute and promptly return the accompanying proxy in the enclosed envelope. The
proxy is being solicited by the Board of Directors of the Company. Your
attendance at the meeting, whether in person or by proxy, is important to ensure
a quorum. If you return the proxy, you still may vote your shares in person by
giving written notice (by subsequent proxy or otherwise) to the Secretary of the
Company at any time prior to its vote at the Annual Meeting.
By Order of the Board of Directors
N.C. Joseph Lai, Secretary
Waukesha, Wisconsin
October 19, 1998
<PAGE> 3
CRITICARE SYSTEMS, INC.
20925 CROSSROADS CIRCLE
WAUKESHA, WISCONSIN 53186
PROXY STATEMENT FOR 1998 ANNUAL MEETING OF STOCKHOLDERS
This Proxy Statement is furnished in connection with the solicitation of
Proxies by the Board of Directors of Criticare Systems, Inc. (the "Company"), to
be voted at the Annual Meeting of Stockholders to be held at the Milwaukee
Athletic Club, 758 North Broadway, Milwaukee, Wisconsin, at 9:00 a.m. on
Thursday, November 12, 1998, and at any adjournments thereof, for the purposes
set forth in the accompanying Notice of Meeting. The mailing of this Proxy
Statement and accompanying form of Proxy is being made on or about October 19,
1998.
GENERAL INFORMATION
The Board of Directors knows of no business which will be presented to the
meeting other than the matters referred to in the accompanying Notice of
Meeting. However, if any other matters are properly presented to the meeting, it
is intended that the persons named in the Proxy will vote on such matters in
accordance with their judgment. If the enclosed form of proxy is executed and
returned, it nevertheless may be revoked at any time before it has been voted by
a later dated Proxy or a vote in person at the Annual Meeting. Shares
represented by properly executed proxies received on behalf of the Company will
be voted at the Annual Meeting (unless revoked prior to their vote) in the
manner specified therein. If no instructions are specified in a signed Proxy
returned to the Company, the shares represented thereby will be voted (1) in
FAVOR of the election of the nominee listed in the enclosed proxy as a director
of the Company, (2) in FAVOR of the proposed amendment to the Company's Restated
Certificate of Incorporation which increases the total number of authorized
shares of the Company's common stock, par value $.04 per share (the "Common
Stock"), from 10,000,000 to 15,000,000 shares (the "Capitalization Amendment
Proposal"), and (3) in FAVOR of the ratification of Deloitte & Touche LLP as
independent accountants for the 1999 fiscal year.
Only holders of Common Stock whose names appear of record on the books of
the Company at the close of business on October 6, 1998 (the "Record Date") are
entitled to vote at the Annual Meeting. On that date, the only outstanding
shares of capital stock of the Company were 8,351,151 shares of Common Stock.
Each share of Common Stock is entitled to one vote on each matter to be
presented at the meeting. Approval of the Capitalization Amendment Proposal
requires the affirmative vote of the holders of a majority of the outstanding
shares of Common Stock, the election of directors requires the affirmative vote
of the holders a plurality of the shares represented, in person or by proxy, at
the meeting and the ratification of the appointment of independent accountants
requires the affirmative vote of the holders of a majority of the shares
represented, in person or by proxy, at the meeting. Abstentions and broker
non-votes (i.e., shares held by brokers in street name, voting on certain
matters due to discretionary authority or instructions from the beneficial
owners but not voting on other matters due to lack of authority to vote on such
matters without instructions from the beneficial owner) will count toward the
quorum requirement, will count as a vote against the approval of the
Capitalization Amendment Proposal and will not count toward the determination of
whether the ratification of the appointment of independent accountants is
approved or the director is elected.
PROPOSAL NO. 1: ELECTION OF DIRECTOR
Pursuant to the authority contained in the By-Laws of the Company, the
Board of Directors has established the number of directors of the Company at
seven. The Company's By-Laws provide that the Board of Directors will be divided
into three classes as nearly equal in number as possible, with
<PAGE> 4
the term of one class expiring each year. The term of one director expires at
the Annual Meeting. Accordingly, the Board of Directors has nominated for
reelection as a director Milton Datsopoulos to serve a term of three years,
until the 2001 Annual Meeting of Stockholders. There are currently three
vacancies on the Board of Directors. The Company is not considering adding any
new directors to fill such vacancies at this time. Proxies cannot be voted for
more than one candidate for director.
As indicated below, the person nominated by the Board of Directors is an
incumbent director. The Company anticipates that the nominee will be a candidate
when the election is held. However, if for any reason the nominee is not a
candidate at that time, proxies will be voted for any substitute nominee
designated by the incumbent directors (except where a Proxy withholds authority
with respect to the election of a director).
The Board of Directors held four meetings during the Company's fiscal year
ended June 30, 1998. All of the incumbent directors attended all four of the
meetings of the Board of Directors and all meetings of committees of the Board
of Directors upon which they serve.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ELECTION
OF MILTON DATSOPOULOS AS A DIRECTOR OF THE COMPANY.
COMMITTEES
The Board of Directors has an Audit Committee and a Compensation Committee.
The members of the Audit Committee are Milton Datsopoulos and Karsten Houm. The
Audit Committee met one time during the fiscal year ended June 30, 1998. The
responsibilities of the Audit Committee, in addition to such other duties
specified by the Board of Directors, include the following: (1) recommendation
to the Board of Directors of independent accountants for the Company; (2) review
of the timing, scope and results of the independent accountants' audit
examination and related fees; (3) review of periodic comments and
recommendations by the independent accountants and of the Company's response
thereto; and (4) review of the scope and adequacy of internal accounting
controls and internal auditing activities.
The Compensation Committee is comprised of Milton Datsopoulos and Karsten
Houm. The responsibilities of the Compensation Committee are to make
recommendations to the Board of Directors with respect to compensation for the
executive officers of the Company and to oversee the Company's stock option
plans. The Compensation Committee met one time during the fiscal year ended June
30, 1998.
NOMINEE FOR ELECTION AS DIRECTOR
Milton Datsopoulos
Age: 58; Elected Director: 1986; Present Term Ends: 1998 Annual Meeting
Mr. Datsopoulos has been a partner in the law firm of Datsopoulos, MacDonald &
Lind in Missoula, Montana since 1974. Mr. Datsopoulos is a director of Montana
Naturals Int'l, Inc., a manufacturer of natural food products and nutritional
supplements, Kafus Environmental Industries Ltd., a producer of consumer and
industrial waste recycling technology, and Leigh Resource Corporation, a company
engaged in mineral exploration and development.
2
<PAGE> 5
OTHER DIRECTORS
Gerhard J. Von Der Ruhr
Age: 57; Elected Director: 1984; Present Term Ends: 1999 Annual Meeting
Mr. Von der Ruhr is a co-founder of the Company and has served as Chairman of
its Board, President (CEO) and Treasurer since the Company's inception in
October 1984. Mr. Von der Ruhr is a director of Immtech International, Inc., a
company engaged in the research and development of products in the fields of
biochemistry and immunology.
N.C. Joseph Lai, Ph.D.
Age: 56; Elected Director: 1984; Present Term Ends: 1999 Annual Meeting
Dr. Lai is a co-founder of the Company and has served as Vice Chairman of its
Board and as an officer since the Company's inception in October 1984.
Karsten Houm
Age: 52; Elected Director: 1985; Present Term Ends: 2000 Annual Meeting
Mr. Houm currently works as a management consultant. From September 1985 to
1997, Mr. Houm served as President of Unitor, a Norwegian shipping company.
3
<PAGE> 6
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME TITLE AGE
---- ----- ---
<S> <C> <C>
Gerhard J. Von der Ruhr.............. Chairman of the Board, President (CEO) and Treasurer 57
N.C. Joseph Lai, Ph.D. .............. Senior Vice President, Vice Chairman of the Board and 56
Secretary
Joseph M. Siekierski................. Vice President -- Finance and Assistant Secretary 33
Stephen D. Okland.................... Vice President -- Domestic Sales 56
Drew M. Diaz......................... Vice President -- International Sales 35
Michael T. Larsen.................... Vice President -- Quality Control/Quality Assurance 39
Gloria Najera........................ Vice President -- Operations 49
</TABLE>
The terms of office and past business experiences of Mr. Von der Ruhr and
Dr. Lai are described above.
Mr. Siekierski joined the Company as Vice President -- Finance and
Assistant Secretary in October, 1997. Prior to joining the Company, Mr.
Siekierski was Controller for Modern Building Materials, Inc., a manufacturer of
precast concrete products, from 1996 to 1997. From 1993 to 1996, Mr. Siekierski
was Controller for the Company.
Mr. Okland has served as a Vice President of the Company since May, 1988.
Mr. Diaz served the Company as Regional Sales Manager for the Middle East
and Western Europe from 1993 until he was appointed Director of International
Sales in 1995. Mr. Diaz was most recently promoted to Vice
President -- International Sales in 1997. From October, 1996 until August, 1997,
Mr. Diaz also served as Geschaeftsfuehrer of Criticare International GmbH
Marketing Services, a wholly-owned subsidiary of the Company which was dissolved
in 1998 following bankruptcy proceedings under German law.
Mr. Larsen has served as Vice President-Quality Control/Quality Assurance
since September, 1990.
Ms. Najera joined the Company as Vice President -- Operations in March,
1997. Prior to rejoining the Company, she was Director of Consumer Services and
Distribution from 1994 to 1997 for the Milwaukee Journal-Sentinel, a newspaper
publisher. From 1988 to 1994, Ms. Najera was Consumer Services Director of the
Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10% of a registered class
of the Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC") on Form 3, 4, and
5. Officers, directors and greater than 10% shareholders are required by SEC
regulation to furnish the Company with copies of all Forms 3, 4 and 5 they file.
Based solely on review of the copies of such forms furnished to the
Company, or written representations that no Forms 5 were required, the Company
believes that during fiscal 1998 all section 16(a) filing requirements
applicable to its officers, directors and greater than 10% beneficial owners
were complied with.
4
<PAGE> 7
EXECUTIVE COMPENSATION
The following table sets forth information with respect to all
compensation, including stock options granted and all cash bonuses and accrued
deferred compensation, incurred by the Company during the three fiscal years
ended June 30, 1998 to or on behalf of the Chief Executive Officer and the four
most highly paid senior executive officers other than the CEO. The persons
listed below are sometimes referred to herein as the "named executive officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------
ANNUAL COMPENSATION AWARDS:
------------------------------ SECURITIES
NAME AND OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) COMPENSATION($)(1) OPTIONS/SARS(#) COMPENSATION($)
------------------ ---- --------- ------------------ --------------- ---------------
<S> <C> <C> <C> <C> <C>
Gerhard J. Von der Ruhr,....... 1998 144,000 958 -- 56,838(2)
Chairman of the Board, 1997 144,000 957 -- 56,620
President (CEO) and 1996 138,300 957 -- 53,876
Treasurer
Stephen D. Okland,............. 1998 302,628 6,000 -- 3,690(3)
Vice President -- 1997 253,706 6,000 10,000 3,441
Domestic Sales 1996 284,775 6,000 -- 3,427
Drew M. Diaz,.................. 1998 188,292 638 -- 86(4)
Vice President -- 1997 180,717 8,223 50,000 3,226
International Sales 1996 176,382 7,865 10,000 2,331
N.C. Joseph Lai,............... 1998 126,028 1,687 -- 27,300(5)
Senior Vice President, 1997 122,656 1,649 -- 27,179
Vice Chairman of 1996 123,174 1,763 -- 26,299
the Board and Secretary
Gloria Najera,................. 1998 100,000 664 -- 1,627(7)
Vice President -- 1997 28,135 -- 50,000 --
Operations(6)
</TABLE>
- -------------------------
(1) The amounts represent automobile allowance payments.
(2) Represents $53,638 of premiums paid by the Company on two life insurance
policies, the proceeds of which are payable to Mr. Von der Ruhr's
beneficiary, and $3,200 of Company contributions to the 401(k) plan on
behalf of Mr. Von der Ruhr.
(3) Represents $490 of premiums paid by the Company on a life insurance policy,
the proceeds of which are payable to the beneficiary of Mr. Okland, and
$3,200 of Company contributions to the 401(k) plan on behalf of Mr. Okland.
(4) Represents $86 of premiums paid by the Company on a life insurance policy,
the proceeds of which are payable to the beneficiary of Mr. Diaz.
(5) Represents $24,154 of premiums paid by the Company on a life insurance
policy, the proceeds of which are payable to the beneficiary of Mr. Lai, and
$3,146 of Company contributions to the 401(k) plan on behalf of Mr. Lai.
(6) Ms. Najera joined the Company as Vice President -- Operations effective
March 14, 1997.
(7) Represents $99 of premiums paid by the Company on a life insurance policy,
the proceeds of which are payable to the beneficiary of Ms. Najera, and
$1,528 of contributions by the Company to the 401(k) plan on behalf of Ms.
Najera.
5
<PAGE> 8
Mr. Von der Ruhr has an employment agreement with the Company for
successive one-year periods ending March 31 unless prior notice of termination
is given. The agreement is terminable by the Company before expiration without
further obligation if such termination is for cause. If such termination is
without cause, the Company is obligated to pay Mr. Von der Ruhr 150% of his base
salary for a period of one year after the date of termination. The Company
amended Mr. Von der Ruhr's employment agreement to provide that if Mr. Von der
Ruhr's employment is terminated for any reason (including for cause or pursuant
to resignation) within three months after a Change in Control (as defined in the
employment agreement), the Company will continue Mr. Von der Ruhr's base salary
and certain benefits for a period of one year and will continue to provide group
health insurance to Mr. Von der Ruhr until he reaches age 65.
Directors of the Company are reimbursed for out-of-pocket expenses incurred
in attending meetings of the Board of Directors. In January 1994, non-employee
directors were issued options to purchase 15,000 shares of common stock at an
exercise price of $1.875 per share, market price on the grant date. The options
became exercisable on January 1, 1995 and expire on January 12, 1999. In May
1995, non-employee directors were issued options to purchase 50,000 shares of
Common Stock at an exercise price of $2.0625 per share, the market price on the
date of grant. The options become exercisable on May 15, 1996, 1997 and 1998 and
expire on May 15, 2000. In November 1996, non-employee directors were issued
options to purchase 12,500 shares of common stock at an exercise price of $2.75
per share, the market price on the grant date. The options become exercisable on
November 12, 1997 and expire on November 12, 2001. Directors receive no cash
directors' fees.
STOCK OPTIONS
On December 5, 1992 the Company adopted two new nonqualified stock option
plans, the Employee Stock Option Plan and the Non-Employee Stock Option Plan
(collectively, the "New Plans"). Pursuant to the adoption of the New Plans, no
new stock options can be granted under the stock option plans (the "Old Plans")
which existed prior to the approval of the New Plans. The New Plans provide for
the grant to key employees and outside directors and consultants of the Company
of options covering shares of Common Stock. The New Plans are administered by
the Board of Directors which has discretion to increase the number of shares
covered by the Plans, select optionees, designate the number of shares to be
covered by each option, establish vesting schedules, specify the amount and type
of consideration to be paid to the Company on exercise, and to specify certain
other terms of the options. The exercise price of options granted under the New
Plans must be at least 85% of the fair market value of the Common Stock on the
date of grant.
The Company has reserved 1,020,000 shares of Common Stock for issuance
under the Employee Stock Option Plan and 200,000 shares of Common Stock for
issuance under the Non-Employee Stock Option Plan, in each case subject to
adjustment for certain dilutive events. At the end of fiscal 1998, options to
purchase 800,800 shares were outstanding under the New Plans and options to
purchase 38,900 shares were outstanding under the Old Plans. During fiscal 1998,
options were granted to purchase 60,000 shares of Common Stock under the New
Plans at an average per share exercise price of $3.13 (all options were granted
at the market price on the grant dates). In addition, during fiscal 1998,
179,000 shares of Common Stock at an average per share exercise price of $2.38
were canceled under the New Plans and 200 shares of Common Stock at an average
per share exercise price of $2.50 were canceled under the Old Plans and options
to purchase 84,200 shares at an average exercise price per share of $2.27 were
exercised under the New Plans and options to purchase 1,300 shares at an average
exercise price per share of $2.50 were exercised under the Old Plans. A total of
198,650 shares of Common Stock remain available for future grants under the New
Plans.
6
<PAGE> 9
The following table shows the fiscal year-end value of unexercised options
held by the named executive officers. None of the named executive officers
exercised options in fiscal 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
YEAR END(#) YEAR END($)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Gerhard J. Von der Ruhr.................... -- -- -- --
N.C. Joseph Lai............................ -- -- -- --
Stephen D. Okland.......................... 13,500 -- 5,969 --
Drew M. Diaz............................... 20,000 46,000 8,000 14,375
Gloria Najera.............................. 10,000 40,000 3,125 12,500
</TABLE>
Effective April 1, 1991, the Company adopted a 401(k) plan, which covers
substantially all employees who have completed one year of employment. Under the
plan, eligible employees can contribute up to 15% of pre-tax compensation for
investment in a trust under the plan. Company contributions to the plan are
discretionary and determined annually by the Board of Directors. Employee
contributions, within certain limitations, are considered tax deferred under the
provisions of section 401(k) of the Internal Revenue Code. Withdrawals of tax
deferred amounts may be made upon termination of employment or earlier in the
event of certain defined hardship situations. Contributions made or accrued by
the Company for named executive officers are included under the "All Other
Compensation" column in the Summary Compensation Table.
Other than the 401(k) plan, the Company does not maintain any pension,
profit sharing, retirement or similar plans. The Company does provide group
health, dental, long-term disability and life insurance benefits to its
full-time employees, including its named executive officers.
7
<PAGE> 10
COMPENSATION COMMITTEE REPORT
The objectives of the Company's compensation program are to attract and
retain the best available executives, to motivate these executives to achieve
the Company's business goals and to recognize individual contributions as well
as overall business results. To achieve these objectives, the Company reviews
its compensation program on a regular basis and attempts to tie a portion of
each executive's potential compensation to Company performance.
The key elements of the Company's executive compensation program consist of
fixed compensation, in the form of base salary, and variable compensation, which
is more directly tied to Company performance, in the form of annual incentive
compensation and long-term compensation through stock option awards. In
determining each element of compensation to be awarded to an executive officer,
the Compensation Committee considers the executive's overall benefit package as
well as the executive's responsibilities and experience. The Compensation
Committee also considers the competitive marketplace for executive talent,
including, to the extent possible, a comparison to compensation packages for
executives with similar levels of experience and responsibility at other
companies. In determining the compensation package for Mr. Von der Ruhr, the
Company's Chairman of the Board, President and Treasurer, the Compensation
Committee took into consideration both the compensation packages of chief
executive officers of companies the Compensation Committee deemed comparable to
the Company and the Compensation Committee's assessment of Mr. Von der Ruhr's
individual performance and the Company's overall performance.
The Compensation Committee reviewed the proposed 1998 salaries for the
executive officers at the Compensation Committee meeting on February 13, 1998.
The Compensation Committee believed the proposed salary levels were in line with
or below the salary levels of executives in comparable positions of
responsibility.
Because of his substantial stock holdings, Mr. Von der Ruhr is not eligible
to participate in the stock option plan. In fixing the stock option grants, the
Committee considered the current stock holdings of each eligible officer, their
responsibilities and historical and anticipated future contributions to the
Company's performance. The Committee believes that selective grants of stock
options promote a commonality of interest between the Company's officers and its
stockholders by giving the Company's officers added incentives to maximize the
Company's stock price.
The Compensation Committee is of the opinion that the compensation levels
for the named executive officers are reasonable when compared to similar
positions of responsibility and scope in similar industries and that an
appropriate amount of total compensation is based on the performance of the
Company, and therefore provides sufficient incentive for these individuals to
attain improved results in the future.
COMPENSATION COMMITTEE
Milton Datsopoulos
Karsten Houm
8
<PAGE> 11
STOCK PERFORMANCE
The following table tracks the value of $100 invested on July 1, 1992 in
Criticare Systems, Inc. Common Stock compared to the change in the S&P 500 Index
and the Nasdaq Index. The chart shows that $100 invested five years ago in
Criticare Systems, Inc. common stock was worth $86.54 at June 30, 1998 compared
to $274.62 for the S&P 500 and $333.00 for the Nasdaq Index:
CRITICARE SYSTEMS, INC.
STOCK PERFORMANCE COMPARED TO THE
S&P 500 AND THE NASDAQ INDEX
<TABLE>
<CAPTION>
S&P 500 NASDAQ CRITICARE
<S> <C> <C> <C> <C>
------------------------------------------------
July 1, 1992 $100.00 $100.00 $100.00
June 30, 1993 110.39 120.62 69.23
June 30, 1994 108.85 120.97 59.63
June 30, 1995 133.47 159.95 72.12
June 30, 1996 164.31 203.05 103.85
June 30, 1997 216.87 247.10 153.85
June 30, 1998 274.62 333.00 86.54
</TABLE>
The following graph presents, for a five-year period, the cumulative total
shareholder return of the Company, the Standard & Poor's 500 Index and the
Nasdaq Index. Cumulative total shareholder return is defined as share price
appreciation assuming reinvestment of dividends.
9
<PAGE> 12
SECURITY OWNERSHIP
The following table sets forth information with respect to beneficial
ownership of the Common Stock of the Company as of August 31, 1998 by (a) each
person known to the Company to own beneficially more than 5% of the Company's
Common Stock, (b) each director of the Company, (c) each named executive
officer, and (d) all directors and executive officers as a group:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF
BENEFICIAL OWNER (1) SHARES OWNED PERCENT
-------------------- ------------ -------
<S> <C> <C>
Gerhard J. Von der Ruhr..................................... 555,075(2) 6.7%
N.C. Joseph Lai............................................. 713,894(3) 8.6
Karsten Houm................................................ 93,565(4) 1.1
Milton Datsopoulos.......................................... 77,500(5) *
Stephen D. Okland........................................... 13,500(6) *
Drew M. Diaz................................................ 20,000(7) *
Gloria Najera............................................... 10,000(8) *
All directors and executive officers (9 Persons)............ 1,544,734(2)(3)(9) 18.0
</TABLE>
- -------------------------
* Less than 1%
(1) Unless otherwise indicated, the address of the beneficial owner is 20925
Crossroads Circle, Waukesha, WI 53186; the address of Mr. Houm is
Kristinelundvn. 21, 0268 Oslo, Norway; and the address of Mr. Datsopoulos is
Central Square Building, 201 West Main, Missoula, Montana 59802.
(2) Includes 410,000 shares owned of record by Ursula Von der Ruhr, Mr. Von der
Ruhr's wife, and 1,175 shares owned of record by Mark Von der Ruhr, Mr. Von
der Ruhr's son.
(3) Includes 116,000 shares owned of record by Helen Lai, Dr. Lai's wife;
137,000 shares owned jointly by Dr. Lai and his wife; 184,000 shares in the
aggregate owned of record by Dr. Lai's sons, Christopher Lai and Thomas Lai;
and 134,000 shares owned of record by the Lai Family Foundation.
(4) Includes 77,500 shares which Mr. Houm has the right to acquire under
currently exercisable options.
(5) Includes 77,500 shares which Mr. Datsopoulos has the right to acquire under
currently exercisable options.
(6) Includes 13,500 shares which Mr. Okland has the right to acquire under
currently exercisable options.
(7) Includes 20,000 shares which Mr. Diaz has the right to acquire under
currently exercisable options.
(8) Includes 10,000 shares which Ms. Najera has the right to acquire under
currently exercisable options.
(9) Includes 218,500 shares of Common Stock the members of the group have a
right to acquire under currently exercisable options.
10
<PAGE> 13
CERTAIN TRANSACTIONS
The Company is the largest shareholder of Immtech International, Inc.
("Immtech"). Gerhard J. Von der Ruhr, an executive officer and director of the
Company, is a director of Immtech and beneficially owns 4.6% of Immtech's
outstanding common stock. Effective July 24, 1998, Immtech consummated, with the
Company's consent, a recapitalization (the "Recapitalization") pursuant to
which, among other things, the shares of preferred stock of Immtech held by the
Company and indebtedness owed by Immtech to the Company in the amount of
$1,917,777 were converted into shares of Immtech common stock. After giving
effect to the Recapitalization, the Company held 2,015,270 shares of Immtech
common stock. Contemporaneously with the completion of the Recapitalization,
Immtech completed a private placement of shares of Immtech common stock (the
"Private Placement"). Immtech has also filed a registration statement with the
SEC to register an offering of 1,333,333 units, with each unit consisting of two
shares of Immtech common stock and one Immtech common stock warrant (the "Unit
Offering"). The Company has agreed to distribute 750,000 shares of Immtech
common stock by means of a dividend to the Company's stockholders (the
"Spin-Off"). The Spin-Off is expected to be consummated immediately prior to the
effectiveness of the Unit Offering and is subject to a number of conditions. No
assurances can be given that the Unit Offering or the Spin-Off will be
consummated.
The Company and Immtech have agreed to indemnify RADE Management
Corporation ("RADE"), Immtech's financial consultant in connection with the
Private Placement, the Unit Offering and the Spin-Off, against certain
liabilities, including certain liabilities under the Securities Act of 1933, or
to contribute to payments RADE may be required to make in respect thereof.
In connection with the Recapitalization and other related transactions,
Immtech granted the Company an option to license rmCRP, a biotherapeutic product
based on the blood protein CRP, as a therapy for treating sepsis, a bacterial
infection which quickly overwhelms the immune system and can lead to sudden
death.
On July 2, 1998, the Company paid Immtech $150,000 in exchange for 172,414
shares of Immtech common stock (after giving effect to the Recapitalization) and
the following additional consideration: (i) all of Immtech's right, title and
interest in the Patent #5,484,735, which is used in the development of a
hemoglobin A1c assay to monitor diabetics for long term diet and glucose
control; (ii) all of Immtech's right, title and interest in Patent #5,702,904
which is used in the development of a carbohydrate deficient transferrin blood
to screen individuals who abuse alcohol over a sustained period of time, (iii)
all of Immtech's rights under the Sigma Diagnostics, Inc. ("Sigma") Agreement
dated as of March 23, 1998, including up to $110,000 in license fees payable by
Sigma upon Sigma's exercise of options to license technology to conduct research
and evaluation; (iv) all of Immtech's rights with respect to the License
agreements between Immtech and Northwestern University dated as of March 10,
1998 and as of October 27, 1994, the former license agreement involving certain
patent rights and know-how relating to Immunoassay Constructs to Quantitate
Glucosylated-Hemoglobin and other Glucosylated Serum Proteins (NU 8403) and the
latter license agreement involving certain inventions in the field of
Immunoassay for Identifying Alcoholics and Monitoring Alcohol Consumption (NU
9134); (v) an exclusive, royalty-free, world-wide license under Patent
#5,405,832 to Potempa, granted as of April 11, 1995 to utilize rmCRP for the
treatment of sepsis; (vi) the right to sue for past infringement for all of the
foregoing; and (vii) all other rights reasonably required to make, use, sell and
offer for sale products based on or related to the assigned assets. Under the
agreement, the Company is not assuming any other liabilities or obligations of
any kind. In addition, Immtech has agreed, for a period of three years after
closing, to make available to the Company the part-time services of Dr. Lawrence
A. Potempa to consult with and advise the Company regarding research, testing,
FDA compliance and approval, manufacture and commercialization of the products
or applications covered by the above-referenced patents. In exchange for Dr.
Potempa's services, the Company will reimburse Immtech for Immtech's
out-of-pocket salary and employee benefit plan expenses, pro rata, with respect
to Dr. Potempa. For a period of five years from the time of closing, the Company
will have the option of
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purchasing supplies of rmCRP from Immtech. The Company also may manufacture
rmCRP. If the Company does decide to manufacture rmCRP, Immtech has agreed to
provide all necessary know-how and expertise to enable the Company to
manufacture rmCRP in commercially viable quantities. The Company has until July
1999 to raise a minimum of $500,000 to fund the development of a sepsis product
and begin clinical trials. If the Company is not successful in raising the
funds, Immtech has the right to acquire the technology at market value.
The Company leases automobiles from U&G Leasing, which is owned by Mr. Von
der Ruhr and his wife, and from JHL Leasing, which is owned by Dr. Lai and his
wife, and paid $35,532 and $32,577, respectively, to those entities during the
fiscal year ended June 30, 1998. The Company believes these arrangements are on
terms no less favorable to the Company than would be available from an unrelated
third party.
PROPOSAL NO. 2: CAPITALIZATION AMENDMENT PROPOSAL
The Company's Restated Certificate of Incorporation currently provides that
the number of shares of Common Stock which the Company has authority to issue is
10,000,000.
PURPOSE AND EFFECT OF THE CAPITALIZATION AMENDMENT PROPOSAL
The Capitalization Amendment Proposal will increase the number of shares of
Common Stock which the Company is authorized to issue from 10,000,000 to
15,000,000. The additional 5,000,000 shares of Common Stock will be part of the
existing class of Common Stock, and if and when issued, will have the same
rights and privileges as the shares of Common Stock presently issued and
outstanding.
PURPOSE OF THE CAPITALIZATION AMENDMENT PROPOSAL. As of the Record Date,
there were 8,351,151 shares of Common Stock issued outstanding, and 1,516,700
shares reserved for issuance upon exercise of outstanding warrants and stock
options or pursuant to other commitments to issue shares of Common Stock. With
10,000,000 shares of Common Stock authorized for issuance under the Company's
Restated Certificate of Incorporation, the Company currently has only 132,149
shares of Common Stock available for issuance in future transactions.
The Company has no present plans, understandings or requirements for the
issuance or use of the proposed additional shares of Common Stock. However, the
Board of Directors believes that the authority to issue additional shares of
Common Stock is desirable so that, as the need may arise, the Company will have
the flexibility to issue shares of Common Stock, without the delay of a
stockholders' meeting, in connection with possible future equity financings,
future opportunities for expanding the Company's business through acquisitions,
and management incentive or employee benefit plans.
CERTAIN EFFECTS OF THE CAPITALIZATION AMENDMENT PROPOSAL.If the
Capitalization Amendment Proposal is approved and effected, future issuances of
shares of Common Stock may not require the approval of the Company's
stockholders. As a result, the Board of Directors could issue shares of Common
Stock in a manner that might have the effect of discouraging or making it more
difficult for a third party to acquire control of the Company through a tender
offer or proxy solicitation or to effect a merger or other business combination
that is not favored by the Board of Directors. In addition, issuances of shares
of Common Stock may increase the number of shares of Common Stock that may
become available for sale in the public market and could adversely affect the
price of the Common Stock in the public market. The issuance of additional
shares of Common Stock could also adversely affect the voting power of the
existing stockholders, including the loss of voting control to others. Holders
of Common Stock do not have preemptive rights or other rights to subscribe for
additional shares in the event that the Board of Directors determines to issue
additional shares of Common Stock in the future.
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NO DISSENTER'S RIGHTS
Under Delaware law, stockholders are not entitled to dissenters' rights
with respect to the Capitalization Amendment Proposal.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the shareholders vote FOR the
Capitalization Amendment Proposal. All shares of Common Stock represented by
properly executed proxies received prior to or at the Annual Meeting and not
revoked will be voted FOR the Capitalization Amendment Proposal unless a vote
against or an abstention with respect to such proposal is specifically
indicated. If the Capitalization Amendment Proposal is adopted by the requisite
vote of shareholders, the Board of Directors will promptly cause a Certificate
of Amendment to be filed with the Secretary of State of the State of Delaware to
effect the proposed amendment to the Company's Restated Certificate of
Incorporation. The Certificate of Amendment will become effective upon such
filing.
PROPOSAL NO. 3: RATIFICATION OF APPOINTMENT
OF INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed Deloitte & Touche LLP as independent
certified public accountants to examine the financial statements of the Company
and its consolidated subsidiaries for the fiscal year ending June 30, 1999.
Unless otherwise directed, Proxies will be voted in favor of the ratification of
such appointment.
Although this appointment is not required to be submitted to a vote of
stockholders, the Board believes it appropriate as a matter of policy to request
that the stockholders ratify the appointment. If stockholder ratification is not
received, the Board will reconsider the appointment.
Deloitte & Touche LLP (and its predecessor Deloitte Haskins & Sells) has
served as auditors for the Company since its formation in 1984. A representative
of Deloitte & Touche LLP is expected to be present at the Annual Meeting and
will be provided an opportunity to make a statement if he or she desires and
will be available to respond to appropriate questions.
PROPOSALS FOR 1999 ANNUAL MEETING
Any stockholder who desires to submit a proposal for the 1999 Proxy
Statement and Annual Meeting should submit the proposal in writing to Gerhard J.
Von der Ruhr, Chairman of the Board, Criticare Systems, Inc., 20925 Crossroads
Circle, Waukesha, Wisconsin 53186. The Company must receive a proposal by June
21, 1999 in order to consider it for inclusion in the 1999 Proxy Statement.
EXPENSES OF SOLICITATION
The cost of this solicitation of Proxies will be paid by the Company. It is
anticipated that the Proxies will be solicited only by mail, except that
solicitation personally or by telephone may also be made by the Company's
regular employees who will receive no additional compensation for their services
in connection with the solicitation. Arrangements will be made with brokerage
houses and other custodians, nominees and fiduciaries for the forwarding of
solicitation materials and the annual report to beneficial owners of stock held
by such persons. The Company will reimburse such parties for their expenses in
so doing.
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ANNUAL REPORT
A copy of the 1998 Annual Report of the Company accompanies this Proxy
Statement. A copy of the Company's Annual Report on Form 10-K for fiscal year
1998 will be provided without charge on written request of any stockholder whose
Proxy is being solicited by the Board of Directors. The written request should
be directed to Corporate Secretary, Criticare Systems, Inc., 20925 Crossroads
Circle, Waukesha, Wisconsin 53186.
By Order of the Board of Directors
N.C. Joseph Lai, Secretary
Waukesha, Wisconsin
October 19, 1998
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PROXY
CRITICARE SYSTEMS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Gerhard J. Von der Ruhr and Joseph M.
Siekierski, or either one of them, with full power of substitution and
resubstitution, as proxy or proxies of the undersigned to attend the Annual
Meeting of Stockholders of Criticare Systems, Inc. to be held on November 12,
1998 at 9:00 a.m. local time, at the Milwaukee Athletic Club, 758 North
Broadway, Milwaukee, Wisconsin 53202-3672, and at any adjournment thereof, there
to vote all shares of stock of Criticare Systems, Inc. which the undersigned
would be entitled to vote if personally present as specified upon the following
matters and in their discretion upon such other matters as may properly come
before the meeting.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
of Stockholders and accompanying Proxy Statement, ratifies all that said proxies
or their substitutes may lawfully do by virtue hereof, and revokes all former
proxies.
Please sign exactly as your name appears hereon, date and return this
Proxy. UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF
MILTON DATSOPOULOS AS A DIRECTOR, TO APPROVE AND ADOPT THE AMENDMENT TO THE
COMPANY'S RESTATED CERTIFICATE OF INCORPORATION AND FOR RATIFICATION OF THE
APPOINTMENT OF DELOITTE & TOUCHE LLP AS INDEPENDENT PUBLIC ACCOUNTANTS OF THE
COMPANY FOR THE FISCAL YEAR ENDING JUNE 30, 1999. IF OTHER MATTERS COME BEFORE
THE MEETING, THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE BEST JUDGMENT OF
THE PROXIES APPOINTED.
DETACH BELOW AND RETURN USING THE ENVELOPE PROVIDED
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CRITICARE SYSTEMS, INC. ANNUAL MEETING OF STOCKHOLDERS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1. Election of Milton Datsopoulos as Director |_| FOR |_| AGAINST |_| ABSTAIN
2. Approval and adoption of amendment to the Restated Certificate |_| FOR |_| AGAINST |_| ABSTAIN
of Incorporation of Criticare Systems, Inc. to increase
the total number of authorized shares of Common Stock from 10,000,000
to 15,000,000
3. Ratification of the appointment of Deloitte & Touche LLP as |_| FOR |_| AGAINST |_| ABSTAIN
independent public accountants of Criticare Systems,
Inc. for the fiscal year ending June 30, 1999
4. In their discretion, the Proxies are authorized to vote upon |_| FOR |_| AGAINST |_| ABSTAIN
such other matters as may properly come before the meeting
</TABLE>
Address change? Date_____________________ NO. OF SHARES__________
MARK BOX |_|
Indicate changes below:
_________________________________________
| |
| |
| |
_________________________________________
Signature(s) in Box
If signing as attorney, executor,
administrator, trustee or guardian,
please add your full title as such.
If shares are held by two or more
persons, all holders must sign the
Proxy.
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