<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / 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 Section 240.14a-11(c) or
Section 240.14a-12
KINETIC CONCEPTS, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
/ / 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:
--------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
--------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rules 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):
--------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------------------
(5) Total fee paid:
--------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
--------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
--------------------------------------------------------------------------------
(3) Filing Party:
--------------------------------------------------------------------------------
(4) Date Filed:
--------------------------------------------------------------------------------
<PAGE> 2
[KINETIC CONCEPTS, INC. LOGO]
8023 VANTAGE DRIVE
SAN ANTONIO, TEXAS 78230
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 9, 1995
To the Shareholders of Kinetic Concepts, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Kinetic
Concepts, Inc. (the "Company") will be held in the Cancun and Cozumel Rooms of
the Embassy Suites Hotel, 7750 Briaridge, San Antonio, Texas on Tuesday, May 9,
1995 at 9:00 a.m., local time, for the purpose of considering and acting upon
the following matters:
(1) The election of six directors of the Company to serve until the next
annual meeting of shareholders and until their successors are elected
and qualified;
(2) The approval of an amendment to the 1987 Kinetic Concepts, Inc. Key
Contributor Stock Option Plan increasing the number of shares of Common
Stock of the Company for which options may be granted under the Plan
from 4,500,000 shares to 5,750,000 shares;
(3) The approval of the appointment of the firm of KPMG Peat Marwick LLP as
the independent public accountants of the Company for the 1995 fiscal
year; and
(4) The transaction of such other business as may lawfully come before the
meeting or any adjournment thereof.
The record date for the meeting has been fixed at March 22, 1995. Only
shareholders of record at the close of business on that date will be entitled to
vote at the meeting or any adjournment thereof. You are cordially invited to
attend the meeting. Shareholders wishing to attend the meeting should bring
proper identification and evidence of their ownership of shares of the Company's
Common Stock to the meeting.
Shareholders who do not expect to attend the meeting in person are urged to
sign the enclosed proxy and return it promptly to the First National Bank of
Boston, Proxy Department, P.O. Box 1628, Boston, Massachusetts 02105-1628. A
return envelope is enclosed for that purpose.
KINETIC CONCEPTS, INC.
/s/ DENNIS E. NOLL
-------------------------------
DENNIS E. NOLL,
Secretary
Dated: March 28, 1995
PLEASE COMPLETE THE ENCLOSED PROXY AND MAIL IT PROMPTLY
<PAGE> 3
[KINETIC CONCEPTS, INC. LOGO]
8023 VANTAGE DRIVE
SAN ANTONIO, TEXAS 78230
------------------------------------
PROXY STATEMENT
------------------------------------
The accompanying proxy is solicited by the Board of Directors of Kinetic
Concepts, Inc., a Texas corporation (the "Company"), to be voted at the Annual
Meeting of Shareholders to be held on May 9, 1995, and at any adjournment
thereof. The Company will bear the cost of the solicitation. It is expected that
the solicitation of proxies will be made by mail. This Proxy Statement and
accompanying form of proxy are being mailed or given to security holders on or
about March 28, 1995.
Only holders of record of common stock, par value $.001 ("Common Stock"),
of the Company at the close of business on March 22, 1995 shall be entitled to
vote at the Annual Meeting. There were 44,112,072 shares of Common Stock issued
and outstanding on the record date. Each share of Common Stock is entitled to
one vote. As of February 1, 1995, to the knowledge of the Company, no holder of
record owned more than five percent of the outstanding shares of Common Stock of
the Company, except James R. Leininger, M.D., whose business address is 8023
Vantage Drive, San Antonio, Texas 78230, and who owns of record 28,244,200
shares (64.02%) of the issued and outstanding shares of Common Stock of the
Company. Any shareholder giving a proxy has the power to revoke the same at any
time prior to its use by giving notice in person or in writing to the Secretary
of the Company.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the inspectors of election appointed for the meeting. A quorum for the
transaction of business at the Annual Meeting requires representation, in person
or by proxy, of a majority of the issued and outstanding shares of Common Stock.
The inspectors of election will treat abstentions and broker non-votes as shares
that are present for purposes of determining the presence of a quorum.
Abstentions are present and entitled to vote for purposes of determining the
approval of any matter submitted to the shareholders for a vote. If a broker
indicates on a proxy that it does not have the discretionary authority as to
certain shares to vote on a particular matter, those shares will not be
considered as present and entitled to vote with respect to that matter.
ELECTION OF DIRECTORS
Six (6) directors, constituting the entire Board of Directors, are to be
elected at the Annual Meeting. Each director shall hold office until the next
Annual Meeting and until his successor is duly elected and qualified. The
proxies named in the accompanying proxy, who have been designated by the Board
of Directors, intend to vote for the following nominees for election as
directors, unless otherwise directed. The vote of a plurality of the shares of
Common Stock present at the Annual Meeting and entitled to vote thereon will be
necessary to elect the directors listed below. All of the nominees are currently
directors of the Company.
<PAGE> 4
BUSINESS EXPERIENCE OF DIRECTORS AND NOMINEES
Certain information concerning the members of the Board of Directors and
the nominees is set forth as follows:
<TABLE>
<CAPTION>
SERVED AS PRESENT POSITION WITH
NOMINEE DIRECTOR COMPANY AND/OR PRINCIPAL
FOR DIRECTOR SINCE AGE OCCUPATION LAST FIVE YEARS
------------------------------ --------- --- ----------------------------------------
<S> <C> <C> <C>
James R. Leininger, M.D....... 1976 50 Chairman of the Board of Directors since
1976; President and Chief Executive
Officer from January 1990 to November
1994; prior to October 1986, Dr.
Leininger was also the Chairman of the
Emergency Department of the Baptist
Hospital System in San Antonio, Texas.
Raymond R. Hannigan........... 1994 55 President and Chief Executive Officer
since November 1994; from January 1991
to November 1994, Mr. Hannigan was the
President of the International Division
of the Sterling Winthrop Consumer Health
Group (a pharmaceutical company with
operations in over 40 countries); from
May 1989 to January 1991, Mr. Hannigan
was the President of Sterling Drug
International.
Peter A. Leininger, M.D....... 1980 52 Senior Vice President and Chief
Administrative Officer; prior to 1978,
Dr. Leininger was engaged in the private
practice of medicine and functioned as a
regional distributor of the Company's
products.
Sam A. Brooks................. 1987 56 Chairman of the Board of National
Imaging Affiliates, Inc. since March
1992; President of MedCare Investment
Corp. since April 1991; from 1986 to
October 1989, Mr. Brooks was the
President of Nationwide Health
Properties, Inc. (a real estate
investment trust); prior to 1986, Mr.
Brooks served as an Executive Vice
President and the Chief Financial
Officer of Hospital Corporation of
America (a hospital management company).
</TABLE>
(Table continued on following page)
2
<PAGE> 5
<TABLE>
<CAPTION>
SERVED AS PRESENT POSITION WITH
NOMINEE DIRECTOR COMPANY AND/OR PRINCIPAL
FOR DIRECTOR SINCE AGE OCCUPATION LAST FIVE YEARS
------------------------------ --------- --- ----------------------------------------
<S> <C> <C> <C>
Frank A. Ehmann............... 1987 61 Member of the Board of Directors of the
Company, St. Jude Medical, Inc., SPX
Corporation, American Health Corp., Inc.
and AHA Investment Funds, Inc.;
President and Chief Operating Officer of
United Stationers, Inc. (an office
products company) from March 1986 to
October 1989; prior to December 1985,
Mr. Ehmann was an Executive Vice
President and Co-Chief Operating Officer
of Baxter Travenol Laboratories, Inc. (a
medical products company).
Bernhard T. Mittemeyer, M.D... 1987 64 Executive Vice President and Provost of
the Texas Tech University Health Science
Center since November of 1986; Dr.
Mittemeyer also served as Interim Dean
of the Texas Tech School of Medicine
from November 1988 until August 1990;
from March 1985 until October 1986, Dr.
Mittemeyer served as the Senior Vice
President and Corporate Medical Director
of Whittaker Health Services (a health
maintenance organization); prior to
March of 1985, Dr. Mittemeyer served for
28 years as a career officer in the
United States Army which culminated in
his service as the Surgeon General of
the United States Army from October 1981
to February 1985.
</TABLE>
3
<PAGE> 6
INFORMATION CONCERNING DIRECTORS
None of the directors, nominees for director or the executive officers of
the Company has a family relationship with any of the other directors, nominees
for director or executive officers except James R. Leininger, M.D. and Peter A.
Leininger, M.D., who are brothers. None of the nominees is a director of any
other company which has a class of securities registered under, or is required
to file reports under, the Securities Exchange Act of 1934 or of any company
registered under the Investment Company Act of 1940, except as follows:
<TABLE>
<S> <C>
Sam A. Brooks................................. Nationwide Health Properties, Inc.
Quorum Health Group, Inc.
PhyCor, Inc.
Frank A. Ehmann............................... St. Jude Medical, Inc.
SPX Corporation
American Health Corp. Inc.
AHA Investment Funds, Inc.
</TABLE>
DIRECTOR COMPENSATION
Each director of the Company, other than James R. Leininger, M.D., Peter A.
Leininger, M.D. and Raymond R. Hannigan, received compensation for serving as a
director during 1994. Each outside director receives $24,000 per annum for
serving as a member of the Board of Directors and is reimbursed for the expenses
incurred by him as a result of his membership on the Board of Directors. Under
the 1988 Eligible Directors Stock Option Plan, each outside director receives a
stock option covering 24,000 shares of Common Stock upon becoming a member of
the Board of Directors and an option covering 2,500 shares on each anniversary
of becoming a director. The exercise price of all options so granted is equal to
the fair market value of Common Stock at the close of business on the day
immediately prior to the date of grant. In addition, Sam A. Brooks had a
consulting agreement with the Company pursuant to which the Company paid Mr.
Brooks $111,858.29 in 1994. The consulting services provided by Mr. Brooks
included assistance in identifying and selecting a new Chief Executive Officer,
consultation with respect to certain acquisition opportunities and assistance in
reviewing the Company's compensation, incentive and benefit plans and policies.
Mr. Brook's consulting agreement with the Company ended on December 31, 1994.
BOARD OF DIRECTORS' MEETINGS AND COMMITTEES
During 1994, the Board of Directors held six (6) meetings. Each of the
directors attended over seventy-five percent of the total number of meetings of
the Board of Directors and the total number of meetings held by all committees
of the Board on which he served.
The Board of Directors has an Audit Committee consisting of Sam A. Brooks,
Chairman, Frank A. Ehmann and Bernhard T. Mittemeyer, M.D. The Audit Committee
met four (4) times during 1994. The Audit Committee recommends the appointment
of the Company's independent auditors, confers with the auditors and with
management concerning the scope of the annual audit and reviews the audit
procedures and internal accounting controls of the Company and its subsidiaries.
The Board of Directors has a Compensation Committee consisting of James R.
Leininger, M.D., Bernhard T. Mittemeyer, M.D. and Frank A. Ehmann, Chairman. The
Compensation Committee met
4
<PAGE> 7
three (3) times in 1994. The functions of the Compensation Committee are to
review and establish the compensation of Company officers and other management
personnel.
The Board of Directors has a Stock Option Committee (the "Stock Option
Committee"), which administers the 1987 Kinetic Concepts, Inc. Key Contributor
Stock Option Plan (the "Key Contributor Plan"), consisting of James R.
Leininger, M.D., Bernhard T. Mittemeyer, M.D., Chairman and Frank A. Ehmann. The
Stock Option Committee met two (2) times in 1994.
The Board of Directors has a Nominating Committee consisting of James R.
Leininger, M.D., Chairman, Sam A. Brooks, Frank A. Ehmann and Peter A.
Leininger, M.D. The Nominating Committee did not meet in 1994. The Nominating
Committee makes recommendations to the Board on the selection of candidates as
nominees for election as members of the Company's Board of Directors. In
recommending Board candidates, the Nominating Committee seeks individuals of
proven judgment and competence who are outstanding in their chosen activity and
considers such factors as anticipated participation in Board activities,
education, special talents and personal attributes. Shareholders who wish to
suggest qualified candidates should write to the Secretary of the Company at
8023 Vantage Drive, San Antonio, Texas 78230, stating in detail the
qualifications of such persons for consideration by the Nominating Committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
James R. Leininger, M.D., Bernard T. Mittemeyer, M.D. and Frank A. Ehmann
are the members of the Company's Compensation Committee. James R. Leininger,
M.D. is a member of the Compensation Committee and is also the Chairman of the
Board, and, until November 1994, was President and Chief Executive Officer of
the Company. Dr. Leininger did not participate in any deliberations of the
Compensation Committee concerning his compensation or the compensation of his
brother, Peter A. Leininger, M.D. Mr. Brooks is President of MedCare Investment
Corp. and Chairman of National Imaging Affiliates, Inc. Dr. James R. Leininger
serves on the Board of Directors of both companies, neither of which has a
compensation committee.
5
<PAGE> 8
SECURITIES HOLDINGS OF PRINCIPAL SHAREHOLDERS,
DIRECTORS AND OFFICERS
Based upon information received upon request from the persons concerned,
each director, nominee for director, principal shareholder, named executive
officer (as defined on page 7) and all directors and executive officers of the
Company as a group, owned beneficially as of February 1, 1995, the number and
percentage of outstanding shares of Common Stock of the Company indicated in the
following table:
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK BENEFICIALLY
OWNED AS OF PERCENT
NAMES OF INDIVIDUALS FEBRUARY 1, 1995(1) OF CLASS
-------------------- ------------------- --------
<S> <C> <C>
James R. Leininger, M.D.(2)................................ 28,594,083 64.74%
8023 Vantage Drive
San Antonio, TX 78230
Peter A. Leininger, M.D.(3)................................ 2,823,977 6.39%
8023 Vantage Drive
San Antonio, TX 78230
Raymond R. Hannigan(4)..................................... 440,000 *
Sam A. Brooks(5)........................................... 131,500 *
Frank A. Ehmann(5)......................................... 22,500 *
Bernhard T. Mittemeyer, M.D.(5)............................ 25,200 *
Bianca A. Rhodes(6)........................................ 43,988 *
Dennis E. Noll(6).......................................... 38,140 *
Daniel R. Puchek(6)........................................ 30,526 *
All directors and executive officers
as a group (16 persons)(7).............................. 30,850,193 69.01%
</TABLE>
---------------
* Less than one (1%) percent
(1) Except as otherwise indicated in the following notes, the persons named in
the table directly own the number of shares indicated in the table and have
the sole voting power and investment power with respect to all of such
shares. Shares beneficially owned include options exercisable prior to
April 3, 1995.
(2) The shares shown for Dr. James R. Leininger include beneficial ownership of
349,883 shares of Common Stock held by Dr. Leininger as trustee for the
children of Peter A. Leininger, M.D. Dr. Leininger disclaims beneficial
ownership of the aforesaid shares.
(3) The shares shown for Dr. Peter A. Leininger include beneficial ownership of
710,800 shares of Common Stock held by Dr. Leininger as trustee for certain
of his nieces and nephews and 1,200,000 shares of Common Stock which he has
the right to acquire upon the exercise of a stock option granted to him by
James R. Leininger, M.D. Dr. Leininger disclaims beneficial ownership of
the aforesaid shares. The shares shown also include 26,060 shares of Common
Stock that Dr. Leininger has the right to acquire under stock options
granted by the Company which are exercisable prior to April 3, 1995.
(4) The shares shown for Mr. Hannigan include 396,500 shares of Common Stock
which he has the right to acquire upon the exercise of a stock option
granted to him by Dr. James R. Leininger and 43,500 shares of Common Stock
which he has acquired as the result of a partial exercise of that stock
option.
(Footnotes continued on following page)
6
<PAGE> 9
(5) The shares shown for Messrs. Brooks, Ehmann and Mittemeyer include 105,000,
20,000 and 20,000 shares of Common Stock, respectively, which they have the
right to acquire under stock options granted by the Company which are
exercisable prior to April 3, 1995. Mr. Ehmann's stock options are held in
the name of The Frank Ehmann Trust.
(6) The shares shown for Ms. Rhodes and Messrs. Noll and Puchek include 41,488,
33,640 and 30,526 shares of Common Stock, respectively, which they have the
right to acquire under stock options granted by the Company which are
exercisable prior to April 3, 1995.
(7) The shares shown include 2,158,226 shares of Common Stock which the
directors and executive officers have the right to acquire under stock
options which are exercisable prior to April 3, 1995.
EXECUTIVE COMPENSATION
The following table shows all the cash compensation paid or to be paid by
the Company or its subsidiaries, as well as certain other compensation paid or
accrued, during the fiscal years indicated, to the two individuals who served as
Chief Executive Officer of the Company during fiscal 1994 (the "CEOs") and the
four highest paid executive officers of the Company other than the CEOs
(collectively the "named executive officers") for such period in all capacities
in which they served:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
NAME AND ANNUAL COMPENSATION ------------
PRINCIPAL -------------------------------- OPTIONS/ ALL OTHER
POSITION YEAR SALARY BONUS SARS(1) COMPENSATION(2)
------------------------------ ---- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
James R. Leininger, M.D., 1994 $150,000 $150,000 -- $ 587
Chairman of the Board 1993 150,000 9,142 -- 1,016
Former Chief Executive 1992 150,000 81,244 -- 606
Officer, & President
Raymond R. Hannigan, 1994 33,173 23,777 1,000,000 --
Chief Executive Officer,
& President
Bianca J. Rhodes, 1994 165,958 133,000 7,440 375
Chief Financial Officer & 1993 87,665 25,000 100,000 375
Senior Vice-President
Daniel R. Puchek, 1994 128,625 140,000 37,765 962
President 1993 125,000 120,178 29,000 1,016
KCI New Technologies, Inc. 1992 115,000 50,428 13,800 606
Peter A. Leininger, M.D., 1994 151,352 115,000 11,520 962
Senior Vice-President & 1993 153,000 8,204 5,000 1,016
Chief Administrative Officer 1992 153,000 72,703 6,200 981
Dennis E. Noll, 1994 138,458 125,000 92,500 962
Vice-President, General 1993 136,458 6,095 7,500 375
Counsel & Secretary 1992 114,583 49,651 50,000 375
</TABLE>
(See footnotes on following page)
7
<PAGE> 10
---------------
(1) The stock options granted to Messrs. Leininger, Puchek and Noll in 1994
included stock options covering 4,080, 26,965 and 30,350 shares of Common
Stock, respectively, which were granted pursuant to a repricing plan. The
table does not reflect the cancellation of stock options covering 6,200,
38,800 and 50,000 shares of Common Stock, respectively, in connection with
the Repricing Plan. See "Report on Repricing of Options".
(2) The "All Other Compensation" column includes the Company's contribution to
the Company's Employee Stock Ownership Plan of $587 for eligible named
executive officers for 1993 which was credited in 1994 and a Company
contribution of $375 to the Company's 401(k) plan for each named executive
officer other than Dr. James R. Leininger and Raymond R. Hannigan for the
year ended December 31, 1994.
EMPLOYMENT ARRANGEMENT
Effective November 14, 1994, Raymond R. Hannigan agreed to serve as
President and Chief Executive Officer of the Company with an annual salary of
$250,000 and the right to participate in the Company's Incentive Bonus Plan with
an annual target bonus of $125,000. Upon commencement of his employment, Mr.
Hannigan also received a non-qualified option to purchase 560,000 shares of
Common Stock at an exercise price of $4.50 per share, which was the fair market
value on the date he agreed to serve in such capacities. In addition to other
benefits, the Company and Mr. Hannigan agreed that in the event that Mr.
Hannigan's employment is terminated for any reason other than malfeasance or
acts of moral turpitude, he will receive as severance an amount equal to one
year's salary and auto allowance.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------
% POTENTIAL REALIZABLE
OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES FOR OPTION TERM
OPTIONS IN FISCAL EXERCISE EXPIRATION -----------------------
NAME GRANTED(1) YEAR(2) PRICE(3) DATE 5%(4) 10%(4)
---- ---------- ---------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
James R. Leininger........... -0- -0- -0- -0- -0- -0-
Raymond R. Hannigan.......... 560,000(5) 26.48% $ 4.50 11/14/04 $1,584,814 $4,016,231
440,000 $ 5.74 11/15/97 $ 398,098 $ 835,974
Peter A. Leininger........... 7,440 .54% $3.625 04/15/04 $ 16,961 $ 42,983
4,080(6) $ 4.50 07/20/02 $ 8,766 $ 20,996
Bianca A. Rhodes............. 7,440 .35% $3.625 04/15/04 $ 16,961 $ 42,983
Daniel R. Puchek............. 10,600 1.77% $3.625 04/15/04 $ 24,165 $ 61,240
26,965(6) $ 4.50 01/07/02 $ 63,895 $ 156,056
Dennis E. Noll............... 20,600 4.37% $3.625 04/15/04 $ 46,963 $ 119,013
41,550 $ 4.50 09/14/04 $ 117,588 $ 297,990
30,350(6) $ 4.50 01/07/02 $ 65,208 $ 156,186
</TABLE>
(See footnotes on following page)
8
<PAGE> 11
---------------
(1) Except as otherwise noted, the options vest and become exercisable in twenty
percent (20%) increments on May 15 of each year after the date of grant. The
options are not transferable, other than by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order.
(2) The percentages set forth in this column do not include or take into account
the stock option granted to Mr. Hannigan by Dr. Leininger. See footnote 5.
(3) Except as otherwise noted, the exercise price of all options granted by the
Company in 1994 was equal to the fair market value of the Common Stock at
the close of business on the day immediately prior to the date of grant.
(4) The information in these columns illustrates the value that might be
realized upon exercise of the options granted during fiscal 1994 assuming
the specified compound rates of appreciation of the Company's Common Stock
over the term of the options. The potential realizable value columns of the
foregoing table do not take into account certain provisions of the options
providing for termination of an option following termination of employment,
nontransferability or vesting requirements.
(5) Mr. Hannigan received a stock option from the Company covering 560,000
shares of the Company's Common Stock as part of his overall compensation
package. Mr. Hannigan's options vest 25% after each of the first and second
anniversary of the grant and fully vest after the third year and have an
exercise price based upon the fair market value of the Company's Common
Stock on the date Mr. Hannigan accepted his compensation package. Mr.
Hannigan also received a stock option covering 440,000 shares of Common
Stock from Dr. James R. Leininger. The shares underlying this stock option
have an exercise price of $5.74 and are fully vested.
(6) The referenced options were granted in connection with a Repricing Plan
which was approved by the Stock Option Committee. The referenced options
have an exercise price equal to 120% of the average closing price of the
Company's Common Stock for a period beginning seven trading days prior to
and ending seven trading days after, the date on which the Repricing Plan
was approved. See "Report on Repricing of Options."
9
<PAGE> 12
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FY-END OPTION VALUE
The named executive officers did not exercise any options during the fiscal
year ended December 31, 1994. The following table sets forth certain information
concerning the number and value of the options held by the named executive
officers at the end of the fiscal year ended December 31, 1994.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY-END FY-END(1)
------------- -------------
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
----------------------------------------------------------------- ------------- -------------
<S> <C> <C>
James R. Leininger, M.D.......................................... -0- -0-
Raymond R. Hannigan.............................................. 560,000 $ 499,400
440,000(2) $ 1,330,000
Peter A. Leininger, M.D.......................................... 26,060 $ 61,879
17,460 $ 38,140
Bianca A. Rhodes................................................. 41,488 $ 111,336
65,952 $ 179,094
Dennis E. Noll................................................... 33,640 $ 79,750
66,360 $ 166,400
Daniel R. Puchek................................................. 30,526 $ 77,169
30,979 $ 75,795
</TABLE>
---------------
(1) The values are calculated by subtracting the exercise price from the fair
market value of the underlying stock as of December 31, 1994 (based on a
closing sale price of $6.875 per share on December 30, 1994).
(2) The referenced option was granted to Mr. Hannigan by Dr. James R.
Leininger, M.D.
10
<PAGE> 13
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
(KINETIC CONCEPTS, INC., STANDARD & POOR'S 500,
STANDARD & POOR'S MEDICAL PRODUCTS & SUPPLIES)
The following graph shows a five year comparison of cumulative total
returns for the Company, the Standard & Poor's 500 Composite Index and Standard
and Poor's Medical Products & Supplies Index for the five year period ending
December 31, 1994.
<TABLE>
<CAPTION>
Measurement Period Kinetic Con- S&P Medical
(Fiscal Year Covered) cepts, Inc. S&P 500 Products
<S> <C> <C> <C>
1989 100 100 100
1990 58 97 117
1991 142 126 192
1992 173 136 164
1993 71 150 125
1994 122 152 149
</TABLE>
The total cumulative return on investment (change in the year end stock
price plus reinvested dividends) for each of the periods for the Company, the
Standard & Poor's 500 Composite Index and the Standard and Poor's Medical
Products & Supplies Index is based on the stock price or composite index on
January 1, 1989 and each year thereafter. The comparison assumes that $100 was
invested in the Company's Common Stock and in each of the two indices and that
all dividends were reinvested.
11
<PAGE> 14
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
GENERAL
The members of the Company's Compensation Committee are Frank A. Ehmann,
Chairman, James R. Leininger, M.D. and Bernhard T. Mittemeyer, M.D. The members
of the Compensation Committee are also the only members of the Stock Option
Committee. In determining the compensation to be paid to the Company's executive
officers in 1994, the Compensation Committee employed compensation policies
designed to reward the Company's executive officers and other key employees for
creating economic value for the Company. The key components of executive
compensation are (i) base salary, (ii) cash bonus awards under the RACE
Incentive Bonus Plan (the "RACE Plan"), and (iii) stock options granted under
the 1987 Kinetic Concepts, Inc. Key Contributor Stock Option Plan.
The base salaries of the Company's executive officers were recommended by
the Company's Chief Executive Officer to the Compensation Committee for its
review and approval. The factors considered by the Chief Executive Officer and
the Compensation Committee in establishing base salary levels for executive
officers were essentially subjective. Specific factors which were considered
included the individual's level of responsibility and performance, the financial
performance of the Company and the executive officer's department or division
(with an emphasis on a comparison of actual and budgeted revenue and operating
earnings for operating divisions and actual and budgeted expenses for
departments) and a comparison of base salaries of similar positions within the
Company. Specific weights were not assigned to these factors and the performance
of the Company's Common Stock was not directly considered in establishing base
salaries for the Company's executive officers. The base salaries of the
Company's executive officers, except for Dr. James R. Leininger's salary which
has not been increased since 1990, were increased in December of 1994. Except
for base salary increases in connection with promotions or increases in
responsibility, this increase was the first increase which executive officers
had received in at least fourteen months. The base salary increases ranged from
6.0% to 8.3% and were partially based on the number of months which it had been
since the executive officer had received a base salary increase.
CHIEF EXECUTIVE OFFICERS
Dr. James R. Leininger has been the Chairman of the Company's Board of
Directors since 1976 and the Company's President and Chief Executive Officer
since 1990. In October of 1993, Dr. Leininger indicated to the Company's Board
of Directors that he wished to refocus his efforts on strategic planning and
product development and that it would be appropriate for the Board to begin an
executive search for a new President and Chief Executive Officer. An executive
search was commenced and Raymond R. Hannigan joined the Company as its President
and Chief Executive Officer in November of 1994. Dr. Leininger has remained the
Chairman of the Company's Board of Directors.
The Compensation Committee's determination of Dr. Leininger's base
compensation is somewhat unique because of Dr. Leininger's significant ownership
interest in the Company. Because the Compensation Committee believes that
overall enhancement of shareholder value is a more significant incentive for Dr.
Leininger than cash compensation, Dr. Leininger's compensation is set at a level
which the Compensation Committee believes is lower than the base compensation of
Chief Executive Officers and Board Chairmen of comparable companies. The
Committee did not perform a specific review of such companies. The Compensation
Committee did not specifically review Dr. Leininger's base compensation in 1994
and has not increased Dr. Leininger's base compensation in the last four years.
In 1994, Dr. Leininger received a bonus based in part upon the formula contained
in the RACE Plan and based in part upon the pivotal role which Dr. Leininger
12
<PAGE> 15
played in the successful settlement of the Support Systems International patent
lawsuit, the sale of KCI Medical Services and the development of the TriaDyne
bed. Because Dr. Leininger is a member of the Stock Option Committee, he is not
eligible to receive stock options under the Key Contributor Plan. Dr. Leininger
did not participate in any deliberations of the Compensation Committee
concerning his compensation or the compensation of his brother, Peter A.
Leininger, M.D.
Mr. Hannigan's base salary was established in November of 1994 when he was
recruited to join the Company and was based upon the recommendation of the
executive search firm employed by the Company. Mr. Hannigan's compensation
package was negotiated with Mr. Hannigan by Dr. James R. Leininger and approved
by the Compensation Committee. Although the Compensation Committee did not
conduct a comparative survey, it believes that Mr. Hannigan's base salary and
compensation package are competitive with the salaries and compensation packages
paid to chief executive officers of corporations with similar revenue and
operations. Mr. Hannigan received a bonus in 1994 equal to a pro rata portion of
his target bonus based upon his length of service in 1994 and the Company's
performance under the RACE Plan.
EXECUTIVE COMPENSATION
Except as noted below, all of the Company's executive officers were
eligible to receive cash bonuses under the RACE Plan in 1994. Approximately 192
of the Company's key employees were eligible to receive bonuses under the RACE
Plan in 1994. The RACE Plan was intended to motivate employees to perform at
peak levels, motivate employees to make wise business decisions and reward
employees for their success. More specifically, the RACE Plan was designed to
incent employees to think and act like owners by assuming risks, making business
decisions and accepting responsibility for the success or failure of their
particular area of responsibility.
Under the RACE Plan, Risk Adjusted Controllable Earnings ("RACE") are a
business unit's Controllable Earnings (revenue minus operating expenses and
taxes plus goodwill amortization) multiplied by the business unit's Dollar Cost
of Capital (capital invested in the business unit multiplied by the business
unit's weighted average cost of debt and equity). In essence, RACE measures a
business unit's "controllable" earnings less the cost of the capital necessary
to produce those earnings. The actual bonus pool available to a business unit is
equal to a percentage of the RACE generated by that business unit in a
particular year plus a percentage of the improvement (or minus a percentage of
the decline) in RACE for that particular business unit when compared to the
prior year. The percentages for each division and major corporate department
were determined so that the bonus pool for that division or department would be
roughly equivalent to what it would have been under the prior incentive bonus
plan if the Company met its budget for the year. The bonus pools for each
division and department are allocated to individual employees by the senior
managers within those departments. Specific bonus amounts for the named
executive officers were recommended by the Chief Executive Officer to the
Compensation Committee for its review and approval. An aggregate of $3,407,150
was distributed to KCI employees under the RACE Bonus Plan for 1994 performance.
The following are the bonus percentages earned by the various divisions and
corporate departments -- Kinetic Concepts Therapeutic Services, Inc. -- 126.2%,
KCI New Technologies, Inc. -- 104.3%, Medical Retro Design, Inc. -- (115.1%) and
the KCI corporate departments -- 138.5%.
Frank DiLazzaro, the President of KCI International, Inc. ("KCII"), and
Scott S. Brooks, the President of Medical Retro Design, Inc., were the only
executive officers of the Company who received bonuses which were not governed
by the RACE Plan. Mr. DiLazzaro's 1994 bonus was based solely on KCII's
operating profit. Mr. DiLazzaro does not have a written employment contract. Mr.
Brooks was appointed as the President of Medical Retro Design, Inc. in May of
1994. Because Mr. Brooks was appointed in mid-year, he
13
<PAGE> 16
was given a fixed bonus which was established outside of the RACE Plan. The
bonus plans for Mr. DiLazzaro and Mr. Brooks were negotiated on behalf of the
Company by Dr. James R. Leininger and were approved by the Compensation
Committee.
STOCK OPTIONS
Stock options are granted to executive officers on an annual basis. The
Stock Option Committee relies upon senior management's recommendations in
awarding stock options to executive officers and employees and in determining
the size of such awards. Such recommendations, and the Stock Option Committee's
decisions, are typically based upon salary grade level, length of service and
performance of the executive officer or employee in the prior year. In addition,
special grants are awarded during the year to recognize outstanding performance,
eliminate perceived inequities and reward individuals for increases in
responsibility. Previously granted options are considered by senior management
in making recommendations to the Stock Option Committee with respect to stock
options to be granted to executive officers.
TAX LIMITATIONS
In 1993, the federal tax laws were amended to limit the deduction a
publicly-held company is allowed for compensation paid in tax years beginning on
or after January 1, 1994 to the chief executive officer and to the four most
highly compensated executive officers other than the chief executive officer.
Generally, amounts paid in excess of $1 million to a covered executive, other
than performance-based compensation, cannot be deducted. In order to constitute
performance-based compensation for purposes of the new tax law, the performance
measures must be approved by the shareholders. The Compensation Committee will
consider ways to maximize the deductibility of executive compensation, while
retaining the discretion the Compensation Committee deems necessary to
compensate executive officers in a manner commensurate with performance and the
competitive environment for executive talent.
FRANK A. EHMANN
JAMES R. LEININGER, M.D.
BERNHARD T. MITTEMEYER, M.D.
14
<PAGE> 17
REPORT ON REPRICING OF OPTIONS
On April 15, 1994, the Stock Option Committee approved a plan pursuant to
which employees with stock options with exercise prices in excess of $7.50 per
share ("Old Options") were permitted to exchange their Old Options for new
options ("New Options") with a reduced exercise price (the "Repricing Plan").
The Repricing Plan provided that holders of Old Options could receive New
Options based on the following conditions:
(i) the New Options would have an exercise price equal to 120% of the
average closing price of the Company's Common Stock for a period beginning
seven trading days prior to, and ending seven trading days after, April 15,
1994 (the "Calculation Period"); and
(ii) the number of shares covered by a New Option would be reduced
from the number of shares covered by an Old Option based upon the Fair
Market Value of the Old Option and New Option on the date of the approval
of the Repricing Plan.
The average closing price of the Company's Common Stock during the Calculation
Period was $3.75 and the exercise price of the New Options was $4.50. The fair
market value of the Old Options and New Options was calculated utilizing the
Black-Scholes method of valuing stock options. Employees holding Old Options
forfeited between 28.3% and 39.3% of the shares covered by their Old Options in
order to receive New Options. One Hundred Sixty-Two (162) employees holding Old
Options covering 821,975 shares of Common Stock were eligible to participate in
the Repricing Plan. One Hundred Fifty (150) employees holding Old Options
covering 801,575 shares of Common Stock have elected to participate in the
Repricing Plan and have received New Options covering 544,024 shares of Common
Stock. The New Options were issued in accordance with the terms and conditions
of the Key Contributor Plan. The New Options retained the vesting schedules and
expiration dates set forth in the Old Options.
The Stock Option Committee carefully considered the Repricing Plan prior to
its approval. Prior to the approval of the Repricing Plan, the Stock Option
Committee discussed the repricing during four separate meetings over a nine
month period. In addition, the Stock Option Committee appointed an outside
member of the Board of Directors to meet with management to determine the
structure of the Repricing Plan prior to its approval. The Stock Option
Committee approved the repricing program because it believes that the Company's
stock option program is a significant factor in the Company's ability to retain
and incent key employees. Prior to the approval of the Repricing Plan the market
value of the Company's Common Stock had fallen significantly. The Company
believes that a significant portion of this decline was the result of market
factors that affected all of the stocks in the industry in which the Company is
engaged. As a result of the decrease in the value of the Company's Common Stock,
the Stock Option Committee believed that the Company's ability to retain and
incent existing employees had been impaired. The Stock Option Committee approved
the Repricing Plan as a means of ensuring that Company employees have a
meaningful equity interest in the Company. In addition, the Stock Option
Committee structured the plan so that the market price of the Company's Common
Stock would have to increase 20% before the New Options were "in the money" and
the Stock Option Committee required that employees holding options forfeit a
significant number of shares so that the fair market value of the Old Options
and New Options would be equal.
The following table sets forth certain information concerning any repricing
of stock options held by any executive officer during the period commencing June
14, 1988 (the date on which the Company became a reporting company pursuant to
the Securities Exchange Act of 1934) and ending December 31, 1994.
15
<PAGE> 18
REPLACEMENT OF OUTSTANDING OPTIONS
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES MARKET
UNDERLYING OPTIONS PRICE OF EXERCISE LENGTH OF
REPRICED OR STOCK AT PRICE AT ORIGINAL OPTION
AMENDED TIME OF TIME OF NEW TERM REMAINING AT
DATE OF ------------------ REPRICING OR REPRICING OR EXERCISE DATE OF REPRICING
NAME REPRICING OLD NEW AMENDMENT AMENDMENT PRICE OR AMENDMENT
---------------------------- --------- ------- ------- ------------ ------------ -------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Peter A. Leininger 10/27/89 9,000 9,000 $ 5.0000 $ 7.5000 $ 5.00 4 Years 6 Months
Senior Vice President 10/25/90 9,000 7,200 $ 2.9375 $ 5.0000 $ 3.50 4 Years
4/28/94 6,200 4,080 $ 3.7500 $ 8.1875 $ 4.50 8 Years 3 Months
Frank DiLazzaro 10/27/89 5,000 5,000 $ 5.0000 $ 5.1250 $ 5.00 4 Years 8 Months
President of KCI 10/25/90 5,000 4,000 $ 2.9375 $ 5.0000 $ 3.50 4 Years
International, Inc. 4/28/94 3,800 2,500 $ 3.7500 $ 8.1875 $ 4.50 8 Years 3 Months
4/28/94 25,000 16,350 $ 3.7500 $ 8.3750 $ 4.50 8 Years 6 Months
4/28/94 40,000 28,680 $ 3.7500 $ 7.6250 $ 4.50 8 Years 10 Months
Daniel R. Puchek 10/27/89 20,000 20,000 $ 5.0000 $ 7.0000 $ 5.00 3 Years 9 Months
President of KCI 10/27/89 15,000 15,000 $ 5.0000 $10.0000 $ 5.00 3 Years 6 Months
New Technologies, Inc. 10/27/89 7,000 7,000 $ 5.0000 $ 7.5000 $ 5.00 4 Years 6 Months
10/25/90 42,000 33,600 $ 2.9375 $ 5.0000 $ 3.50 4 Years
4/28/94 3,800 2,500 $ 3.7500 $ 8.1875 $ 4.50 8 Years 3 Months
4/28/94 10,000 6,540 $ 3.7500 $ 8.3750 $ 4.50 8 Years 6 Months
4/28/94 25,000 17,925 $ 3.7500 $ 7.6250 $ 4.50 8 Years 10 Months
Dennis E. Noll 4/28/94 50,000 30,350 $ 3.7500 $ 8.6250 $ 4.50 7 Years 9 Months
Vice President, General
Counsel and Secretary
John H. Vrzalik, Sr. 10/27/89 18,000 18,000 $ 5.0000 $10.0000 $ 5.00 4 Years 6 Months
Vice President 10/27/89 8,500 8,500 $ 5.0000 $ 7.5000 $ 5.00 4 Years 6 Months
10/25/90 26,500 21,200 $ 2.9375 $ 5.0000 $ 3.50 4 Years
10/25/90 50,000 40,000 $ 2.9375 $ 5.2500 $ 3.50 4 Years 3 Months
4/28/94 4,500 2,961 $ 3.7500 $ 8.1875 $ 4.50 8 Years 3 Months
Scott S. Brooks 4/28/94 3,400 2,237 $ 3.7500 $ 8.1875 $ 4.50 8 Years 3 Months
President of Medical 4/28/94 25,000 17,925 $ 3.7500 $ 7.6250 $ 4.50 8 Years 10 Months
Retro Design, Inc.
David H. Aderhold 10/27/89 30,000 30,000 $ 5.0000 $ 7.0000 $ 5.00 4 Years 1 Month
Former Senior Vice 10/27/89 21,000 21,000 $ 5.0000 $10.0000 $ 5.00 3 Years 6 Months
President 10/27/89 12,000 12,000 $ 5.0000 $ 7.5000 $ 5.00 4 Years 6 Months
John A. Bardis 10/27/89 200,000 200,000 $ 5.0000 $ 7.0000 $ 5.00 3 Years 3 Months
Former Senior Vice 10/27/89 15,000 15,000 $ 5.0000 $10.0000 $ 5.00 3 Years 6 Months
President 10/27/89 11,500 11,500 $ 5.0000 $ 7.5000 $ 5.00 4 Years 6 Months
10/25/90 226,500 181,200 $ 2.9375 $ 5.0000 $ 3.50 4 Years
Ted M. Buchter 10/27/89 3,000 3,000 $ 5.0000 $11.8750 $ 5.00 3 Years 9 Months
Former Senior Vice 10/27/89 2,500 2,500 $ 5.0000 $ 7.5000 $ 5.00 4 Years 6 Months
President and President 10/25/90 5,500 4,400 $ 2.9375 $ 5.0000 $ 3.50 4 Years
of KCI Therapeutic 4/28/94 3,400 2,237 $ 3.7500 $ 8.1875 $ 4.50 8 Years 3 Months
Services, Inc. 4/28/94 25,000 17,925 $ 3.7500 $ 7.6250 $ 4.50 8 Years 10 Months
Howard W. Deichen 10/27/89 21,000 21,000 $ 5.0000 $10.0000 $ 5.00 3 Years 6 Months
Former Chief Financial 10/27/89 12,000 12,000 $ 5.0000 $ 7.5000 $ 5.00 4 Years 6 Months
Officer 10/25/90 33,000 26,400 $ 2.9375 $ 5.0000 $ 3.50 4 Years
</TABLE>
(Table continued on following page)
16
<PAGE> 19
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES MARKET
UNDERLYING OPTIONS PRICE OF EXERCISE LENGTH OF
REPRICED OR STOCK AT PRICE AT ORIGINAL OPTION
AMENDED TIME OF TIME OF NEW TERM REMAINING AT
DATE OF ------------------ REPRICING OR REPRICING OR EXERCISE DATE OF REPRICING
NAME REPRICING OLD NEW AMENDMENT AMENDMENT PRICE OR AMENDMENT
---------------------------- --------- ------- ------- ------------ ------------ -------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gary M. Green 10/27/89 10,000 10,000 $ 5.0000 $ 7.5000 $ 5.00 4 Years 6 Months
Former President of 10/25/90 10,000 8,000 $ 2.9375 $ 5.0000 $ 3.50 4 Years
KCI Therapeutic Services,
Inc.
Terence P. Kerr 10/27/89 24,000 24,000 $ 5.0000 $10.0000 $ 5.00 3 Years 6 Months
Former Vice President 10/27/89 21,000 21,000 $ 5.0000 $ 7.5000 $ 5.00 4 Years 6 Months
10/25/90 45,000 20,112 $ 2.9375 $ 5.0000 $ 3.50 4 Years
Don P. LoVetere 10/27/89 160,000 160,000 $ 5.0000 $ 7.0000 $ 5.00 3 Years 9 Months
Former Vice President 10/27/89 15,000 15,000 $ 5.0000 $10.0000 $ 5.00 3 Years 6 Months
10/27/89 11,500 11,500 $ 5.0000 $ 7.5000 $ 5.00 4 Years 6 Months
James D. Simonsen 10/27/89 50,000 50,000 $ 5.0000 $11.8750 $ 5.00 3 Years 9 Months
Former Vice President 10/27/89 7,500 7,500 $ 5.0000 $ 7.5000 $ 5.00 4 Years 6 Months
Merle M. Smith 10/27/89 100,000 100,000 $ 5.0000 $10.0000 $ 5.00 3 Years 6 Months
Former President and 10/27/89 30,000 30,000 $ 5.0000 $ 7.5000 $ 5.00 4 Years 6 Months
Chief Executive Officer 10/25/90 130,000 104,000 $ 2.9375 $ 5.00 $ 3.50 4 Years
Keith D. Thatcher 10/27/89 30,000 30,000 $ 5.0000 $11.8750 $ 5.00 3 Years 9 Months
Former Vice President 10/27/89 7,000 7,000 $ 5.0000 $ 7.5000 $ 5.00 4 Years 6 Months
and Treasurer 10/25/90 37,000 29,600 $ 2.9375 $ 5.0000 $ 3.50 4 Years
4/28/94 3,800 2,500 $ 3.7500 $ 8.1875 $ 4.50 8 Years 3 Months
T. Loran Van Noy 10/27/89 12,000 12,000 $ 5.0000 $10.0000 $ 5.00 3 Years 6 Months
Former President of KCI 10/27/89 5,000 5,000 $ 5.0000 $ 7.5000 $ 5.00 4 Years 1 Month
Integrated Services 10/27/89 5,500 5,500 $ 5.0000 $ 7.5000 $ 5.00 4 Years 6 Months
10/25/90 22,500 18,000 $ 2.9375 $ 5.0000 $ 3.50 4 Years
4/28/94 4,500 2,961 $ 3.7500 $ 8.1875 $ 4.50 8 Years 3 Months
4/28/94 35,000 25,095 $ 3.7500 $ 7.6250 $ 4.50 8 Years 10 Months
Walter D. Warren 10/25/90 50,000 40,000 $ 2.9375 $ 5.2500 $ 3.50 4 Years 3 Months
Former Senior Vice
President
Robert A. Wehrmeyer, Jr. 10/27/89 15,000 15,000 $ 5.0000 $10.0000 $ 5.00 3 Years 6 Months
Former Senior Vice 10/27/89 13,000 13,000 $ 5.0000 $ 7.5000 $ 5.00 4 Years 1 Month
President and President 10/27/89 10,000 10,000 $ 5.0000 $ 7.5000 $ 5.00 4 Years 6 Months
of KCI Medical Services, 10/25/90 38,000 30,400 $ 2.9375 $ 5.0000 $ 3.50 4 Years
Inc. 4/28/94 6,500 4,277 $ 3.7500 $ 8.1875 $ 4.50 8 Years 3 Months
Kim M. Wetesnik 10/27/89 6,000 6,000 $ 5.0000 $10.0000 $ 5.00 3 Years 6 Months
Former Vice President 10/27/89 10,000 10,000 $ 5.0000 $ 7.5000 $ 5.00 4 Years 1 Month
and Assistant Secy. 10/27/89 6,000 6,000 $ 5.0000 $ 7.5000 $ 5.00 4 Years 6 Months
10/25/90 22,000 17,600 $ 2.9375 $ 5.0000 $ 3.50 4 Years
</TABLE>
FRANK A. EHMANN
JAMES R. LEININGER, M.D.
BERNHARD T. MITTEMEYER, M.D.
17
<PAGE> 20
APPROVAL OF AN AMENDMENT TO THE
KEY CONTRIBUTOR PLAN
GENERAL
The 1987 Kinetic Concepts, Inc. Key Contributor Stock Option Plan (the "Key
Contributor Plan") was adopted by the Company's Board of Directors on April 15,
1987 and approved by the Company's shareholders on May 28, 1987. On November 2,
1994, the Company's Board of Directors approved an amendment to the Key
Contributor Plan which increased the number of shares of Common Stock for which
options may be granted from 4,500,000 shares to 5,750,000 shares (the
"Amendment"). The Amendment is being submitted to the shareholders for their
approval. Approval of the Amendment requires the affirmative vote of a majority
of the outstanding shares present and entitled to vote thereon. The Board of
Directors recommends that the shareholders vote "FOR" Item No. 2 to approve the
Amendment.
PURPOSE
The Key Contributor Plan is intended to promote the best interests of the
Company and its shareholders by assisting the Company in attracting and
retaining persons of exceptional ability as employees or independent
contractors, creating an incentive for the Company's employees and independent
contractors by providing them with an opportunity to participate in the
Company's growth and rewarding those employees and independent contractors who
contribute to the Company's ongoing success.
ADMINISTRATION OF THE KEY CONTRIBUTOR PLAN
The Key Contributor Plan is administered by a Stock Option Committee
appointed by the Board of Directors of the Company (the "Stock Option
Committee"). The Stock Option Committee consists of two or more directors each
of whom has not been granted or awarded any equity security by the Company
pursuant to the Key Contributor Plan or any other plan of the Company (other
than a "formula plan" for purposes of SEC Rule 16b-3) for a period of twelve
months prior to becoming a member of the Committee. No member of the Stock
Option Committee is eligible to receive options under the Key Contributor Plan
during his term on the Stock Option Committee. At the present time, James R.
Leininger, M.D., Bernhard T. Mittemeyer, M.D. and Frank A. Ehmann are the
members of the Stock Option Committee. Action by the Stock Option Committee
requires the affirmative vote of a majority of its members.
Subject to the provisions of the Key Contributor Plan, the Stock Option
Committee has the authority to determine which officers, employees and other key
persons will receive options under the Key Contributor Plan, to prescribe the
terms and provisions of each option granted under the Key Contributor Plan
(including the exercise price of each option granted under the Key Contributor
Plan) and to exercise such powers and to perform such acts as may be deemed
necessary or expedient to promote the best interests of the Company with respect
to the Key Contributor Plan. All decisions and determinations made by the Stock
Option Committee in the exercise of these powers will be final and binding upon
the Company and the optionees.
PARTICIPANTS IN THE KEY CONTRIBUTOR PLAN
Incentive Stock Options may be granted only to officers and other employees
of the Company or its subsidiaries, including members of the Board of Directors
who are also employees of the Company or its subsidiaries (other than the
Chairman of the Company's Board of Directors). Non-qualified Stock Options may
be granted (i) to officers or other employees of the Company or its subsidiaries
and (ii) to consultants and other key persons who provide services to the
Company or its subsidiaries (regardless of whether they are
18
<PAGE> 21
also employees). The employees of all of the Company's subsidiaries are eligible
to receive stock options under the Key Contributor Plan. The Chairman of the
Board of Directors, non-employee members of the Board of Directors and members
of the Stock Option Committee (during their tenure on the Stock Option
Committee) are not eligible to receive options under the Key Contributor Plan.
The Company's employee directors and executive officers have an interest in the
approval of Item No. 2 by virtue of their participation in the Key Contributor
Plan.
The Stock Option Committee selects the eligible persons to whom options
will be granted and the number of shares to be granted to such eligible persons
based upon a variety of factors, including the person's salary grade level,
length of service and performance in the prior year. In addition, grants may be
awarded to recognize outstanding performance, eliminate perceived inequities and
reward individuals for increases in responsibilities.
SHARES AVAILABLE FOR GRANT AND OPTIONS GRANTED
A total of 4,500,000 shares of Common Stock are reserved for issuance under
the Key Contributor Plan (without taking into account the effect of the
Amendment). The number of shares of Common Stock available for issuance under
the Key Contributor Plan may be increased by the Company's Board of Directors if
such increase is approved by the Company's shareholders within twelve months.
The number of shares available for the grant of options may be subject to
adjustment under certain circumstances. Shares available for the grant of
options under the Key Contributor Plan will be shares of the Company's
authorized but unissued Common Stock. If options expire or terminate
unexercised, new options may thereafter be granted covering such shares. No
option may be granted after April 14, 1997.
As of February 1, 1995, the Company and its subsidiaries had approximately
287 full-time employees who were eligible to receive options under the Key
Contributor Plan. Since the adoption of the Key Contributor Plan, the Stock
Option Committee has granted options to 374 employees (other than current
executive officers) to purchase an aggregate of 8,508,744 shares, of which
options covering 1,387,317 shares have been exercised, options covering
5,283,747 shares have expired or been cancelled and options covering 1,215,474
shares remain outstanding. Of such cancelled options, 2,757,363 were cancelled
in connection with repricing of outstanding options. See "Report on Repricing of
Options." Sam A. Brooks was granted an option to purchase 100,000 shares of
Common Stock under the Key Contributor Plan and is the only current director of
the Company (who is not an executive officer) to have been granted an option
under the Key Contributor Plan.
19
<PAGE> 22
The following table sets forth certain specified information with respect
to the options which have been granted under the Key Contributor Plan to the
named executive officers and the current executive officers as a group:
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK
UNDERLYING THE
NAME AND POSITION STOCK OPTIONS(1)
----------------- ----------------
<S> <C>
James R. Leininger, M.D.............................................. -0-
Chairman of the Board
Raymond R. Hannigan.................................................. 560,000
President and Chief Executive Officer
Bianca A. Rhodes..................................................... 107,440
Chief Financial Officer and Senior Vice President
Peter A. Leininger, M.D.............................................. 43,520
Senior Vice President and Chief Administrative Officer
Dennis E. Noll....................................................... 100,000
Vice President, General Counsel and Secretary
Dan Puchek........................................................... 93,465
President, KCI New Technologies, Inc.
All Current Executive Officers as a Group (10)....................... 1,275,734
</TABLE>
---------------
(1) Excludes options covering 271,600 shares which were cancelled in connection
with the repricing of options. See "Report on Repricing of Options."
Options to purchase 116,727 shares of Common Stock were available for grant
as of February 1, 1994 under the Key Contributor Plan (without taking into
account the effect of the Amendment). The closing sale price for the Company's
Common Stock on February 1, 1995 was $7.125 per share.
TERMS AND CONDITIONS OF OPTIONS
A stock option granted under the Key Contributor Plan may be in the form of
either an Incentive Stock Option or a Non-qualified Stock Option. The options
are not transferable except by will or by the laws of descent and distribution
or pursuant to a qualified domestic relations order. A brief description of the
terms applicable to the options issuable under the Key Contributor Plan is set
forth below.
The purchase price per share of each share of Common Stock subject to an
option is determined by the Stock Option Committee in its sole discretion.
However, the exercise price for an Incentive Stock Option may not be less than
one hundred percent (100%) of the fair market value of the shares of Common
Stock of the Company on the date the option is granted and the exercise price of
a Non-qualified Stock Option may not be less than eighty-five percent (85%) of
the fair market value of the shares of the Common Stock of the Company on the
date the option is granted. In addition, the exercise price for an Incentive
Stock Option or Non-qualified Stock Option may not be less than one hundred and
ten percent (110%) of the fair market value of the shares of the Common Stock of
the Company on the date that the option was granted if such option is granted to
a person who directly or indirectly owns ten percent (10%) or more of the total
combined voting power of all classes of stock of the Company. Subject to the
above limitations, the determination of the
20
<PAGE> 23
exercise price of a Non-qualified Stock Option granted under the Key Contributor
Plan may be determined by utilizing the average daily closing price of the
Company's Common Stock as reported on the NASDAQ National Market during the
thirty day period prior to the date of the grant of an option.
The exercise of each option will be subject to such conditions as may be
imposed by the Stock Option Committee and specified in the option agreement
between the Company and the optionee (the "Option Agreement") and to the receipt
of any prior regulatory approvals that may be required. An option is exercised
by providing written notice to the Stock Option Committee specifying the number
of shares of Common Stock the optionee desires to purchase on any business day
and by making payment in full for the shares to be acquired. Payment of the
exercise price of any option may be made either in cash, or if permitted under
the applicable Option Agreement and by applicable law and approved by the Stock
Option Committee, by delivery of shares of Common Stock (previously acquired by
the optionee from a source other than the Key Contributor Plan) having a fair
market value equal to or less than the total exercise price, plus cash for the
difference, or by an combination of the foregoing. An option will be treated as
outstanding until such option is exercised in full or expires by reason of lapse
of time.
The term of each Option Agreement is determined by the Stock Option
Committee. However, the term of an Incentive Stock Option may not exceed ten
years (or, in the case of an individual owning more than 10% of the Company's
Common Stock, five years).
AMENDMENT OF THE KEY CONTRIBUTOR PLAN
The Board of Directors may at any time amend the Key Contributor Plan
except that it may not do so if such action would adversely affect or alter any
right or obligation with respect to any option or Option Agreement then in
effect, except to the extent that any such action is required or desirable (in
the opinion of the Company or its counsel) in order to comply with any rule or
regulation promulgated or proposed under the Internal Revenue Code (the "Code").
FEDERAL INCOME TAX CONSIDERATIONS OF THE KEY CONTRIBUTOR PLAN
Commencing in taxable years beginning on or after January 1, 1994, a
publicly held corporation may not, subject to limited exceptions, deduct for
federal income tax purposes certain compensation paid to an executive officer
who is the chief executive officer or one of the four other highest paid
executive officer in excess of $1 million in any taxable year (the "$1 million
cap"). In general, compensation received on account of the exercise of options
that were granted on or prior to February 17, 1993 will not be subject to the $1
million cap. Also, certain other performance based compensation may not be
subject to the $1 million cap. Compensation attributable to the exercise of
options and other awards granted after February 17, 1993, however, may be
counted in determining whether the $1 million cap has been exceeded in any
taxable year. Whether (i) the grant of options under the Key Contributor Plan
are subject to the $1 million cap, (ii) the $1 million cap with respect to an
executive officer will be exceeded and (iii) whether the Company's deductions
for compensation paid in excess of the $1 million cap will be denied, will
depend on the resolution of various factual and legal issues that cannot be
determined at this time.
Under the Code, absent an election by the optionee, a person receiving a
Nonstatutory Stock Option does not recognize taxable income upon the grant of
the option. An optionee does, however, recognize ordinary income upon the
exercise of a Non-qualified Stock Option to the extent that the fair market
value of the Common Stock on the date of exercise (or, in some cases, a later
tax recognition date) exceeds the exercise price. The Company may deduct for
Federal income tax purposes (subject to the $1 million cap, if applicable
21
<PAGE> 24
and subject to satisfying the federal income withholding requirements) an amount
equal to the ordinary income so recognized by the optionee. Upon the subsequent
sale of the shares acquired pursuant to a Nonstatutory Stock Option, any gain or
loss will be capital gain or loss, assuming the shares represent a capital asset
in the hands of the optionee. There will be no tax consequences to the Company
upon the subsequent sale of shares acquired pursuant to a Non-qualified Stock
Option.
The grant of an Incentive Stock Option does not result in taxable income to
an optionee. The exercise of an Incentive Stock Option also does not result in
taxable income, provided that the employment requirements specified in the Code
are satisfied, although such exercise may give rise to alternative minimum
taxable income for the optionee. In addition, if the optionee does not dispose
of the Common Stock acquired upon exercise of an Incentive Stock Option during
the statutory holding period, then any gain or loss upon subsequent sale of the
Common Stock will be a long-term capital gain or loss, assuming the shares
represent a capital asset in the optionee's hands.
The statutory holding period for Common Stock acquired pursuant to the
exercise of an Incentive Stock Option is the later of two years from the date
the Incentive Stock Option is granted or one year from the date the Common Stock
is transferred to the optionee pursuant to the exercise of the Incentive Stock
Option. If the employment and statutory holding period requirements are
satisfied, the Company may not claim any Federal income tax deduction upon
either the exercise of the Incentive Stock Option or the subsequent sale of the
Common Stock received upon exercise of the Incentive Stock Option. If these
requirements are not satisfied, the amount of ordinary income taxable to the
optionee is the lesser of (i) the fair market value of Common Stock on the date
of exercise (or later tax recognition date) minus the Option Price, and (ii) the
amount recognized on disposition minus the Option Price. The Company may deduct
for Federal income tax purposes (subject to the $1 million cap, if applicable)
an amount equal to the ordinary income so realized by the optionee.
SHAREHOLDER APPROVAL
Shareholder approval of the Amendment is being sought in order to exempt
the grant of options pursuant to such plan from the application of the
short-swing profit recapture provisions of Section 16(b) of the Securities
Exchange Act of 1934, as amended. The failure to approve the Amendment by the
shareholders will not affect the validity of the Key Contributor Plan or any
options granted thereunder. Approval of the Amendment requires the affirmative
vote of a majority of the outstanding shares present and entitled to vote
thereon. The Board of Directors recommends that the shareholders vote "FOR" Item
2 to approve the Amendment.
APPOINTMENT OF AUDITORS
The Board of Directors has appointed the firm of KPMG Peat Marwick LLP to
audit the financial statements of the Company and its subsidiaries for the 1995
fiscal year. Representatives of KPMG Peat Marwick LLP are expected to be present
at the Annual Meeting of Shareholders. They will have an opportunity to make a
statement if they desire to do so and are expected to be available to respond to
appropriate questions.
Approval of the appointment of auditors is not a matter which is required
to be submitted to a vote of shareholders, but the Board of Directors considers
it appropriate for the shareholders to express or withhold their approval of the
appointment. If shareholder approval should be withheld, the Board of Directors
would consider an alternative appointment for the succeeding fiscal year. The
Board of Directors recommends that
22
<PAGE> 25
the shareholders vote "FOR" Item No. 3 approving the appointment of auditors. A
majority of the shares present and entitled to vote thereon is required for
approval.
TIMELINESS OF CERTAIN SEC FILINGS
During the fiscal year ended December 31, 1994, Peter A. Leininger, Bianca
A. Rhodes, Frank DiLazzaro, Daniel R. Puchek, Robert A. Wehrmeyer, Jr. and Loran
VanNoy were each late in filing one Form 4 with the Securities and Exchange
Commission.
SHAREHOLDER PROPOSALS FOR 1996 ANNUAL MEETING
Proposals of shareholders intended to be presented at the 1996 Annual
Meeting must be received in writing by the Company at its principal executive
offices not later than November 30, 1995. The Company's principal executive
offices are located at 8023 Vantage Drive, San Antonio, Texas 78230.
OTHER MATTERS
No business other than the matters set forth in this Proxy Statement is
expected to come before the meeting, but should any other matters requiring a
vote of shareholders arise, including a question of adjourning the meeting, the
persons named in the accompanying proxy will vote thereon according to their
best judgment in the interests of the Company. If any of the nominees for office
of director should withdraw or otherwise become unavailable for reasons not
presently known, the persons named as proxies may vote for another person in his
place in what they consider the best interests of the Company.
Upon the written request of any person whose proxy is solicited hereunder,
the Company will furnish without charge to such person a copy of its annual
report filed with the Securities and Exchange Commission on Form 10-K, including
financial statements and schedules thereto, for the 1994 fiscal year. Such
written request is to be directed to the attention of Dennis E. Noll, Secretary,
Kinetic Concepts, Inc., 8023 Vantage Drive, P.O. Box 659508, San Antonio, Texas
78265-9508.
KINETIC CONCEPTS, INC.
/s/ DENNIS E. NOLL
----------------------------
DENNIS E. NOLL,
Secretary
Dated: March 28, 1995
23
<PAGE> 26
KINETIC CONCEPTS, INC.
8023 VANTAGE DRIVE
SAN ANTONIO, TEXAS 78230
P
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
R
The undersigned hereby appoints James R. Leininger, M.D., Bianca A.
O Rhodes and Dennis E. Noll, and each of them, as Proxies, each with the
power to appoint his or her substitute, and hereby authorizes him or her
X to represent and to vote, as designated on the reverse side, all the
shares of common stock of Kinetic Concepts, Inc. held of record by the
Y undersigned on March 22, 1995 at the Annual Meeting of Shareholders to be
held on May 9, 1995, or any adjournment thereof, with all powers which the
undersigned would possess if personally present.
The undersigned acknowledges receipt of the Notice of Annual Meeting of
Shareholders and Proxy Statement of Kinetic Concepts, Inc. dated March 28,
1995.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE * * * * * * * * *
* SEE REVERSE *
CONTINUED AND TO BE SIGNED ON REVERSE SIDE * SIDE *
* * * * * * * * *
<PAGE> 27
This proxy when properly executed will be voted in the manner directed herein
by the undersigned shareholder. If no direction is made, this proxy will be
vote "FOR" Proposals 1, 2 and 3.
/X/ PLEASE MARK VOTE AS
IN THIS EMAMPLE.
1. ELECTION OF DIRECTORS
NOMINEES: Sam A. Brooks, Frank A. Ehmann, Raymond R. Hannigan, James R.
Leininger, M.D., Peter A. Leininger, M.D. and Bernhard T. Mittemeyer, M.D.
/ / FOR all nominees / / WITHHELD from all nominees
For, except vote withheld from the following:
/ / __________________________________________________________
2. PROPOSAL TO APPROVE THE AMENDMENT TO THE KEY CONTRIBUTOR STOCK OPTION
PLAN, increasing the number of shares of Common Stock for which options
may be granted from 4,500,000 to 5,750,000.
/ / FOR / / AGAINST / / ABSTAIN
3. PROPOSAL TO APPROVE THE APPOINTMENT OF KPMG PEAT MARWICK LLP as the
independent public accountants of the corporation for the 1995 fiscal year.
/ / FOR / / AGAINST / / ABSTAIN
4. IN THEIR DISCRETION, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
NEW ADDRESS: ___________________________________ MARK HERE FOR
___________________________________ ADDRESS CHANGE
___________________________________ AND NOTE AT LEFT / /
Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
Signature: _____________________________________ Date: _______________________
Signature: _____________________________________ Date: _______________________
