CRITICARE SYSTEMS INC /DE/, DEF 14A, 1999-12-30

CRITICARE SYSTEMS INC /DE/
DEF 14A, 1999-12-30
ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS

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<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 Company's headquarters, 20925 Crossroads Circle, Waukesha, Wisconsin
53186, on Friday, January 21, 2000 at 3:30 p.m. for the following purposes:

1. To elect two directors, each to serve for a three-year term.

2. To consider and vote upon a proposal to approve the Criticare Systems,
Inc. Employee Stock Purchase Plan and the issuance of shares of common stock
under the Employee Stock Purchase Plan.

3. To ratify the appointment of BDO Seidman, LLP, independent certified
public accountants, as auditors of the Company for its fiscal year ending June
30, 2000.

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 December 22, 1999
are entitled to receive notice of, and to vote at, the Annual 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

Joseph M. Siekierski, Secretary
Waukesha, Wisconsin
December 31, 1999
<PAGE> 3

CRITICARE SYSTEMS, INC.
20925 CROSSROADS CIRCLE
WAUKESHA, WISCONSIN 53186

PROXY STATEMENT FOR 1999 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 Company's
headquarters, 20925 Crossroads Circle, Waukesha, Wisconsin, 53186, at 3:30 p.m.
on Friday, January 21, 2000, 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 December 31,
1999.

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 nominees listed in the enclosed proxy as directors
of the Company, (2) in FAVOR of the approval of the Criticare Systems, Inc.
Employee Stock Purchase Plan (the "Purchase Plan") and (3) in FAVOR of the
ratification of BDO Seidman, LLP as independent accountants for the 2000 fiscal
year.

Only holders of common stock whose names appear of record on the books of
the Company at the close of business on December 22, 1999 (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 8,736,151 shares of common stock,
par value $0.04 per share (the "Common Stock"). Each share of Common Stock is
entitled to one vote on each matter to be presented at the meeting. The election
of directors requires the affirmative vote of the holders of a plurality of the
shares represented, in person or by proxy, at the meeting and the approval of
the Purchase Plan and the ratification of independent accountants require 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
and will not count toward the determination of whether the Purchase Plan is
approved, the appointment of independent accountants is ratified or the
directors are elected.

PROPOSAL NO. 1: ELECTION OF DIRECTORS

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 the term of one
class expiring each year. The terms of two directors expire at the Annual
Meeting. Accordingly, the Board of Directors has nominated for reelection as
directors Gerhard J. Von der Ruhr and N.C. Joseph Lai, Ph.D. to serve terms of
three years, until the 2002 Annual Meeting of Stockholders. There are currently
two vacancies on the Board of Directors. Proxies cannot be voted for more than
two candidates for director.
<PAGE> 4

As indicated below, the persons nominated by the Board of Directors are
incumbent directors. The Company anticipates that the nominees will be
candidates when the election is held. However, if for any reason either of the
nominees 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 RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ELECTION
OF GERHARD J. VON DER RUHR AND N.C. JOSEPH LAI, PH.D. AS DIRECTORS OF THE
COMPANY.

NOMINEES FOR ELECTION AS DIRECTOR

<TABLE>
<CAPTION>
NAME, AGE, PRINCIPAL OCCUPATION FOR DIRECTOR
PAST FIVE YEARS AND DIRECTORSHIPS AGE SINCE PRESENT TERM ENDS
----------------------------------- --- -------- -----------------
<S> <C> <C> <C>
GERHARD J. VON DER RUHR................................. 58 1984 1999 Annual Meeting
Mr. Von der Ruhr is Chairman of O.B. Scientific, Inc., a
medical technology company. Mr. Von der Ruhr is a co-
founder of the Company and served as Chairman of the
Company's Board, President (CEO) and Treasurer from the
Company's inception in October 1984 until November 1998.
N.C. JOSEPH LAI, PH.D................................... 57 1984 1999 Annual Meeting
Dr. Lai is a management consultant. Dr. Lai is a co-
founder of the Company and served as Vice Chairman of
its Board and as an officer from the Company's inception
in October 1984 until November 1998.
OTHER DIRECTORS
KARSTEN HOUM............................................ 53 1985 2000 Annual Meeting
Mr. Houm has served as Chairman of the Board of the
Company since November 1998. Mr. Houm also currently
works as a management consultant. From September 1985 to
1997, Mr. Houm served as President of Unitor, a
Norwegian shipping company
EMIL H. SOIKA........................................... 61 1998 2000 Annual Meeting
Mr. Soika has served as President and Chief Executive
Officer of the Company since November 1998. From
November 1995 to September 1998, Mr. Soika served as
Vice President and General Manager of Spacelabs Medical,
a medical monitoring and clinical information systems
company. From March 1991 to July 1995, Mr. Soika served
as President and Chief Executive Officer of Block
Medical, a manufacturer of intravenous dispensers. Mr.
Soika is a director of Immtech International, Inc., a
company engaged in the research and development of
products in the fields of biochemistry and immunology
</TABLE>

2
<PAGE> 5

DIRECTORS' MEETINGS AND COMMITTEES

The Board of Directors held four meetings during the Company's fiscal year
ended June 30, 1999. All of the incumbent directors attended all 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 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, 1999. 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 plans. The
Compensation Committee met three times during the fiscal year ended June 30,
1999.

EXECUTIVE OFFICERS

The executive officers of the Company are as follows:

<TABLE>
<CAPTION>
NAME TITLE AGE
---- ----- ---
<S> <C> <C>
Emil H. Soika........................ President, Chief Executive Officer and Director 61
Joseph M. Siekierski................. Vice President -- Finance and Secretary 34
Stephen D. Okland.................... Vice President -- Domestic Sales 57
Drew M. Diaz......................... Vice President -- International Sales 36
Michael T. Larsen.................... Vice President -- Quality Control/Quality 40
Assurance
Gloria Najera........................ Vice President -- Operations 50
</TABLE>

The term of office and past business experience of Mr. Soika is described
above.

Mr. Siekierski joined the Company as Vice President -- Finance and
Assistant Secretary in October 1997. Mr. Siekierski was appointed as Secretary
of the Company in November 1998. 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.
3
<PAGE> 6

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, Ms. Najera was Director of Consumer
Services and Distribution from July 1994 to March 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% stockholders 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 1999 all section 16(a) filing requirements
applicable to its officers, directors and greater than 10% beneficial owners
were complied with, except that Emil H. Soika, Joseph M. Siekierski, Stephen D.
Okland, Drew M. Diaz, Michael T. Larsen, Gloria Najera, Karsten Houm and Milton
Datsopoulos each did not file a Form 4 or Form 5 to report option grants during
fiscal 1999.

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, 1999 to or on behalf of the two persons who served as Chief
Executive Officer during fiscal 1999 and the two other executive officers of the
Company whose salary exceeded $100,000 for fiscal 1999. 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>
Emil H. Soika,................ 1999 78,125 -- 200,000 --
President, Chief Executive
Officer and Director(2)
Gerhard J. Von der Ruhr,...... 1999 60,000 1,915 -- 593,646(4)
Chairman of the Board, 1998 144,000 958 -- 56,838(4)
President (CEO) and 1997 144,000 957 -- 56,620(4)
Treasurer(3)
Stephen D. Okland,............ 1999 277,576(5) 6,000 43,500(6) 3,701(7)
Vice President -- 1998 302,628(5) 6,000 -- 3,690(7)
Domestic Sales 1997 253,706(5) 6,000 10,000 3,441(7)
Drew M. Diaz,................. 1999 165,609 1,915 100,000(8) 1,882(9)
Vice President -- 1998 188,292 638 -- 86(9)
International Sales 1997 180,717 8,223 50,000 3,226(9)
</TABLE>

- -------------------------
(1) The amounts represent automobile allowance payments.

(2) Mr. Soika commenced employment with the Company in November 1998.

(3) Mr. Von der Ruhr resigned as Chairman of the Board, President (CEO) and
Treasurer of the Company in November 1998.

(4) For fiscal 1999, represents $50,396 of premiums paid by the Company on two
life insurance policies, the proceeds of which are payable to the
beneficiary of Mr. Von der Ruhr, $2,760 of Company contributions to the
401(k) plan on behalf of Mr. Von der Ruhr and $540,490 paid or accrued for
severance. For fiscal 1998, represents $53,638 of premiums paid by the
Company on two life insurance policies, the proceeds of which are payable to
the beneficiary of Mr. Von der Ruhr, and $3,200 of Company contributions to
the 401(k) plan on behalf of Mr. Von der Ruhr. For fiscal 1997, represents
$53,620 of premiums paid by the Company on two life insurance policies, the
proceeds of which are payable to the beneficiary of Mr. Von der Ruhr, and
$3,000 of Company contributions to the 401(k) plan on behalf of Mr. Von der
Ruhr.

(5) Represents commissions paid by the Company to Mr. Okland based on a
percentage of certain domestic sales by the Company. Mr. Okland receives no
fixed salary.

(6) Represents 30,000 stock options granted in fiscal 1999 and 13,500 stock
options regranted due to repricing of options on December 11, 1998.

(7) For fiscal 1999, represents $501 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. For fiscal 1998, represents $490 of premiums paid by the
Company on a life insurance policy, the proceeds of which are payable to

5
<PAGE> 8

the beneficiary of Mr. Okland, and $3,200 of Company contributions to the
401(k) plan on behalf of Mr. Okland. For fiscal 1997, represents $441 of
premiums paid by the Company on a life insurance policy, the proceeds of
which are payable to the beneficiary of Mr. Okland, and $3,000 of Company
contributions to the 401(k) plan on behalf of Mr. Okland.

(8) Represents 34,000 stock options granted in fiscal 1999 and 66,000 stock
options regranted due to repricing of options on December 11, 1998.

(9) For fiscal 1999, represents $101 of premiums paid by the Company on a life
insurance policy, the proceeds of which are payable to the beneficiary of
Mr. Diaz, and $1,781 of Company contributions to the 401(k) plan on behalf
of Mr. Diaz. For fiscal 1998, 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. For fiscal 1997, represents $3,226 of premiums paid
by the Company on a health insurance policy while Mr. Diaz was a resident of
Europe, the proceeds of which are payable to the beneficiary of Mr. Diaz.

COMPENSATION OF DIRECTORS

Directors of the Company are reimbursed for out-of-pocket expenses incurred
in attending meetings of the Board of Directors. Directors receive no cash
directors' fees. In addition to the stock options granted to Mr. Soika, listed
above, during fiscal 1999, the Company granted 22,500 stock options to each of
Mr. Houm and Mr. Datsopoulos, and regranted 77,500 stock options to each of Mr.
Houm and Mr. Datsopoulos through the repricing of options on December 11, 1998.

EMPLOYMENT AGREEMENTS AND SEVERANCE ARRANGEMENTS

On June 1, 1999, the Company entered into employment agreements with Emil
H. Soika, President, Chief Executive Officer and Director, Stephen D. Okland,
Vice President -- Domestic Sales, and Drew M. Diaz, Vice
President -- International Sales. The agreements provide, respectively, that Mr.
Soika will receive a base salary of $125,000 per year, and Mr. Okland and Mr.
Diaz will continue to receive their respective current compensation, with an
annual review of the compensation within 30 days prior to the end of each fiscal
year. Mr. Soika is eligible to participate in a cash bonus program and each of
Mr. Soika, Mr. Okland and Mr. Diaz is entitled to receive health and life
insurance coverage and disability insurance. The Company may terminate Mr.
Soika's, Mr. Okland's or Mr. Diaz's respective employment at any time and any of
Mr. Soika, Mr. Okland or Mr. Diaz may resign at any time. If the Company
terminates employment without cause at any time either prior to or after a
change in control of the Company, Mr. Soika is entitled to receive payment of
his base salary and his other employee benefits for 12 months, Mr. Okland is
entitled to receive payment of $18,750 per month and his other employee benefits
for 24 months, and Mr. Diaz is entitled to receive payment of his then current
compensation and his other employee benefits for 12 months, respectively, from
the date of termination. If Mr. Soika's, Mr. Okland's or Mr. Diaz's employment
is terminated for any other reason before a change in control of the Company,
the terminated employee will not be entitled to receive any base salary or other
benefits for periods after the termination date. If the Company experiences a
change in control, and Mr. Soika, Mr. Okland or Mr. Diaz voluntarily terminates
his employment for any reason after completing three months of employment after
the change in control, Mr. Soika is entitled to receive payment of his base
salary and his other employee benefits for 12 months, Mr. Okland is entitled to
receive payment of $18,750 per month and his other employee benefits for 24
months, and Mr. Diaz is entitled to receive payment of his then current
compensation and his other employee benefits for 12 months, respectively, after
the date of termination, or until Mr. Soika, Mr. Okland or Mr. Diaz secures
alternative employment, whichever period is shorter. Each of Mr. Soika, Mr.
Okland and Mr. Diaz have agreed not to compete with the Company during
employment and for a period of 3, 24 and 12 months, respectively, after any
voluntary termination of employment or for a period of 12, 24 and 12 months,
respectively, after any termination by the Company without cause. Mr. Soika, Mr.
Okland

6
<PAGE> 9

and Mr. Diaz have each agreed to maintain the confidentiality of the Company's
financial statements and other financial information.

On November 16, 1998, the Company entered into a severance agreement with
Gerhard J. Von der Ruhr, the Company's former Chairman of the Board, President
(CEO) and Treasurer. Pursuant to this severance agreement, the Company is
required to make payments to Mr. Von der Ruhr of $6,000 per month over the 36
months from December 1998 through November 2001. The Company also agreed to (i)
issue options to purchase up to 21,000 shares of Common Stock to Mr. Von der
Ruhr with an exercise price of $2.0625 per share, (ii) allow Mr. Von der Ruhr to
continue to use office space and secretarial services for a period of up to 12
months, (iii) continue to provide fringe benefits to Mr. Von der Ruhr through
September 30, 2001, and (iv) continue to provide health benefits to Mr. Von der
Ruhr and his spouse until the earlier of the date Mr. Von der Ruhr reaches age
65 or he obtains comparable insurance coverage from a subsequent employer.
Pursuant to this severance agreement, the Company also transferred patent and
technology rights that the Company had received from Immtech International, Inc.
("Immtech") relating to treatment for sepsis and prophylaxis and 172,414 shares
of Immtech common stock to O. B. Scientific, Inc. ("O. B. Scientific") in
exchange for the payment by O. B. Scientific of $150,000 in ten semi-annual
installments of $15,000 each starting on June 1, 1999. The Company received 10%
of the outstanding shares of O. B. Scientific and the right to elect one member
of the board of directors of O. B. Scientific. The Company and Mr. Von der Ruhr
also agreed to certain provisions regarding the distribution of products related
to the technology transferred by the Company to O. B. Scientific.

On November 16, 1998, the Company also entered into a severance agreement
with N.C. Joseph Lai, Ph.D., the Company's former Senior Vice President, Vice
Chairman of the Board and Secretary. Pursuant to this severance agreement, the
Company is required to make payments to Dr. Lai of $5,000 per month over the 36
months from December 1998 through November 2001. The Company also agreed to (i)
issue options to purchase up to 21,000 shares of Common Stock to Dr. Lai with an
exercise price of $2.0625 per share, (ii) allow Dr. Lai to continue to use
office space and secretarial services for a period of up to 12 months, (iii)
continue to provide fringe benefits to Dr. Lai through September 30, 2001, and
(iv) continue to provide health benefits to Dr. Lai and his spouse until the
earlier of the date Dr. Lai reaches age 65 or he obtains comparable insurance
coverage from a subsequent employer.

STOCK OPTION PLANS

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 1,520,000 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 1999, options to
purchase 1,153,700 shares were outstanding under the New Plans and options to
purchase 37,900 shares were outstanding under the Old Plans. During fiscal 1999,
options were granted to purchase 993,700 shares of Common Stock under the New
Plans at an average per share exercise price of $1.74 (all options were granted
at the market price on the grant dates), including options to purchase 479,700
shares which were regranted at a per share exercise
7
<PAGE> 10

price of $1.8750 pursuant to repricing. In addition, during fiscal 1999, 635,800
shares of Common Stock at an average per share exercise price of $2.06 were
canceled under the New Plans (including the 479,700 shares which were repriced)
and 1,000 shares of Common Stock at an average per share exercise price of $2.50
were canceled under the Old Plans and options to purchase 5,000 shares at an
average exercise price per share of $2.06 were exercised under the New Plans and
no options were exercised under the Old Plans. A total of 220,750 shares of
Common Stock remain available for future grants under the New Plans.

The following table provides certain information regarding stock options
granted to the named executive officers of the Company during the fiscal year
ended June 30, 1999.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS/SARS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM($)
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5% 10%
---- ------------ ------------ -------- ---------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Emil H. Soika............ 100,000 9.0 1.6875 2/23/04 46,623 103,024
100,000 9.0 1.5000 3/10/04 41,442 91,577
Gerhard J. Von der
Ruhr................... -- -- -- -- -- --
Stephen D. Okland........ 30,000 2.7 1.8750 12/11/03 15,541 34,341
10,000 * 1.8750 10/08/00 5,180 11,447
3,500 * 1.8750 12/31/00 2,672 6,226
Drew M. Diaz............. 34,000 3.1 1.5000 3/10/04 14,090 31,136
2,000 * 1.8750 1/25/00 1,527 3,558
4,000 * 1.8750 12/31/00 3,053 7,115
10,000 * 1.8750 10/08/00 5,180 11,447
50,000 4.5 1.8750 1/23/02 25,901 57,235
</TABLE>

- -------------------------
* Less than 1%

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 1999.

FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT OPTIONS AT FISCAL YEAR
FISCAL YEAR-END(#) END($)(1)
------------------------------ ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Emil H. Soika......................... -- 200,000 -- 93,750
Gerhard J. Von der Ruhr............... -- -- -- --
Stephen D. Okland..................... 13,500 30,000 2,531 5,625
Drew M. Diaz.......................... 32,000 68,000 6,000 25,500
</TABLE>

- -------------------------
(1) Based on the reported closing bid price of $2.0625 per share of common stock
on June 30, 1999.

8
<PAGE> 11

OPTION REPRICINGS

<TABLE>
<CAPTION>
MARKET PRICE LENGTH OF ORIGINAL
SECURITIES OF STOCK AT OPTION TERM
UNDERLYING NUMBER TIME OF EXERCISE PRICE AT NEW REMAINING AT DATE
NAME AND OF OPTIONS REPRICED REPRICING OR TIME OF REPRICING EXERCISE OF REPRICING OR
PRINCIPAL POSITION DATE OR AMENDED AMENDMENT OR AMENDMENT($) PRICE AMENDMENT
------------------ ---- ------------------- ------------ ----------------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Emil H. Soika,........... -- -- -- -- -- --
President,
Chief Executive
Officer,
and Director
Gerhard J. Von der
Ruhr,.................. -- -- -- -- -- --
Chairman of the Board,
President (CEO) and
Treasurer
Stephen D. Okland,....... 12/11/98 10,000 1.875 2.50 1.875 24 mos.
Vice President -- 3,500 1.875 2.00 1.875 34 mos.
Domestic Sales
Drew M. Diaz,............ 12/11/98 2,000 1.875 2.625 1.875 25 mos.
Vice President -- 4,000 1.875 2.00 1.875 24 mos.
International Sales 10,000 1.875 2.50 1.875 34 mos.
50,000 1.875 2.50 1.875 49 mos.
</TABLE>

RETIREMENT PLAN

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 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.

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 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. Soika, the Company's President and Chief Executive
Officer, the

9
<PAGE> 12

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.
Soika's individual performance and the Company's overall performance.

The Compensation Committee reviewed the proposed fiscal 1999 salaries for
the executive officers at the Compensation Committee meeting on September 11,
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.

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.

Report on Option Repricing. During 1998, the Compensation Committee
determined that circumstances had made it advisable for the Company to offer a
one-time opportunity in 1998 for the repricing of options held by executive
officers and other employees of the Company. Pursuant to the repricing, options
to purchase a total of 479,700 shares of Common Stock outstanding under the
Company's 1992 Employee Stock Option Plan and 1992 Non-Employee Stock Option
Plan were canceled, and new options for the same number of shares were granted
with a lower exercise price per share equal to the market price of the Common
Stock on the regrant date. All of the repricings took effect on December 11,
1998, based on the market price of $1.8750 per share on that date.

The Compensation Committee determined that the option repricing was
advisable because equity incentives are a significant component of the total
compensation package of the Company's employees and play a substantial role in
the Company's ability to retain the services of individuals essential to the
Company's long-term financial success. The Compensation Committee believed that
the Company's ability to retain key employees would be significantly impaired
unless value were restored to their options in the form of regranted options at
the current market price of the Common Stock. All repriced options remained
subject to the vesting schedule in effect before the repricing.

COMPENSATION COMMITTEE
Milton Datsopoulos
Karsten Houm

10
<PAGE> 13

STOCK PERFORMANCE

The following table tracks the value of $100 invested on June 30, 1994 in
the Company's 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 the Common
Stock was worth $106 at June 30, 1999 compared to $309 for the S&P 500 and $380
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>
--------------------------------------------
June 30, 1994 100 100 100
June 30, 1995 123 132 121
June 28, 1996 151 168 174
June 30, 1997 199 204 258
June 30, 1998 255 268 145
June 30, 1999 309 380 106
</TABLE>

The following graph presents, for a five-year period, the cumulative total
stockholder return of the Company, the Standard & Poor's 500 Index and the
Nasdaq Index. Cumulative total stockholder return is defined as share price
appreciation assuming reinvestment of dividends.

[PERFORMANCE GRAPH]

<TABLE>
<CAPTION>
S&P 500 NASDAQ CRITICARE
------- ------ ---------
<S> <C> <C> <C>
6/30/94 100.00 100.00 100.00
6/30/95 123.00 132.00 121.00
6/28/96 151.00 168.00 174.00
6/30/97 199.00 204.00 258.00
6/30/98 255.00 268.00 145.00
6/30/99 309.00 380.00 106.00
</TABLE>

11
<PAGE> 14

SECURITY OWNERSHIP

The following table sets forth information with respect to beneficial
ownership of the Common Stock as of August 31, 1999 by (a) each person known to
the Company to own beneficially more than 5% of the 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>
Emil H. Soika............................................... -- --
Gerhard J. Von der Ruhr..................................... 560,275(2) 6.4%
N.C. Joseph Lai............................................. 713,894(3) 8.2
Karsten Houm................................................ 103,365(4) 1.2
Milton Datsopoulos.......................................... 77,500(5) *
Stephen D. Okland........................................... 17,000(6) *
Drew M. Diaz................................................ 35,500(7) *
All directors and executive officers as a group (10
persons).................................................. 1,639,634(8) 18.8
</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 87,500 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 34,000 shares which Mr. Diaz has the right to acquire under
currently exercisable options.

(8) Includes 287,500 shares of Common Stock the members of the group have a
right to acquire under currently exercisable options.

PROPOSAL NO. 2: APPROVAL OF EMPLOYEE STOCK PURCHASE PLAN

At the Annual Meeting, you are being asked to approve the Purchase Plan and
the issuance of 500,000 shares of Common Stock under the Purchase Plan. The
Purchase Plan, which is intended to qualify under section 423 of the Internal
Revenue Code of 1986, as amended (the "Code"), permits eligible employees to
purchase Common Stock at a discount through payroll deductions.

12
<PAGE> 15

SUMMARY OF THE PURCHASE PLAN

The following discussion of the principal features and effects of the
Purchase Plan is qualified in its entirety by reference to the text of the
Purchase Plan, which is attached as Annex A to this Proxy Statement.

PURPOSE. The purpose of the Purchase Plan is to provide employees of the
Company and its subsidiaries with an opportunity to purchase Common Stock
through accumulated payroll deductions. It is the Company's intention to have
the Purchase Plan qualify as an "employee stock purchase plan" under section 423
of the Code. Accordingly, the provisions of the Purchase Plan will be construed
so as to extend and limit participation in a manner consistent with the
requirements of that section of the Code.

ADMINISTRATION. The Purchase Plan will be administered by the Board of
Directors or the Compensation Committee appointed by the Board (the
"Administrator"). Every finding, decision and determination by the Administrator
will, to the full extent permitted by law, be final and binding upon all
parties.

ELIGIBILITY. All employees of the Company and its subsidiaries are eligible
to participate, except individuals who have been employed for less than six
months, individuals who customarily work less than 20 hours per week,
individuals who customarily work for the Company for not more than five months
per year and individuals who would own 5% or more of the Common Stock, taking
outstanding options and shares owned by certain related parties into account.
Participation in the Purchase Plan ends automatically on termination of
employment with the Company or a subsidiary. Eligible employees may become a
participant by completing an enrollment form authorizing payroll deductions and
filing it with the Company's payroll office prior to the applicable enrollment
date.

OFFERING PERIODS. The Company has implemented the Purchase Plan with an
initial offering period commencing on July 1, 1999, and ending on January 31,
2000, subject to the approval of the Purchase Plan by stockholders at the Annual
Meeting. Thereafter, the Purchase Plan will have consecutive monthly offering
periods.

PURCHASE PRICE. The purchase price per share of the shares offered under
the Purchase Plan in a given offering period will be the lower of 85% of the
fair market value of a share of Common Stock on the first day of the monthly
option period or 85% of the fair market value of a share of Common Stock on the
exercise date. The fair market value of the Common Stock on a given date will be
the closing sale price of a share of Common Stock for such date as reported by
the Nasdaq National Market. The shares of Common Stock purchased pursuant to the
Purchase Plan will, at the Company's option, represent newly-issued shares or
shares purchased in the open market by the Administrator.

PAYROLL DEDUCTIONS. The purchase price for the shares of Common Stock is
accumulated by payroll deductions during the offering period in amounts elected
by the participants. A participant may discontinue his or her participation in
the Purchase Plan at any time during the offering period. Payroll deductions
will commence on the first payday following the enrollment date, and will end on
the exercise date of the offering period unless sooner terminated as provided in
the Purchase Plan.

GRANT AND EXERCISE OF OPTION. The maximum number of shares placed under
option to a participant in an offering is that number determined by dividing the
amount of the participant's total payroll deductions to be accumulated prior to
an exercise date by the lower of 85% of the fair market value of the Common
Stock at the beginning of the offering period or on the exercise date. Unless a
participant withdraws from the Purchase Plan, such participant's option for the
purchase of shares of Common Stock will be exercised automatically on each
exercise date for the maximum number of whole shares of Common Stock at the
applicable price. Notwithstanding the foregoing, no employee will be permitted
to subscribe for shares of Common Stock under the Purchase Plan if, immediately
after the grant of the option, the employee would own 5% or more of the voting
power or value of all classes of stock of the Company or of any of its
subsidiaries (including stock which may be
13
<PAGE> 16

purchased under the Purchase Plan or pursuant to any other options), nor will
any employee be granted an option which would permit the employee to buy under
all employee stock purchase plans of the Company more than $25,000 worth of
stock (determined at the fair market value of the shares of Common Stock at the
time the option is granted) in any calendar year. In addition, the shares of
Common Stock received by an employee upon the exercise of an option may not be
disposed of by such employee for a period of six months from the date of
exercise.

WITHDRAWAL; TERMINATION OF EMPLOYMENT. Employees may end their
participation in the offering at any time during the offering period, and
participation ends automatically on termination of employment with the Company
or a subsidiary of the Company. A participant will be required to withdraw all
of the payroll deductions credited to such participant's account and not yet
used and must give written notice of such withdrawal to the Company.

TRANSFERABILITY. No rights or accumulated payroll deductions of a
participant under the Purchase Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or by designation of a beneficiary as provided in the Purchase
Plan) and any such attempt may be treated by the Company as an election to
withdraw from the Purchase Plan.

ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER, ASSET SALE
OR CHANGE OF CONTROL. Subject to any required action by the Company's
stockholders, the shares of Common Stock reserved under the Purchase Plan, as
well as the price per share of Common Stock covered by each option under the
Purchase Plan which has not yet been exercised, will 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. Such adjustment will be made by the Board, whose determination
will be final, binding and conclusive. In the event of the proposed dissolution
or liquidation of the Company, the offering period will terminate immediately
prior to the consummation of such proposed action, unless otherwise provided by
the Board. In the event of a proposed sale of all or substantially all of the
assets of the Company or a merger of the Company with or into another
corporation, the Purchase Plan provides that each option under the plan be
assumed or an equivalent option be substituted by the successor or purchaser
corporation, unless the Board determines to shorten the offering period.

AMENDMENT AND TERMINATION. The Company's Board of Directors may at any time
and for any reason terminate or amend the Purchase Plan. Except as provided in
the Purchase Plan, no such termination will 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 Purchase
Plan is in the best interests of the Company and its stockholders. Except as
provided in the Purchase Plan, 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 section 423 of the Code (or any successor
rule or provision or any other applicable law or regulation), the Company will
obtain stockholder approval of any amendment to the Purchase Plan in such a
manner and to such a degree as required. Unless terminated sooner, the Purchase
Plan will terminate on July 1, 2009.

FEDERAL TAX INFORMATION FOR THE PURCHASE PLAN. The Purchase Plan and the
rights of participants to make purchases under the Purchase Plan are 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 Plan are sold or otherwise disposed of. Upon sale or other
disposition of the shares of Common Stock, the participant will generally be
subject to tax, and the amount of the tax will depend upon the holding period.
If the shares of Common Stock are sold or otherwise disposed of more than two
years from the first day of the offering period, the participant will recognize
ordinary income measured as the lesser of (a) the excess of the fair

14
<PAGE> 17

market value of the shares of Common Stock 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 of Common Stock as of the first day of the offering
period. Any additional gain will be treated as long-term capital gain. If the
shares of Common Stock are sold or otherwise disposed of before the expiration
of this holding period, the participant will recognize ordinary income generally
measured as the excess of the fair market value of the shares of Common Stock 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 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 of Common Stock prior to the expiration of the holding
period(s) 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 of Common Stock purchased under the Purchase Plan. Reference should be
made to the application provisions of the Code. In addition, the summary does
not discuss the tax consequences of a participant's death or the income tax laws
of any state in which the participant may reside.

VOTE REQUIRED; RECOMMENDATION

The affirmative vote of a majority of votes cast at the Annual Meeting is
required for approval of the Purchase Plan. Your Board of Directors believes
that the continued success of the Company depends upon its ability to attract,
motivate and retain qualified personnel. The Purchase Plan enhances that ability
and provides additional incentives to such personnel to advance any interests of
the Company and its stockholders. THEREFORE, YOUR BOARD HAS UNANIMOUSLY
APPROVED, AND RECOMMENDS TO YOU, THE ADOPTION OF THE PURCHASE PLAN AND THE
ISSUANCE OF THE SHARES OF COMMON STOCK UNDER THE PURCHASE PLAN.

PROPOSAL NO. 3: RATIFICATION OF APPOINTMENT
OF INDEPENDENT ACCOUNTANTS

The Board of Directors has appointed BDO Seidman, 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, 2000.
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.

On October 6, 1999, Deloitte & Touche LLP resigned as the Corporation's
independent auditors. The Corporation retained BDO Seidman, LLP as its
independent auditors effective November 2, 1999. Deloitte & Touche LLP's reports
on the Corporation's financial statements for the years ended September 30, 1997
and 1998 did not contain an adverse opinion or a disclaimer of opinion, and were
not qualified or modified as to uncertainty, auditing scope or accounting
principles. The Corporation's decision with respect to the change of independent
auditors was approved by the Audit Committee of the Board of Directors. During
the two years preceding the change in independent auditors, and the subsequent
interim periods, there were no disagreements with Deloitte & Touche LLP on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedures which, if not resolved to the satisfaction of
Deloitte & Touche LLP, would have caused Deloitte & Touche LLP to make reference
to the matter in their reports, except that Deloitte & Touche LLP disagreed with
the Company's management regarding the recording of a gain on the Company's sale
of shares of Immtech International, Inc. in the Company's financial statements
for the year ended June 30, 1999. The Company agreed to reverse this transaction
in August 1999 and the gain was recorded in the quarter ended September 30,
1999.

15
<PAGE> 18

PROPOSALS FOR 2000 ANNUAL MEETING

Proposals which stockholders intend to present at the 2000 Annual Meeting
of Stockholders pursuant to Rule 14a-8 under the Exchange Act must be received
at the Company's principal offices in Waukesha, Wisconsin, no later than June
10, 2000 for inclusion in the proxy material for that meeting. Proposals
submitted other than pursuant to Rule 14a-8 will be considered untimely if
received after August 16, 2000 and the Company will not be required to present
any such proposal at the 2000 Annual Meeting of Stockholders. If the board of
Directors decides to present a proposal despite its untimeliness, the people
named in the proxies solicited by the Board of Directors for the 2000 Annual
Meeting of Stockholders will have the right to exercise discretionary voting
power with respect to such proposal.

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.

ANNUAL REPORT

A copy of the 1999 Annual Report of the Company accompanies this proxy
Statement. A copy of the Company's Annual Report on Form 10-K for fiscal year
1999 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

Joseph M. Siekierski, Secretary

Waukesha, Wisconsin
December 31, 1999

16
<PAGE> 19

ANNEX A

CRITICARE SYSTEMS, INC.

EMPLOYEE STOCK PURCHASE PLAN
<PAGE> 20

CRITICARE SYSTEMS, INC.

EMPLOYEE STOCK PURCHASE PLAN

TABLE OF CONTENTS

<TABLE>
<S> <C> <C>
I. INTRODUCTION................................................ 1

II. DEFINITIONS................................................. 1

III. PARTICIPATION............................................... 2

IV. OPTIONS TO PURCHASE; MAXIMUM SHARES AVAILABLE............... 4

V. PURCHASE OF STOCK PURSUANT TO OPTIONS....................... 4

VI. ADMINISTRATION OF PLAN...................................... 6

VII. ADJUSTMENT UPON CHANGES IN COMMON STOCK..................... 7

VIII. AMENDMENT; TERMINATION OF PLAN.............................. 7

IX. MISCELLANEOUS............................................... 8
</TABLE>
<PAGE> 21

CRITICARE SYSTEMS, INC.
EMPLOYEE STOCK PURCHASE PLAN

I. INTRODUCTION

The purpose of the Criticare Systems, Inc. Employee Stock Purchase Plan is
to make available to eligible employees of Criticare Systems, Inc. (the
"Company"), and certain related companies a means of purchasing shares of the
Company's Common Stock through voluntary, regular payroll deductions. The Plan
is not subject to the provisions of the Employee Retirement Income Security Act
of 1974, but is intended to qualify as an "Employee Stock Purchase Plan" under
Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"). The
Plan shall be administered, interpreted and construed so as to extend and limit
participation in a manner consistent with Section 423 of the Code.

Participation in the Plan is entirely voluntary, and the Company makes no
recommendations to employees as to whether they should or should not participate
in the Plan.

The Plan has been adopted by the Board and is effective July 1, 1999, but
no Options to purchase shares may be exercised or deemed exercised unless this
Plan is approved by the Company's shareholders on or before January 31, 2000 in
the manner required by section 423(b)(2) of the Code and Treasury Regulation
section 1.423-2(c).

II. DEFINITIONS

2.1. DEFINITIONS. The following words and phrases shall have the following
meanings:

"Administrator" means the entity or person designated to act as
Administrator of the Plan pursuant to Section 6.1.

"Base Compensation" means gross compensation for the relevant pay period,
including overtime pay, but excluding all bonuses, severance pay, extraordinary
pay, expense allowances or reimbursements, moving expenses and income from the
exercise of nonqualified stock options, the disposition of incentive stock
options or from restricted stock or stock option awards. For these purposes,
gross compensation includes any amount that would be included in taxable income
but for the fact that it was contributed to a qualified plan pursuant to an
elective deferral under Section 401(k) of the Code or contributed under a salary
reduction agreement pursuant to Section 125 of the Code.

"Board" means the Board of Directors of the Company.

"Broker" means a duly licensed securities dealer, broker or agent
designated to act as Broker of the Plan pursuant to Section 6.2.

"Committee" means the Compensation Committee of the Board, which, to the
extent required by Rule 16b-3, shall consist entirely of Non-Employee Directors
(as defined in Rule 16b-3).

"Company" means Criticare Systems, Inc..

"Common Stock" means the Company's Common Stock, par value $.04 per share.

"Code" has the meaning set forth in Article I.

"Eligible Employee" means any employee of any Employer, excluding any
employee (a) who has been employed by the Employer for less than six months, (b)
whose customary employment with the employee's Employer is 20 hours or less per
week, (c) whose customary employment with the employee's Employer is not for
more than five months in any calendar year, or (d) who immediately after the
grant of an option under this Plan to the employee would (in accordance with the
provisions of Sections 423 and 424(d) of the Code) own stock possessing 5% or
more of the
<PAGE> 22

total combined voting power or value of all classes of stock of the "employer
corporation" or of its "Parent Corporations" or "Subsidiary Corporations," as
defined in Section 424 of the Code.

"Employer" means, with respect to any Participant, the Company or Related
Corporation of which the Participant is an Eligible Employee.

"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time, and any successor thereto.

"Fair Market Value" means, with respect to a share of Common Stock, the
last sales price (or average of the quoted closing bid and asked prices if there
is no closing sales price reported) of a share of Common Stock as reported by
the Nasdaq National Market (or by the principal national stock exchange on which
the Nasdaq Common Stock is then listed) on the date of valuation, if such date
is a business day, or the immediately preceding business day, if such date is
not a business day. In the absence of an established market for Common Stock,
the Fair Market Value of a share of Common Stock shall be determined in good
faith by the Board.

"Indemnified Person" has the meaning set forth in Section 9.2.

"Initial Option Period" means the Option Period commencing on the Plan
Start Date and ending on January 31, 2000.

"Option" means an option granted pursuant to this Plan at the beginning of
each Option Period to acquire Common Stock.

"Option Exercise Date" means the last day of each Option Period.

"Option Period" means each calendar month during the period beginning on
the Plan Start Date and ending on June 30, 2009, unless the Plan is terminated
earlier; provided, however, the first Option Period under the Plan shall start
on July 1, 1999 and terminate January 31, 2000.

"Payroll Deduction Account" means, with respect to each Participant, the
amounts credited to the Participant's account from the payroll deductions made
by the Participant under this Plan, less any amounts withdrawn from such account
(for payment of Common Stock, payment to the Participant, payment of withholding
and other taxes or amounts or payment of other obligations or amounts).

"Participant" has the meaning set forth in Section 3.2.

"Plan" means the Criticare Systems, Inc. Employee Stock Purchase Plan.

"Plan Start Date" means July 1, 1999.

"Related Corporation" means any present or future corporation which (i)
would be a "subsidiary corporation" or "parent corporation" of the Company or
any other Related Corporation as such terms are defined in Section 424 of the
Code, and (ii) is designated as a participating employer in this Plan by the
Board.

"Rule 16b-3" means Rule 16b-3 under the Exchange Act.

"Stock Account" means, with respect to each Participant, the number of
whole shares of Common Stock credited under this Plan to the Participant's
account. Dividends with respect to shares of Common Stock credited to a
Participant's Stock Account shall be paid to the Participant and shall not be
held in either the Participant's Stock Account or Payroll Deduction Account.

III. PARTICIPATION

3.1. ELIGIBLE EMPLOYEES. Subject to Article VIII, all Eligible Employees as
of the beginning of each Option Period may participate in the Plan for such
Option Period at their election.

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<PAGE> 23

3.2. PARTICIPATION PROCEDURES. If an Eligible Employee does not otherwise
have an election to become a Participant in effect, each Eligible Employee
choosing to participate in the Plan (herein called a "Participant") during an
Option Period shall enroll as a Participant in the Plan by filing with the
Participant's Employer a completed enrollment form (authorized by the
Administrator) prior to the beginning of any Option Period (including the
Initial Option Period).

3.3. EMPLOYEE CONTRIBUTIONS. Subject to other limitations provided in this
Plan, a Participant may contribute under the Plan any portion of Participant's
Base Compensation which is a whole dollar amount, with a minimum of 1% of
Participant's Base Compensation and a maximum of 10% of the Participant's Base
Compensation. Contributions may be made only through regular payroll deductions,
net of any tax or other withholdings.

An enrollment form and payroll deduction authorization will remain
effective for each successive Option Period until terminated in writing by a
Participant or until the Participant is no longer eligible to participate in the
Plan. The payroll deduction authorization may be reduced or terminated at any
time by the Participant's written request submitted to the Participant's
Employer; provided, however, that a Participant may not recommence or increase
payroll deductions until the beginning of the next Option Period, nor may a
Participant make more than one revision of the Participant's payroll deduction
authorization in any Option Period. Termination of deductions shall constitute
withdrawal from the Plan as set forth in Section 3.5 and cancellation of any
outstanding Options of the Participant. Reduction or termination of deductions
will become effective as soon as practicable after a Participant's written
request is received by the Participant's Employer.

3.4. PARTICIPANT RESTRICTION. Notwithstanding any provisions of this Plan
to the contrary, no Participant will be granted an Option under this Plan which
would permit the Participant's rights to purchase shares of stock pursuant to
all employee stock purchase plans under section 423 of the Code sponsored by the
Company and "parent corporations" and "subsidiary corporations" (within the
meaning of Section 424 of the Code) to accrue at a rate which exceeds $25,000 of
the Fair Market Value of such stock determined at the time each Option is
"granted" (within the meaning of Code Section 423(b)(8)) for each calendar year
during which any Option granted to such Participant is outstanding at any time,
as provided in Sections 423 and 424(d) of the Code.

3.5. WITHDRAWAL FROM PLAN. A Participant may withdraw from the Plan
(thereby canceling all Options then in existence) at any time by giving written
notice to the Participant's Employer and to the Administrator. The Administrator
shall, as soon as practicable after receiving written notice of a Participant's
withdrawal from the Plan, cause to be delivered to the Participant (i) a
certificate issued in the name of the Participant representing the number of
full shares of Common Stock held in the Participant's Stock Account and (ii) a
check representing any funds held to the credit of the Participant's Payroll
Deduction Account. A Participant who has withdrawn from the Plan may thereafter
reenter the Plan by following the procedure described under Section 3.2.

3.6. TERMINATION OF PARTICIPANT'S EMPLOYMENT. Upon termination of a
Participant's employment from the Employers for any reason, including death or
disability, the Participant's Stock Account and Payroll Deduction Account in the
Plan shall be closed, and all existing Options held by the Participant shall be
canceled. The Administrator shall, as soon as practicable after termination of a
Participant's employment, cause to be delivered to the Participant or the
Participant's estate or the Participant's designated beneficiary as provided
below, as applicable, (i) a certificate issued in the name of the Participant
representing the number of full shares of Common Stock in the Participant's
Stock Account, and (ii) a check representing any funds held to the credit of the
Participant's Payroll Deduction Account. In the event of a Participant's death,
the Participant's Common Stock and Payroll Deduction Account shall be delivered
and paid to the estate of such Participant or to a beneficiary designated by the
Participant in writing on a form approved by the Administrator.

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<PAGE> 24

IV. OPTIONS TO PURCHASE STOCK;
MAXIMUM SHARES AVAILABLE

4.1. MAXIMUM SHARES. The maximum number of shares which shall be issued
under the Plan, subject to adjustment upon changes in Common Stock under Article
VII, shall be 500,000 shares. If, on a given Option Exercise Date, the number of
shares with respect to which Options are to be exercised exceeds the number of
shares 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 it shall determine to be equitable, and the balance of the
Payroll Deduction Account of each Participant shall be returned to the
Participant as promptly as possible.

4.2. OFFERINGS. Subject to Article VIII, the Company shall make consecutive
offerings on the beginning of each Option Period to Participants to purchase
Common Stock as long as shares authorized remain available for issuance. Each
offering as of the beginning of each Option Period shall be the total number of
shares authorized under Section 4.1, less the number of shares issued by
purchases of Common Stock under Section 5.5 in prior Option Periods.

V. PURCHASE OF STOCK PURSUANT TO OPTIONS

5.1. PAYROLL DEDUCTION ACCOUNTS. Each Employer will deduct from its
Participants' paychecks such amounts as have been authorized by the Participants
and, promptly after the end of each month, remit to the Administrator all
amounts so deducted during the month, together with a report showing each
Participant and the amounts allocable to the Payroll Deduction Account of each
Participant. The Administrator shall credit each Participant's Payroll Deduction
Account with the amount of such deposits, and shall reduce the Participant's
Payroll Deduction Account by the purchase price of all Common Stock purchased by
the Participant under this Plan and by any other withdrawals from the
Participant's Payroll Deduction Account. The Plan, through its Administrator,
shall purchase for the Stock Accounts of the Participants shares of Common Stock
with funds received under the Plan.

5.2. STOCK ACCOUNTS. The Administrator will open and maintain a Stock
Account in the name of each Participant to which will be credited all shares of
Common Stock purchased for the Participant's benefit. All shares held under the
Plan will be registered in the name of the Plan, the Administrator or the
Administrator's nominee, and will remain so registered until the shares are
delivered to the Participant. The Participant shall have the right to sell all
or any part of the shares held in the Participant's Stock Account, pursuant to
procedures established by the Administrator.

5.3. GRANT OF OPTIONS AND PURCHASE. Subject to Article VIII, each person
who is a Participant on the first day of an Option Period will as of the first
day of such Option Period be deemed to have been granted an Option for such
period. Such Option will be for the number of whole shares of Common Stock to be
determined by dividing (a) the balance in the Participant's Payroll Deduction
Account on the Option Exercise Date, by (b) the purchase price per share of
Common Stock determined under Section 5.4 below; provided, however, that the
quotient in this Section 5.3 shall be rounded down to a whole number. The number
of shares of Common Stock receivable by each Participant upon exercise of an
Option for an Option Period shall be reduced, on a substantially proportionate
basis, in the event that the number of shares then available under the Plan is
otherwise insufficient.

5.4. PURCHASE PRICE. The purchase price of each share of Common Stock sold
pursuant to the exercise of an Option shall be 0.85 multiplied by the Fair
Market Value of the Common Stock on the first day or last day of the Option
Period, whichever is lower.

5.5. EXERCISE OF OPTIONS. Each person who is a Participant in the Plan on
the Option Exercise Date will be deemed to have exercised on the Option Exercise
Date the Option granted to the Participant for that Option Period. Upon such
exercise, the balance of the Participant's Payroll Deduction Account shall be
applied to the purchase of the number of whole shares of Common
4
<PAGE> 25

Stock determined under Section 5.3, and the amount of shares of Common Stock
purchased shall be credited to the Participant's Stock Account. In the event
that the balance of the Participant's Payroll Deduction Account following an
Option Period is in excess of the total purchase price of the shares of Common
Stock so sold, the balance of the Payroll Deduction Account shall be returned to
the Participant; provided, however, that if the balance in the Payroll Deduction
Account consists solely of an amount equal to the value of a fractional share it
will be retained in the Payroll Deduction Account and carried over to the next
Option Period. No fractional shares shall be issued hereunder.

Notwithstanding anything herein to the contrary, the Company's obligation
to sell and deliver shares of Common Stock under the Plan is subject to the
approval required of any governmental authority in connection with the
authorization, issuance, sale or transfer of such shares, to any requirements of
Nasdaq or any national securities exchange applicable thereto, and to compliance
by the Company with other applicable legal requirements in effect from time to
time, including without limitation any applicable tax withholding requirements.

5.6. NO ASSIGNMENT OF PARTICIPANT'S INTEREST IN PLAN. A Participant may not
assign, sell, transfer, pledge, hypothecate or alienate any Options or other
interests (including Participant's Payroll Deduction Account) in or rights under
the Plan. Options under the Plan are exercisable by a Participant during the
Participant's lifetime only by the Participant. All employees shall have the
same rights and privileges under the Plan. Participants shall have no interest
or voting rights in shares of Common Stock covered by his or her Option until
such Option has been exercised.

5.7. VESTING. Each Participant will immediately acquire full ownership of
all shares of Common Stock at the time such shares are credited to the
Participant's Stock Account.

5.8. DELIVERY OF STOCK. A Participant may instruct the Administrator, in
writing, at any time to deliver to the Participant a certificate, issued in the
name of the Participant, representing any or all of the full shares of Common
Stock held in the Participant's Stock Account. As soon as practicable after
receiving such instructions, the Administrator shall cause the certificate to be
mailed to the Participant. Such instruction to the Administrator, requesting
delivery of a certificate, will not affect the Participant's status under the
Plan unless the Participant also terminates the payroll deduction authorization.

5.9. DIVIDENDS, SPLITS AND DISTRIBUTIONS. Any stock dividends or stock
splits in respect of shares held in the Participant's Stock Account will be
credited to the Participant's account without charge. Any distributions to
holders of Common Stock or other securities or rights to subscribe for
additional shares of Common Stock will be sold and the proceeds will be handled
in the same manner as a cash dividend, unless the Participant instructs the
Administrator to the contrary.

5.10. VOTING RIGHTS. The Administrator will deliver to each Participant as
promptly as practicable, by mail or otherwise, all notices of meetings, proxy
statements and other material distributed by the Company to its stockholders.
The full shares of Common Stock in each Participant's Stock Account will be
voted in accordance with the Participant's signed proxy instructions duly
delivered to the Administrator or pursuant to any other method of voting
available to holders of Common Stock. There will be no charge to the Participant
for the Administrator's retention or delivery of stock certificates, or in
connection with notices, proxies or other such material.

5.11. NO INTEREST TO BE PAID. No interest will be paid to or credited to
the Payroll Deduction Accounts or Stock Accounts of the Participants.

5.12. DESIGNATION OF BENEFICIARY. A Participant may file a written
designation of a beneficiary who is to receive any shares and cash, if any, from
the Participant's accounts under the Plan in the event of such Participant's
death. If a Participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be effective.
Such designation of beneficiary may be changed by Participant at any time by
written notice. In the event of death of the 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 in
Participant's
5
<PAGE> 26

accounts to the personal representative, executor or administrator of the estate
of the Participant, or if no personal representative, executor or administrator
has been appointed (to the knowledge of the Company), the Company, in its
discretion, may deliver such shares and/or cash in the Participant's accounts to
the spouse or to any one or more dependents or relatives of such Participant or
if no spouse, dependent or relative is known by the Company, then to such other
person as the Company may designate.

5.13. CONDITIONS UPON ISSUANCE OF COMMON STOCK. Shares of Common Stock
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 "Exchange Act"), the rules and regulations promulgated
thereunder and the requirements of any stock exchange upon which shares may 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 the Option to represent and
warrant at the time of 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 of the Company, such representation is
required by any of the afore-mentioned applicable provisions of law. The terms
and conditions of Options granted under the Plan, and the repurchase of shares
by, persons subject to section 16 of the Exchange Act shall comply with all
applicable provisions of Rule 16b-3 under the Exchange Act. The Plan and each
Option shall be deemed to contain, and the shares issued upon exercise thereof
shall be subject to, such additional conditions and restrictions as may be
required by Rule 16b-3 under the Exchange Act to qualify for the maximum
exemption from section 16 of the Exchange Act with respect to Plan transactions.

In addition to the restrictions described in the first paragraph of this
section 5.13, the shares of Common Stock received by any person upon exercise of
Option may not be sold, assigned, transferred, pledged, or otherwise disposed of
for a period of six months from the date of such exchange. The shares of the
Common Stock received upon the exercise of such Option may bear a legend to such
effect and the Company may require the person receiving such shares to execute
an agreement to such effect.

5.14. TAX WITHHOLDING. At the time an Option is exercised, in whole or in
part, or at the time some or all of Common Stock issued the Plan is disposed of,
the Participant must make adequate provision for the Company's federal, state or
other tax withholding obligations, if any, that may arise upon exercise of the
Option or the disposition of the shares of Common Stock. At any time, the
Company may, but shall not be obligated to withhold from a Participant's
Compensation the amount necessary for the Company to meet applicable withholding
obligations, including, any withholding required to make available to the
Company any tax deductions attributed to the sale or early disposition of Common
Stock by the Participant.

VI. ADMINISTRATION OF PLAN

6.1. THE ADMINISTRATOR AND THE COMMITTEE. To carry out the purposes of the
Plan, the Committee shall appoint an Administrator. The Administrator may be any
company or individual that the Committee deems qualified, including the Company.
The Administrator shall be responsible for the implementation of the Plan,
including allocation of funds and stock to the Payroll Deduction Accounts and
Stock Accounts and keeping adequate and accurate records for the Participants.

The Committee shall be entitled to adopt and apply guidelines and
procedures consistent with the purposes of the Plan. In order to effectuate the
purposes of the Plan, the Committee shall have the discretionary authority to
construe and interpret the Plan, to supply any omissions therein, to reconcile
and correct any errors or inconsistencies, to decide any questions in the
administration and application of the Plan, and to make equitable adjustments
for any mistakes or errors made in

6
<PAGE> 27

the administration of the Plan, and all such actions or determinations made by
the Committee, and the application of rules and regulations to a particular case
or issue by the Committee, in good faith, shall not be subject to review by
anyone, but shall be final, binding and conclusive on all persons ever
interested hereunder.

6.2. BROKER. The Administrator may, in its discretion, with the consent and
approval of the Committee, appoint a Broker. The Broker may be any company or
individual that the Committee deems qualified; provided, however, that the
Broker shall be a licensed security dealer, broker, or agent authorized to make
purchases and sales of Common Stock.

6.3. REPORTING TO PARTICIPANTS. The Administrator will send to each
Participant a statement at the end of each calendar quarter (or such other
period as determined by the Committee in its sole discretion). Each such
statement shall contain information concerning transactions in the Participant's
Payroll Deduction Account and Stock Account during the relevant period and
reflect the balance in the Participant's Payroll Deduction Account and Stock
Account at the end of such period.

6.4 USE OF FUNDS. All payroll deductions received or held by the Company
under the Plan in all Payroll Deduction Accounts may be used by the Company for
any corporate purpose. The Company shall not be obligated to segregate such
payroll deductions.

VII. ADJUSTMENT UPON CHANGES IN COMMON STOCK

7.1. CHANGES IN COMMON STOCK. If any change is made in the Common Stock
(through merger, consolidation, reorganization, recapitalization, stock
dividend, dividend in property other than cash, stock split, revise stock split,
liquidating dividend, combination of shares, exchange of shares, change in
corporate structure or otherwise), the Administrator may make appropriate
adjustments in (a) the number of shares and price per share of Common Stock
subject to the Plan or to any Option granted under the Plan, (b) the number of
shares of Common Stock that have been authorized under the Plan but not yet
placed under Option, and (c) the maximum number of shares each Participant may
purchase.

7.2. DISSOLUTION; MERGER; CAPITAL REORGANIZATION; ETC. In the event of (i)
a dissolution or liquidation of the Company; (ii) a merger or consolidation in
which the Company is not the surviving corporation, or a reverse merger in which
the Company is the surviving corporation but the shares of Common Stock by
virtue of the merger are converted into other property, whether in the form of
securities, cash or otherwise; or (iii) any other capital reorganization in
which more than 50 percent of the shares of Common Stock entitled to vote are
exchanged, the Plan shall terminate, unless another corporation assumes the
responsibility of continuing the operation of the Plan or the Committee
determines in its discretion that the Plan shall nevertheless continue in full
force and effect. If the Committee elects to terminate the Plan, the
Administrator shall send to each Participant a stock certificate representing
the number of whole shares to which the Participant is entitled. In addition,
the Administrator shall send checks drawn on the Plan's account to each
Participant in an amount equal to the funds held to the credit of such
Participant's Payroll Deduction Account.

7.3. COMPANY'S RIGHT TO RESTRUCTURE, ETC. The grant of any right to a
Participant pursuant to the Plan shall not affect in any way the right or power
of the Company to make adjustments, reclassifications, reorganizations or
changes of its capital or business structure or to merge or to consolidate or to
dissolve, liquidate or sell, or transfer all or any part of its business or
assets.

VIII. AMENDMENT; TERMINATION OF PLAN

8.1. AMENDMENT AND TERMINATION. The Company, acting through the Committee,
reserves the right to amend or terminate the Plan at any time or times;
provided, however, any amendment that would require the consent of stockholders
under applicable law, rule or regulation (including,

7
<PAGE> 28

without limitation, the Code, the Exchange Act or any self regulatory
organization such as a national securities exchange), will not be made unless
such stockholders' consent is obtained.

In addition, the Plan shall terminate automatically on the tenth
anniversary of the Plan Start Date, or on any Option Exercise Date when
Participants become entitled to purchase a number of shares greater than the
number of reserved shares remaining available for purchase, subject to the
allocation of remaining shares pursuant to the last sentence of Section 5.3.
Upon termination of the Plan, all amounts held in the Payroll Deduction Accounts
shall, to the extent not used to purchase shares of Common Stock, be refunded to
the Participants entitled thereto.

IX. MISCELLANEOUS

9.1. EXPENSES OF PLAN. The Broker's brokerage commissions, if any, incurred
in connection with transactions in Common Stock under the Plan, and the
Administrator's administrative charges for maintaining Participants' accounts
relating to purchases of securities and all other expenses of administering or
maintaining the Plan will be paid by the Company. If the Company is acting as
Administrator, no expenses will be charged to the Participants.

9.2. INDEMNIFICATION. In the event and to the extent not insured against
under any contract of insurance with an insurance company, the Company shall
indemnify and hold harmless each "Indemnified Person," as defined below, against
any and all claims, demands, suits, proceedings, losses, damages, interest,
penalties, expenses (specifically including, but not limited to, counsel fees to
the extent approved by the Board or otherwise provided by law, court costs and
other reasonable expenses of litigation), and liability of every kind, including
amounts paid in settlement, with the approval of the Board, arising from any
action or cause of action related to the Indemnified Person's act or acts or
failure to act. Such indemnity shall apply regardless of whether such claims,
demands, suits, proceedings, losses, damages, interest, penalties, expenses and
liability arise in whole or in part from (a) the negligence or other fault of
the Indemnified Person, or (b) from the imposition on such Indemnified Person of
any civil penalties or excise taxes pursuant to the Code or any other applicable
laws; except when the same is judicially determined to be due to gross
negligence, fraud, recklessness, or willful or intentional misconduct of such
Indemnified Person. "Indemnified Person" shall mean each member of the Board,
the Administrator, each member of the Committee and each other employee of any
Employer who is allocated fiduciary responsibility hereunder.

9.3. NO CONTRACT OF EMPLOYMENT INTENDED. The granting of any rights to an
Eligible Employee under this Plan shall not constitute an agreement or
understanding, express or implied, on the part of any Employer, to employ such
Eligible Employee for any specified period.

9.4. GOVERNING LAW. The construction, validity and operation shall be
governed by the laws of the State of Wisconsin.

9.5. SEVERABILITY OF PROVISIONS. If any provision of this Plan is
determined to be invalid, illegal or unenforceable, such invalidity, illegality
or unenforceability shall not affect the remaining provisions of this Plan, but
such invalid, illegal or unenforceable provisions shall be fully severable, and
the Plan shall be construed and enforced as if such provision had never been
inserted herein.

9.6. NO LIABILITY. Neither the Company, its directors, officers or
employees, the Committee, the Administrator nor any Related Corporation which is
in existence or hereafter comes into existence, shall be liable to any
Participant or other person if it is determined for any reason by the Internal
Revenue Service or any court having jurisdiction that the Plan does not qualify
under Section 423 of the Code.

8
<PAGE> 29

PROXY

CRITICARE SYSTEMS, INC.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints Emil H. Soika and Joseph M. Siekierski,
or either one of them, each 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 January 21, 2000 at 3:30
p.m., local time, at the Company's Headquarters, 20925 Crossroads Circle,
Waukesha, Wisconsin 53186, 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 TO GRANT AUTHORITY TO ELECT
THE NOMINATED DIRECTORS, TO APPROVE THE CRITICARE SYSTEMS, INC. EMPLOYEE STOCK
PURCHASE PLAN AND THE ISSUANCE OF SHARES OF COMMON STOCK UNDER SUCH EMPLOYEE
STOCK PURCHASE PLAN AND TO RATIFY THE APPOINTMENT OF BDO SEIDMAN, LLP AS
INDEPENDENT ACCOUNTANTS FOR THE 2000 FISCAL YEAR. 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. 1999 ANNUAL MEETING OF STOCKHOLDERS

1. ELECTION OF DIRECTORS: [ ] FOR all [ ] WITHHOLD
(terms expiring at the 2002 1-GERHARD J. VON DER RUHR 2-N.C. JOSEPH LAI, PH.D. nominees listed AUTHORITY to
Annual Meeting) to the left vote for all
(except as nominees listed
specified below). to the left.
--------------------------------------
(Instructions: To withhold authority to vote for any indicated
nominee, write the number(s) of the nominee(s) in the box provided
to the right.)
--------------------------------------

2. To approve the Criticare Systems, Inc. Employee Stock Purchase Plan and [ ] FOR [ ] AGAINST [ ] ABSTAIN
the issuance of shares of common stock under such Employee Stock Purchase
Plan.

3. To ratify the appointment of BDO Seidman, LLP as independent accounts for [ ] FOR [ ] AGAINST [ ] ABSTAIN
the 2000 fiscal year.

4. In their discretion, the Proxies are authorized to vote upon such other
matters as may properly come before the meeting.

Date NO. OF SHARES

CHECK APPROPRIATE BOX
Indicate changes below:
---------------------------------------------

Address Change? [ ] Name Change? [ ] ---------------------------------------------

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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