<PAGE> 1
SCHEDULE 14A INFORMATION
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
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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 240.14a-12
RESOUND CORPORATION
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<PAGE> 2
LOGO
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 21, 1998
To The Shareholders of ReSound Corporation:
Notice is hereby given that the Annual Meeting of Shareholders of ReSound
Corporation (the "Company"), a California corporation, will be held at the Hotel
Sofitel, 223 Twin Dolphin Drive, Redwood City, California, on Thursday, May 21,
1998 at 9:00 a.m. local time, for the following purposes:
1. To elect the following directors to serve for the ensuing year and
until their successors are elected: Richard L. Goode, M.D., Russell D.
Hays, Eugene Kleiner, Rodney Perkins, M.D., Philip S. Schlein and Robert C.
Wilson.
2. To authorize an amendment to the Company's 1992 Employee Stock
Purchase Plan to increase the number of shares of Common Stock reserved for
issuance thereunder by 200,000 shares to an aggregate of 600,000 shares.
3. To ratify the appointment of Ernst & Young LLP as the independent
auditors for the Company for the fiscal year ending December 31, 1998.
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on Monday, March 26,
1998 will be entitled to notice of and to vote at the Annual Meeting or any
adjournment thereof.
All shareholders are cordially invited to attend the Annual Meeting in
person. However, to assure your representation at the meeting, you are urged to
mark, sign, date and return the enclosed proxy card as promptly as possible in
the postage prepaid envelope enclosed for that purpose. If you decide to attend
the meeting you may vote in person even if you returned a proxy card.
BY ORDER OF THE BOARD OF DIRECTORS
LOGO
DAVID R. MUHLITNER
Secretary
Redwood City, California
April 20, 1998
YOUR VOTE IS IMPORTANT
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE REQUESTED TO
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE AND RETURN IT
IN THE ENVELOPE PROVIDED.
<PAGE> 3
LOGO
PROXY STATEMENT FOR
1998 ANNUAL MEETING OF SHAREHOLDERS
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
ReSound Corporation (the "Company"), a California corporation, for use at the
Annual Meeting of Shareholders to be held May 21, 1998 at 9:00 a.m., local time,
or at any adjournment or postponement thereof, for the purposes set forth in
this Proxy Statement and in the accompanying Notice of Annual Meeting of
Shareholders. The Annual Meeting will be held at the Hotel Sofitel, 223 Twin
Dolphin Drive, Redwood City, California 94065.
The Company's principal executive offices are located at 220 Saginaw Drive,
Seaport Centre, Redwood City, California 94063. The Company's telephone number
at that location is (650) 780-7800.
These proxy solicitation materials were mailed on or about April 20, 1998
to all shareholders entitled to vote at the Annual Meeting.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company (Attention:
David R. Muhlitner, Inspector of Elections) a written notice of revocation or a
duly executed proxy bearing a later date or by attending the meeting and voting
in person.
VOTING AND SOLICITATION
Every shareholder voting for the election of directors may cumulate such
shareholder's votes and give one candidate a number of votes equal to the number
of directors to be elected multiplied by the number of shares held by such
shareholder, or distribute the shareholder's votes on the same principle among
as many candidates as the shareholder thinks fit, provided that votes cannot be
cast for more than six candidates. However, no shareholder shall be entitled to
cumulate votes for a candidate unless such candidate's name has been placed in
nomination prior to the voting and the shareholder, or any other shareholder,
has given notice at the meeting prior to the voting of the intention to cumulate
the shareholder's votes. On all other matters, each share has one vote.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the Inspector of Elections with the assistance of the Company's transfer agent.
The Inspector of Elections will also determine whether or not a quorum is
present. Except with respect to the election of directors where cumulative
voting is invoked and except in certain other specific circumstances, the
affirmative vote of a majority of shares represented and voting on a particular
matter at a duly held meeting at which a quorum is present (which shares voting
affirmatively also constitute at least a majority of the required quorum) is
required under California law for approval of that matter. In general,
California law also provides that a quorum consists of a majority of the shares
entitled to vote, represented either in person or by proxy. The Inspector of
Elections will treat abstentions as shares that are present and entitled to vote
for purposes of determining the presence of a quorum but as not voting for
purposes of determining the approval of any matter submitted to the shareholders
for a vote. Any proxy which is returned using the form of proxy enclosed and
which is not marked as to a particular item will be voted for the election of
the nominees for director included in this proxy statement, for approval of the
amendment to the Company's 1992 Employee Stock Purchase Plan, for ratification
of the appointment of the designated independent auditors and as the proxy
holders deem advisable on other matters that may come before the meeting, as the
case may be, with respect to the item not marked. If a broker
<PAGE> 4
indicates on the enclosed proxy or its substitute that it does not have
discretionary authority as to certain shares to vote on a particular matter
("broker non-votes"), those shares will not be considered as voting with respect
to that matter. While there is no definitive specific statutory or case law
authority in California concerning the proper treatment of abstentions and
broker non-votes, the Company believes that the tabulation procedures to be
followed by the Inspector of Elections are consistent with the general statutory
requirements in California concerning voting of shares and determination of a
quorum.
The cost of soliciting proxies will be borne by the Company. The Company
has retained the services of Skinner & Co. to aid in the solicitation of proxies
from brokers, bank nominees and other institutional owners. The Company
estimates that it will pay Skinner & Co. a fee not to exceed $3,000 for its
services and will reimburse Skinner & Co. for certain out-of-pocket expenses
that are usual and proper. In addition, the Company will reimburse brokerage
firms and other persons representing beneficial owners of shares for their
expenses in forwarding solicitation materials to such beneficial owners. Proxies
may be solicited by certain of the Company's directors, officers and regular
employees, without additional compensation, personally or by telephone, fax or
telegram.
RECORD DATE AND SHARE OWNERSHIP
Only shareholders of record at the close of business on March 26, 1998 are
entitled to notice of and to vote at the Annual Meeting. As of March 26, 1998,
20,268,640 shares of the Company's Common Stock were issued and outstanding.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
NOMINEES
At the Annual Meeting, six directors are to be elected to serve until the
next annual meeting of shareholders. Unless otherwise instructed, the proxy
holders will vote the proxies received by them for the Company's six nominees
named below. All of the nominees listed below are presently directors of the
Company.
In the event that any nominee of the Company is unable or declines to serve
as a director at the time of the Annual Meeting, the proxies will be voted for
any nominee who shall be designated by the present Board of Directors to fill
the vacancy. In the event that additional persons are nominated for election as
directors, the proxy holders intend to vote all proxies received by them in such
a manner in accordance with cumulative voting as will assure the election of as
many of the nominees listed below as possible, and, in such event, the specific
nominees to be voted for will be determined by the proxy holders. Assuming a
quorum is present, the nominees for director receiving the greatest number of
votes cast at the Annual Meeting will be elected, up to the number of directors
authorized by the Company's Bylaws. The term of office of each person elected as
a director will continue until the next annual meeting of shareholders or until
his or her successor has been elected and qualified.
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The nominees' names, ages as of December 31, 1997, and certain information
about them are set forth below:
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
--------------- --- -------------------- --------
<S> <C> <C> <C>
Richard L. Goode, M.D. 62 Professor of Otolaryngology at Stanford 1984
University School of Medicine.
Russell D. Hays 53 President and Chief Executive Officer of the 1998
Company.
Eugene Kleiner 74 Private investor and consultant. 1985
Rodney Perkins, M.D. 61 Chairman of the Board of Directors of the 1984
Company; a practicing otologic surgeon;
President of the California Ear Institute at
Stanford, a clinic specializing in the
diagnosis and treatment of hearing disorders;
President of Project HEAR, a non-profit
research organization; and Professor of
Surgery, Stanford University School of
Medicine.
Philip S. Schlein 63 Venture partner of BHMS Partners L.P., a 1988
general partner of U.S. Venture Partners, a
venture capital firm.
Robert C. Wilson 77 Chairman of Wilson & Chambers, a venture 1987
capital and consulting firm.
</TABLE>
Except as set forth below, each of the nominees has been engaged in the
principal occupation set forth next to his name above during the past five
years. There is no family relationship between any director and executive
officer of the Company.
Dr. Goode is a founder of the Company and has served as a director since
February 1984. Dr. Goode is Professor of Otolaryngology -- Head and Neck Surgery
at Stanford University School of Medicine and is the past president of the
American Academy of Otolaryngology. Dr. Goode was formerly President of the
American Academy of Facial Plastic and Reconstructive Surgery as well as
Chairman of the FDA's Device Panel for Otolaryngology. Dr. Goode has conducted
extensive medical research on electromagnetic transduction and biosurgical
devices since the early 1970s. Dr. Goode received his M.D. from the University
of Southern California and his B.A. from the University of California at Santa
Barbara.
Russell D. Hays joined ReSound as President and Chief Executive Officer,
and was elected to its Board of Directors, in February 1998. From 1995 to 1998,
Mr. Hays served as Executive Vice President and President of the Hospital
Business of Nellcor Puritan Bennett, a medical device company that develops and
markets products that diagnose, monitor and treat respiratory disorders. From
1992 to 1995, Mr. Hays served as President and Chief Executive Officer of
Enzytech, Inc., a company that develops and markets drug delivery technologies.
From 1985 to 1992, Mr. Hays held senior management positions with Baxter
Healthcare Corporation, most recently as Vice President and General Manager of
the Immunotherapy Division of Baxter Biotech, and before that in the areas of
strategic planning and business development, marketing and business development,
and technology assessment and development. Prior to this, he held various
positions with Stryker Corporation, Baxter Travenol Labs, Inc., Amerace
Corporation, Reynolds Products, Inc., and Schaub Engineering Company. Mr. Hays
holds an M.B.A. from the J.L. Kellogg Graduate School at Northwestern University
and a B.S. in Physics from Elmhurst College.
Mr. Kleiner is a founder of the Company and has served as a director since
January 1985. Mr. Kleiner is a private investor and consultant. Mr. Kleiner is
also a member of the advisory board of Paine Webber R&D Development Corporation.
Mr. Kleiner was a founder of Fairchild Semiconductor Corporation, Tandem
Computers Inc. (where he also served previously as a director), Genentech Inc.
and Kleiner Perkins Caufield & Byers. He holds an M.I.E. from New York
University and a B.M.E. and an honorary doctorate in engineering from the
Polytechnic University.
Dr. Perkins is a founder of the Company and has been the Chairman of the
Board of Directors since the Company's inception in 1984. Dr. Perkins also
served as the President and Chief Executive Officer of the
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Company from 1984 to July 1988. Dr. Perkins, a specialist in otologic surgery,
is President of the California Ear Institute at Stanford and has been in private
practice since 1968. He is Professor of Surgery at Stanford University School of
Medicine, and is the founder and President of Project HEAR, a nonprofit medical
institute for ear research and education. He is also a founder of Collagen
Corporation, a biomaterials company, and a founder of Laserscope, a surgical
systems company. Dr. Perkins was formerly Chairman of the Board of Laserscope
and remains a director of Laserscope. Dr. Perkins received his M.D. from Indiana
University School of Medicine and his undergraduate degree from Indiana
University.
Mr. Schlein has served as a director of the Company since January 1988. Mr.
Schlein has been a general partner, and subsequently a venture partner, of BHMS
Partners, L.P., a general partner of U.S. Venture Partners, a venture capital
firm, since April 1985. Mr. Schlein held various executive positions with R. H.
Macy & Co., Inc. from 1957 to 1973 and was President and Chief Executive Officer
of Macy's California division from 1974 to 1985. Additionally, Mr. Schlein has
previously served as a director of Apple Computer, Inc. and currently serves as
a director of Ross Stores, Inc., Burnham Pacific and Quick Response Services.
Mr. Schlein received his B.S. from the University of Pennsylvania.
Mr. Wilson has served as a director of the Company since August 1987. Mr.
Wilson has been Chairman of Wilson & Chambers, a venture capital and consulting
firm, since December 1982. Mr. Wilson was President, Chief Executive Officer and
Chairman of the Board at Memorex Corporation from 1974 until 1980. From 1971 to
1974, Mr. Wilson was President and Chief Executive Officer of Collins Radio
Company, a communications company. From 1969 to 1971, Mr. Wilson was employed by
Rockwell International, a diversified manufacturing company, first as President
of Commercial Products and later as Executive Vice President. He is currently a
director of Carco Electronics, DataLink Systems Corporation, Giga-Tronics
Incorporated and Spectrian Corporation. Mr. Wilson has previously served as a
director of several corporations, including Chrysler Corporation, GAF
Corporation, Rockwell International and Western Digital Corporation. Mr. Wilson
holds a B.S. from the University of California at Berkeley.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of 13 meetings during
the year ended December 31, 1997. The Board of Directors has an Audit Committee,
a Scientific Advisory Committee, a Human Resources Committee and a Stock and
Option Committee. It does not have a nominating committee or a committee
performing the functions of a nominating committee. The Board of Directors
elects its committee members each year following the Annual Meeting of
Shareholders.
The Audit Committee currently consists of Richard L. Goode, Philip S.
Schlein and Robert C. Wilson. The Audit Committee held five meetings during
1997. The Audit Committee recommends engagement of the Company's independent
auditors and is primarily responsible for approving the services performed by
the Company's independent accountants and for reviewing and evaluating the
Company's accounting principles and its system of internal accounting controls.
The Scientific Advisory Committee currently consists of Richard L. Goode,
Rodney Perkins and Philip S. Schlein. The Scientific Advisory Committee held
three meetings during 1997. The Scientific Advisory Committee reviews and
evaluates the alternatives available to the Company with respect to its
technologies and makes recommendations in the same regard to the Company's Board
of Directors.
The Human Resources Committee currently consists of Donald M. Kendall,
Rodney Perkins and Philip S. Schlein. The Human Resources Committee held four
meetings during 1997. The Human Resources Committee recommends salaries and
other compensation for directors, officers and other employees of the Company,
administers (with the Stock and Option Committee and the Board of Directors) the
various incentive compensation and benefit plans of the Company and recommends
policies relating to such plans.
The Stock and Option Committee of the Board of Directors currently consists
of Donald M. Kendall and Philip S. Schlein. The Stock and Option Committee held
one meeting during 1997. The Stock and Option Committee administers (together
with the Human Resources Committee and the Board of Directors) the
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Company's 1988 Stock Option Plan and the Company's 1997 Stock Plan with respect
to the Company's directors and officers eligible to participate in such Plans.
Except for Donald M. Kendall, no incumbent director attended fewer than 75%
of the aggregate number of meetings of the Board of Directors and meetings of
the committees of the Board of Directors that he was eligible to attend.
COMPENSATION OF DIRECTORS
From January 1, 1997 through October 9, 1997, non-employee members of the
Board of Directors received a quarterly fee of $1,000, $750 for each meeting of
the Board of Directors attended and $250 for each committee meeting attended,
with committee chairpersons receiving $375 for each committee meeting attended.
Beginning October 10, 1997, non-employee members of the Board of Directors
receive a quarterly fee of $3,000 (with payment of such quarterly fee made
retroactive to the beginning of the fourth quarter of 1997), $1,000 for each
meeting of the Board of Directors attended and $500 for each committee meeting
attended, with committee chairpersons receiving $625 for each committee meeting
attended. In addition, non-employee members of the Board of Directors receive
options to purchase shares of the Company's Common Stock pursuant to its 1992
Directors' Stock Option Plan (the "Directors' Option Plan"). The Directors'
Option Plan provides for the grant of nonstatutory stock options to non-employee
directors of the Company at an exercise price not less than the fair market
value of the Company's Common Stock on the date of grant. Under the Directors'
Option Plan, persons who first become non-employee directors after March 31,
1992 are granted an option (the "First Option") to purchase 20,000 shares of the
Company's Common Stock on the date he or she first becomes a director.
Thereafter, on the last day of each fiscal year, each non-employee director
(including directors who were not eligible for a First Option) is granted an
option to purchase 5,000 shares of Common Stock (an "Annual Option") if, on such
date, he or she has served on the Company's Board of Directors for at least six
months. The Directors' Option Plan provides that the First Option becomes
exercisable in installments of twenty-five percent of the shares subject to the
First Option on each of the first, second, third and fourth anniversaries of the
date of grant of the First Option, and that each Annual Option becomes
exercisable in full on the fourth anniversary of its date of grant. In October
1997, the Board of Directors approved an amendment to the Directors' Option Plan
making the Annual Option exercisable at a rate of 25% per year over four years.
No shareholder approval is required for such amendment.
In 1997, the Company paid Dr. Perkins and Dr. Goode $48,000 and $12,000,
respectively, pursuant to consulting arrangements under which Dr. Perkins and
Dr. Goode provided marketing, product development and financial consulting
services to the Company. See "Human Resources Committee and Stock and Option
Committee Interlocks and Insider Participation" for additional information with
respect to Dr. Perkins and the California Ear Institute at Stanford and EarLink
Corporation.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR ALL OF THE NOMINEES LISTED
ABOVE.
PROPOSAL NO. 2
AMENDMENT OF THE 1992 EMPLOYEE STOCK PURCHASE PLAN
At the Annual Meeting, shareholders are being asked to approve an amendment
to the 1992 Employee Stock Purchase Plan, as amended (the "1992 Purchase Plan")
that would increase the number of shares of Common Stock reserved for issuance
thereunder by 200,000 shares to an aggregate of 600,000 shares.
GENERAL
The 1992 Purchase Plan was adopted by the Board of Directors in March 1992
and approved by the shareholders effective as of April 1992. As of April 1992,
200,000 shares of Common Stock had been reserved for issuance under the 1992
Purchase Plan. In June 1996, the shareholders approved an amendment to reserve
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<PAGE> 8
for issuance an additional 200,000 shares under the 1992 Purchase Plan. Subject
to shareholder approval, the number of shares reserved for issuance under the
1992 Purchase Plan would be increased to an aggregate of 600,000 shares. The
Board of Directors approved such increase on January 31, 1998.
The purpose of the 1992 Purchase Plan is to provide an opportunity for
eligible employees of the Company and its designated subsidiaries to acquire
Common Stock of the Company on a favorable basis through accumulated payroll
deductions. The 1992 Purchase Plan is implemented with consecutive six-month
offering periods beginning on January 1 and July 1 of each year. The Board of
Directors may change the duration of the offering periods by announcement at
least 15 days prior to the start of the first offering period to be affected.
The 1992 Purchase Plan is intended to qualify under Section 423 of the
Internal Revenue Code of 1986, as amended (the "Code"), but it is not a deferred
compensation plan under Section 401(a) of the Code, nor is it subject to the
provisions of the Employee Retirement Income Security Act of 1974, as amended.
As of December 31, 1997, 300,493 shares of Common Stock had been purchased
pursuant to the 1992 Purchase Plan and 99,507 shares remained available for
purchase (not including the additional 200,000 shares reserved by the Board of
Directors, for which shareholder approval is being requested). The increase in
shares reserved for issuance under the 1992 Purchase Plan has been necessitated
by the growth in the number of the Company's employees, including those of
companies acquired by the Company. The Board of Directors believes that in order
to attract and retain highly qualified employees and to provide such employees
with adequate incentive through their proprietary interest in the Company, it is
necessary to amend the 1992 Purchase Plan to reserve the additional 200,000
shares of Common Stock for issuance thereunder.
During the year ended December 31, 1997, (i) 6,511 shares of Common Stock
were purchased pursuant to the 1992 Purchase Plan by all persons who were
executive officers as of December 31, 1997 as a group (ten persons); (ii) no
shares of Common Stock were purchased pursuant to the 1992 Purchase Plan by any
person who as of December 31, 1997 was a director but not an executive officer,
as such directors are not eligible for participation in the 1992 Purchase Plan
(six persons), and (iii) 81,736 shares of Common Stock were purchased pursuant
to the 1992 Purchase Plan by all other employees, including officers who are not
executive officers, as a group (103 persons as of December 31, 1997). The
closing bid price of the Company's Common Stock as of December 31, 1997 as
reported on the Nasdaq Stock Market was $5.50 per share.
ADMINISTRATION
The 1992 Purchase Plan may be administered by the Board of Directors or a
committee appointed by the Board. At the present time, the 1992 Purchase Plan is
being administered by the Board of Directors and the Human Resources Committee
of the Board of Directors. All questions of interpretation or application of the
1992 Purchase Plan are determined by the Board of Directors or its appointed
committee, and its decisions are final, conclusive and binding upon all
participants.
ELIGIBILITY AND PARTICIPATION
Employees (including officers and employee directors) who are employed for
at least 20 hours per week and five months per calendar year with the Company
(including subsidiaries of the Company approved by the Board of Directors) are
eligible to participate in the 1992 Purchase Plan, subject to certain
limitations imposed by Section 423(b) of the Code and limitations on stock
ownership as set forth in the 1992 Purchase Plan. As of December 31, 1997, a
total of approximately 280 employees are eligible for participation in the 1992
Purchase Plan. Eligible employees become participants in the 1992 Purchase Plan
by filing with the Company's Human Resources Department a subscription agreement
authorizing payroll deductions prior to the applicable offering date, unless a
later time for filing the subscription agreement has been set by the Board of
Directors.
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GRANT AND EXERCISE OF OPTION
At the beginning of an offering period, each participant is granted an
option to purchase that number of shares equal to up to ten percent of the
participant's aggregate compensation which the participant receives on each pay
day during the offering period divided by the lower of 85% of the fair market
value of a share of the Company's Common Stock (i) at the beginning of the
offering period or (ii) at the end of the offering period, subject to the
limitations set forth below. In no event may an employee be granted an option
under the 1992 Purchase Plan (i) if, immediately after the grant, such employee
would own stock and/or hold outstanding options to purchase stock possessing
five percent or more of the total combined voting power or value of all classes
of stock of the Company or of any subsidiary of the Company, or (ii) which
permits his or her rights to purchase stock under all employee stock purchase
plans of the Company and its subsidiaries to accrue at a rate which exceeds
$25,000 worth of stock for each calendar year in which such option is
outstanding at any time. The Company may make a pro rata reduction in the number
of shares subject to options if the total number of shares that would otherwise
be subject to options granted at the beginning of an offering period exceeds the
number of remaining available shares in the 1992 Purchase Plan. Unless an
employee withdraws his or her participation in the 1992 Purchase Plan by giving
written notice to the Company of his or her election to withdraw all accumulated
payroll deductions prior to the end of an offering period, the employee's option
for the purchase of shares will be exercised automatically at the end of the
offering period, and the maximum number of full shares subject to the option
which are purchasable with the accumulated payroll deductions in his or her
account will be purchased at the applicable purchase price determined as
provided below.
PURCHASE PRICE
The purchase price per share at which shares are sold to participating
employees under the 1992 Purchase Plan is the lower of (i) 85% of the fair
market value per share of the Common Stock at the time the option is granted at
the commencement of the offering period, and (ii) 85% of the fair market value
per share of the Common Stock at the time the option is exercised on the last
day of the offering period. The fair market value of the Common Stock on a given
date shall be the closing price of the Common Stock for such date, as reported
on the Nasdaq Stock Market.
PAYROLL DEDUCTIONS
The purchase price of the shares to be acquired under the 1992 Purchase
Plan is accumulated by payroll deductions over the six-month offering period.
The deductions may not be more than ten percent of a participant's compensation
on each payday during the offering period. A participant may discontinue his or
her participation in the 1992 Purchase Plan during the offering period or may
increase or decrease his or her rate of payroll deductions on one occasion
during the offering period. The Board of Directors is authorized to decrease a
participant's payroll deduction to 0% at any time during any offering period
that is scheduled to end during a calendar year if the aggregate of all payroll
deductions that were previously used to purchase stock under the 1992 Purchase
Plan in a prior offering period which ended during that calendar year plus all
payroll deductions accumulated with respect to the current offering period equal
$21,250 (85% of $25,000, which is the maximum amount of stock that can be
purchased under the 1992 Purchase Plan in any calendar year). Payroll deductions
for a participant shall commence on the first payroll following the commencement
of the offering period and shall end on the last payroll date on or prior to the
end of the offering period to which the subscription agreement is applicable,
unless sooner terminated by the participant as provided in the 1992 Purchase
Plan. No interest accrues on the payroll deductions of a participant in the 1992
Purchase Plan.
TERMINATION OF EMPLOYMENT
In the event an employee fails to remain an employee of the Company for at
least 20 hours per week during the applicable offering period for any reason,
including retirement or death, the participant will be deemed to have withdrawn
from the 1992 Purchase Plan and the participant's option will be terminated. In
such event, the payroll deductions credited to the participant's account will be
returned, without interest, to him or her or, in the case of death, to the
person or persons entitled thereto, as provided in the 1992 Purchase Plan.
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ADJUSTMENT UPON CHANGES IN CAPITALIZATION
In the event any change is made in the Company's capitalization during an
offering period, such as a stock split or stock dividend, which results in an
increase or decrease in the number of shares of Common Stock outstanding without
receipt of consideration by the Company, appropriate adjustment shall be made in
the purchase price and in the number of shares subject to options under the 1992
Purchase Plan, as well as the number of shares of Common Stock reserved for
issuance under the 1992 Purchase Plan but not yet placed under option; provided,
however, that conversion of any convertible securities of the Company shall not
be deemed to have been effected "without receipt of consideration."
In the event of a proposed dissolution or liquidation of the Company, the
current offering period will terminate immediately prior to the consummation of
such proposed action, unless otherwise provided by the administrator. In the
event of a proposed sale of all or substantially all of the assets of the
Company, or the merger of the Company with or into another corporation, each
option under the 1992 Purchase Plan shall be assumed or an equivalent option
shall be substituted by such successor corporation or a parent or subsidiary of
such successor corporation, unless the administrator elects to shorten the
offering period then in progress and notifies the optionees of such change.
AMENDMENT AND TERMINATION OF THE PLAN
The Board of Directors may at any time amend or terminate the 1992 Purchase
Plan, but no amendment or termination shall be made that would impair the rights
of any participant under any grant theretofore made, without his or her consent.
In addition, the Company shall obtain shareholder approval of any amendment to
the 1992 Purchase Plan in such a manner and to the extent necessary to comply
with Section 423 of the Code (or any other applicable law or regulation). In any
event, the 1992 Purchase Plan will terminate in March 2002.
TAX INFORMATION
The following is a brief summary of the effect of federal income taxation
upon the participant and the Company with respect to the shares purchased under
the 1992 Purchase Plan based on federal income tax laws in effect as of this
date. Reference should be made to the applicable provisions of the Code. This
summary is not intended to be exhaustive and does not address all matters which
may be relevant to a particular participant based on his or her specific
circumstances. The summary addresses only current U.S. federal income tax law
and expressly does not discuss the tax consequences of a participant's death or
the income tax laws of any municipality, state or foreign country in which the
participant may reside. The Company advises all participants under the 1992
Purchase Plan to consult their own tax advisors concerning tax implications of
purchases and dispositions under the 1992 Purchase Plan.
The 1992 Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Sections 421 and 423
of the Code. Under these provisions, no income will be taxable to a participant
until the shares purchased under the Plan are sold or otherwise disposed of.
Upon sale or other disposition of the shares, the participant will generally be
subject to tax and the amount of the tax will depend upon how long the shares
have been held by the participant. If the shares are sold or otherwise disposed
of more than two years from the first day of the offering period or more than
one year after the date of purchase, the participant will recognize ordinary
income measured as the lesser of (a) the excess of the fair market value of the
shares at the time of such sale or disposition over the purchase price, or (b)
an amount equal to 15% of the fair market value of the shares as of the first
day of the offering period. Any additional gain will be treated as long-term
capital gain, taxed at a rate of 28% if the shares are held for more than one
year, but not more than 18 months, after the date of purchase, and at a rate of
20% if the shares are held for more than 18 months after the date of purchase.
If the shares are sold or otherwise disposed of before the expiration of these
holding periods, the participant will recognize ordinary income generally
measured as the excess of the fair market value of the shares on the date the
shares are purchased over the purchase price. Any additional gain or loss on
such sale or disposition will be long-term or short-term capital gain or loss,
depending on the holding period. The Company is not entitled to a deduction for
amounts taxed as ordinary
8
<PAGE> 11
income or capital gain to a participant except to the extent of ordinary income
recognized by participants upon a sale or disposition of shares prior to the
expiration of the holding period(s) described above.
REQUIRED VOTE
The affirmative vote of the holders of a majority of the Common Stock
represented and voting at the Annual Meeting with respect to the amendment to
the 1992 Purchase Plan is required for its approval.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR THE AMENDMENT TO THE 1992
PURCHASE PLAN.
PROPOSAL NO. 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP, independent
auditors, to audit the financial statements of the Company for the fiscal year
ending December 31, 1998 and recommends that the shareholders vote for
ratification of such appointment. In the event of a negative vote on such
ratification, the Board of Directors will reconsider its selection. Ernst &
Young LLP has audited the financial statements of the Company since inception.
Representatives of Ernst & Young LLP are expected to be present at the meeting
and will have the opportunity to make a statement if they desire to do so. They
are also expected to be available to respond to appropriate questions.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS VOTING IN FAVOR OF THE RATIFICATION OF
THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS FOR THE COMPANY.
9
<PAGE> 12
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
Common Stock as of December 31, 1997 as to (i) each person who is known by the
Company to beneficially own more than five percent of the Company's Common
Stock, (ii) each of the Company's directors, (iii) each of the executive
officers named in the Summary Compensation Table beginning on page 16, and (iv)
all directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)
5% SHAREHOLDERS, DIRECTORS, -----------------------
NAMED EXECUTIVE OFFICERS PERCENT OF
AND DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP NUMBER TOTAL
----------------------------------------------- --------- ----------
<S> <C> <C>
Rockefeller & Company, Inc............................. 1,332,610 6.7%
30 Rockefeller Plaza, 54th Floor
New York, NY 10112
T. Rowe Price Associates (2)........................... 1,145,116 5.7
100 E. Pratt Street
Baltimore, MD 21202
Stephan Becker-Vogt (3)................................ 53,342 *
Warren Brainard-Smith.................................. -- *
John H. Giroux (3)..................................... 55,444 *
Richard L. Goode, M.D. (3)(4).......................... 42,182 *
Russell D. Hays (5).................................... -- *
Andreas Joder (3)...................................... 5,208 *
Donald M. Kendall (3).................................. 5,000 *
Eugene Kleiner (3)(4)(6)............................... 466,313 2.3%
Rodney Perkins, M.D. (3)(4)(7)......................... 754,081 3.7%
Peter Riepenhausen (3)(4)(8)........................... 102,915 *
Philip S. Schlein (3).................................. 25,000 *
Robert C. Wilson (3)(4)................................ 127,772 *
All directors and executive officers as a group
(16 persons)(3)(6)(7)(8)(9).......................... 1,671,062 8.2%
</TABLE>
- ---------------
* Less than 1%.
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in this table have
sole voting and investment power with respect to all shares of Common Stock.
The percent of total is calculated based upon 20,147,720 shares of Common
Stock outstanding on December 31, 1997.
(2) These securities are owned by various individual and institutional investors
for which T. Rowe Price Associates, Inc. ("Price Associates") serves as
investment adviser with power to direct investments, power to vote the
shares or both. Price Associates is deemed to be a beneficial owner of such
shares; however, Price Associates expressly disclaims beneficial ownership
of such shares.
(3) Includes with respect to each named person the following number of shares
subject to stock options that are exercisable within 60 days of December 31,
1997: Mr. Becker-Vogt, 5,208; Mr. Giroux, 46,875; Dr. Goode, 12,813; Mr.
Joder, 5,208; Mr. Kendall, 5,000; Mr. Kleiner, 20,000; Dr. Perkins, 12,291;
Mr. Riepenhausen, 5,000; Mr. Schlein, 25,000; and Mr. Wilson, 41,563.
Options repriced on April 25, 1997 pursuant to the Company's 1997 option
repricing program are not exercisable within a one-year period from the date
of issuance and, therefore, the shares subject to such options are not
considered to be beneficially owned by their holders as of December 31,
1997. See "Ten-Year Option Repricing Table."
(4) Includes 17,582 shares subject to a warrant exercisable within 60 days of
December 31, 1997.
(5) Mr. Hays was not affiliated with the Company on December 31, 1997. See
"Report of the Human Resources Committee and Stock and Option
Committee -- Compensation of the Chief Executive Officer" for a description
of the securities Mr. Hays was granted in connection with the commencement
of his employment with the Company.
10
<PAGE> 13
(6) Includes 5,000 shares held by the Eugene and Rose Kleiner Trust.
(7) Includes 114,333 shares held by Dr. Perkins as trustee of the Wayne Calvin
Perkins Trust.
(8) Includes 42,625 shares held by Peter Riepenhausen and Waltraud Riepenhausen,
as trustees of the Riepenhausen Family Trust. Mr. Riepenhausen resigned from
the position of President and Chief Executive Officer effective February 2,
1998.
(9) Includes an aggregate of 87,910 shares subject to the warrants described in
footnote (4) held by Dr. Goode, Mr. Kleiner, Dr. Perkins, Mr. Riepenhausen
and Mr. Wilson.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings,
including this Proxy Statement, in whole or in part, the following report and
the Performance Graph on page 15 shall not be incorporated by reference into any
such filings.
REPORT OF THE HUMAN RESOURCES COMMITTEE AND STOCK AND OPTION COMMITTEE
GENERAL
Through its compensation programs, the Company seeks to provide incentives
and rewards for all employees, including its executive officers, to achieve
individual goals that collectively contribute to the achievement of broader
corporate goals and maximize the interests of the Company's shareholders.
As a key element in the Company's compensation programs, at the beginning
of each fiscal year, the Chief Executive Officer and the Company's other
executive officers establish a number of corporate goals addressing such
business objectives as financial performance, product performance improvements
and product and market development and expansion.
Because the Company's executive officers are responsible for the
achievement of the corporate-level goals, their compensation is determined by
reference both to individual performance and to corporate performance. Of these
two elements, corporate performance has the most significant impact on executive
officer compensation through cash bonuses and the value of stock options.
The Company's executive compensation programs have three specific
objectives:
1. Performance-based compensation -- The Company believes that it is
important to reward individual executives for their performance as well as
for the overall performance of the Company.
2. Competitive compensation levels -- To attract and retain talented
individuals, the Company believes it must maintain compensation levels and
programs that are competitive in the relevant employment market.
3. Maximization of shareholder interests -- Ultimately, management
seeks to generate a satisfactory return for the Company's shareholders.
Therefore, it is critical to align management's interests with the
interests of the Company's shareholders in establishing compensation
programs.
COMPENSATION OF EXECUTIVE OFFICERS
To achieve the compensation goals outlined above, the Company's executive
compensation is comprised of three key components: (i) salary, (ii) annual cash
bonuses and (iii) stock options.
Specific recommendations with respect to salary and annual cash bonuses for
the executive officers (except the Chief Executive Officer) are made by the
Chief Executive Officer, with the final decisions being made by the Board of
Directors in accordance with the recommendations of the Human Resources
Committee. In the case of the Chief Executive Officer, the Board of Directors
determines actions to be taken, consistent with the recommendations of the Human
Resources Committee. With respect to stock options, the final decisions are made
by the Stock and Option Committee and the Human Resources Committee.
11
<PAGE> 14
Salaries are generally reviewed in the early spring of each year and
appropriate adjustments are made after taking into account such factors as
individual performance and experience, market data, responsibility and salary
levels within the Company and the salary range established for the position.
Cash bonus arrangements are established at the commencement of each fiscal
year. Payment of cash bonuses depends upon corporate financial performance for
the year and achievement of individual goals by each executive. The Company's
cash bonus policy for fiscal year 1997 was to set aside ten percent of the
Company's net profits for potential bonuses to employees, including executive
officers, eligible to participate in the incentive compensation plan. The
maximum eligible bonus for each employee was from zero to 100% of the employee's
annual base salary, depending upon the employee's position. The portion of the
maximum eligible bonus actually payable was to be based upon an assessment of
the individual executive's performance. The executive must have remained
employed by the Company at the time of payment of bonuses to have been eligible
to receive a bonus.
Because stock options provide an incentive for executives to maximize
shareholder value over time, stock options are a key to aligning the interests
of management and shareholders. Value accrues to executives only as the value of
the Company's stock appreciates. Vesting schedules encourage a long-term
commitment to the Company by its executive officers. The number of stock options
held by each executive officer is periodically reviewed against ranges
established for each position, and additional awards are considered to optimize
the level of incentives and rewards.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Effective February 2, 1998, Russell D. Hays replaced Peter Riepenhausen as
President and Chief Executive Officer of the Company. Mr. Hays' annual salary is
$350,000, with a potential bonus of $262,500 (75% of base salary) contingent
upon Mr. Hays' achieving certain objectives. When setting his base salary, the
Company's Board of Directors considered compensation levels for Chief Executive
Officers of other companies of similar size to the Company in comparable
industries, the compensation level of the Company's prior Chief Executive
Officer and Mr. Hays' prior rate of compensation. Mr. Hays was granted options
to purchase 400,000 shares of the Company's Common Stock on January 28, 1998 at
an exercise price of $5.063 per share, which options vest at the rate of 1/8th
of the shares on the sixth-month anniversary of the date of grant and 1/48th of
the shares each month thereafter. In addition, Mr. Hays purchased 100,000 shares
of the Company's Common Stock at a purchase price of $0.01 per share. Such
shares are subject to a repurchase option in favor of the Company in the event
Mr. Hays ceases to be an employee of the Company. Such repurchase option will
lapse in full in a single installment on January 19, 2001 provided that Mr. Hays
is employed by the Company on such date.
As of January 1, 1997, Peter Riepenhausen, former President and Chief
Executive Officer of the Company, was receiving an annual base salary of
$330,000. Effective April 1, 1997, Mr. Riepenhausen's annual base salary was
increased to $355,000. When setting this base salary, the Company's Board of
Directors considered such factors as Mr. Riepenhausen's management in a
difficult corporate environment, the corporate acquisitions made by the Company
and the Company's settlement of major litigation. Because the Company did not
achieve a net profit in 1997, Mr. Riepenhausen was not paid a bonus with respect
to fiscal 1997. In January 1998, the Company and Mr. Riepenhausen entered into
an Agreement in Contemplation of Separation (the "Separation Agreement") under
which Mr. Riepenhausen was hired as a consultant for an initial term of three
months after the date of his termination, plus an additional term of 12 months
or until Mr. Riepenhausen commences full-time employment with another employer,
whichever occurs earlier (the "Additional Term"). Mr. Riepenhausen's
compensation for the initial three-month period was set equal to his salary in
effect on the date of the Separation Agreement, and his compensation for the
Additional Term was set equal to such salary plus an additional hourly amount
for consulting services provided in excess of 20 hours per month. All options
granted to Mr. Riepenhausen will continue to vest according to their respective
terms until the end of the Additional Term. The Board of Directors may elect to
accelerate the vesting of any or all of the unvested options at the end of the
Additional Term. Vested options will remain exercisable for a period of 60 days
following the end of the Additional Term. See "Transactions With Management and
Others."
12
<PAGE> 15
Mr. Riepenhausen was granted stock options to purchase 550,000 shares of
Common Stock on April 25, 1997 at an exercise price of $4.4375 per share. Such
options were reissuances of options which were previously issued and canceled
pursuant to the 1997 option repricing program. These options will become vested
on April 25, 1998 as to the number of shares subject to the canceled options
that were vested as of April 25, 1997; thereafter, the vesting schedules under
the original option agreements continue as to the unvested shares. See "Stock
Option Grants in 1997" and "Ten-Year Option Repricing Table." In addition, Mr.
Riepenhausen holds a fully-vested option to purchase 5,000 shares of Common
Stock at an exercise price of $19.88 per share. Mr. Riepenhausen did not
participate in the Human Resources Committee's determination of his salary or
the determination of options granted to him by the appropriate committee of the
Board of Directors.
CHANGE OF CONTROL AGREEMENTS
In 1997, the Company entered into Change of Control Agreements with each of
its then-current executive officers (the "Change of Control Agreements"). The
Change of Control Agreements provide (i) for salary and benefits continuation if
the executive is involuntarily terminated for any reason other than for cause
within 24 months (the "Severance Period") following any Hostile Takeover of the
Company (as defined below), with such benefits continuing for 24 months
following termination if the terminated officer is the Chief Executive Officer
and 12 months if the terminated officer is a Vice President or other executive
officer specially designated by the Board of Directors, (ii) that such
terminated executives shall receive up to $10,000 in outplacement services, and
(iii) that in the event of a Hostile Takeover, all unvested stock owned by the
executive officer will immediately vest and become exerciseable on the effective
date of the Hostile Takeover transaction, even if such acceleration would
constitute an "excess parachute payment" under Internal Revenue Code Section
280G. Further, the Change of Control Agreements provide that if an executive
officer is involuntarily terminated for any reason other than for cause outside
the Severance Period, severance benefits will be determined by the Board of
Directors or under Company policies then in effect. For purposes of the Change
of Control Agreements, a Hostile Takeover of the Company means a transaction or
series of transactions that results in any person acquiring more that 50% of the
Company's voting stock without the approval of the Board of Directors.
HUMAN RESOURCES COMMITTEE
Philip S. Schlein (Chairman)
Donald M. Kendall
Rodney Perkins, M.D.
STOCK AND OPTION COMMITTEE
Donald M. Kendall (Chairman)
Philip S. Schlein
HUMAN RESOURCES COMMITTEE AND STOCK AND OPTION COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION
There are currently no employee directors serving on the Human Resources
Committee or on the Stock and Option Committee. The following non-employee
directors currently serve on the Human Resources Committee: Donald M. Kendall,
Rodney Perkins, M.D. and Philip S. Schlein; and the following non-employee
directors currently serve on the Stock and Option Committee: Donald M. Kendall
and Philip S. Schlein.
Dr. Rodney Perkins is currently the Chairman of the Board of Directors of
the Company and also served as the Company's President and Chief Executive
Officer from 1984 to July 1988. In 1997, the Company paid Dr. Perkins $48,000
related to consulting services beyond his current responsibilities as Chairman
of the Board of Directors. See "Proposal No. 1 Election of Directors --
Compensation of Directors." Dr. Perkins is also President of the California Ear
Institute at Stanford ("CEI"), a medical clinic specializing in the diagnosis
and treatment of hearing disorders that served as a site for clinical trials of
the Company's products. In 1997,
13
<PAGE> 16
the Company had net sales of approximately $119,000 to CEI, representing an
immaterial percentage of the Company's total net sales in 1997. At December 31,
1997, accounts receivable from CEI were approximately $30,000, representing an
immaterial percentage of the Company's accounts receivable balance at December
31, 1997. In addition, Dr. Perkins is President and Chief Executive Officer of
EarLink Corporation ("EarLink"), a company specializing in the development and
sale of implantable hearing enhancement devices ("IHEDs"). Pursuant to a License
Agreement entered into as of February 21, 1997, the Company granted to EarLink
exclusive, royalty-free, worldwide licenses to use certain Company technology
for the development and sale of IHEDs. These licenses will automatically
terminate unless certain conditions are met before May 21, 1998. In
consideration of these licenses, EarLink has issued to the Company 975,000
shares of Series A Preferred Stock and a warrant which permits the Company to
maintain its equity interest in EarLink at certain specified levels. See
"Transactions with Management and Others." Dr. Perkins is a member of the Human
Resources Committee of the Board of Directors of Laserscope, a surgical systems
company. The Company and Laserscope have not conducted any business with each
other in the past, and the Company does not presently anticipate doing so in the
future.
See "Proposal No. 1 Election of Directors -- Compensation of Directors" for
a discussion of certain information with respect to directors serving on the
Human Resources Committee and the Stock and Option Committee.
14
<PAGE> 17
PERFORMANCE GRAPH
The following graph summarizes cumulative total shareholder return data
(assuming reinvestment of dividends) for the period since the Company's stock
was first registered under Section 12 of the Securities Exchange Act of 1934, as
amended (March 4, 1993). The graph assumes that $100 was invested on March 4,
1993: (i) in the Common Stock of ReSound, (ii) in the Nasdaq Market Index and
(iii) in the MG Medical Instruments and Supplies Index (all such information
provided by Media General Financial Services, Inc.). The stock price performance
on the following graph is not necessarily indicative of future stock price
performance.
LOGO
15
<PAGE> 18
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows the compensation received by the Company's Chief
Executive Officer and the four other most highly compensated executive officers
of the Company whose total annual salary and bonus exceeded $100,000 for 1997,
and the compensation received by each such individual for the Company's two
prior years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------------
ANNUAL COMPENSATION SECURITIES
NAME AND PRINCIPAL ----------------------------------------- OTHER UNDERLYING
POSITION YEAR SALARY($)(1) BONUS($)(2)(3) COMPENSATION OPTIONS (SHARES)(4)
------------------ -------- ------------ -------------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
Peter
Riepenhausen(5)...... 1997 341,919 0 2,112 550,000
President and Chief 1996 322,893 0 -- 50,000
Executive Officer 1995 293,269 100,000 87,000(6) 100,000
John H. Giroux......... 1997 185,011 0 7,200 106,771
President of USA 1996 169,483 25,000 -- 25,000
Profit Center 1995 152,308 0 -- --
Warren
Brainard-Smith....... 1997 146,890 0 9,000 50,000
Senior Vice President 1996(7) 20,417 0 15,000(8)
Asia Pacific - Latin
America
Andreas Joder.......... 1997(9) 196,784 0 6,268 100,000
Senior Vice President 1996(10) 133,980 0 0
Operations
Stephan
Becker - Vogt........ 1997(11) 205,376 0 13,526 156,250
Senior Vice President
and 1996(12) 219,371 0 -- 25,000
Executive Vice
President of 1995(13) 214,788 0 -- 65,000
ReSound Europe
</TABLE>
- ---------------
(1) Includes amounts deferred under the Company's 401(k) plan.
(2) Includes bonuses earned in the indicated year and paid in the subsequent
year. Excludes bonuses paid in the indicated year but earned in the
preceding year.
(3) Executive officers are entitled to discretionary bonuses based on
individual and corporate performance. These bonuses are determined based
upon the recommendation of the Human Resources Committee of the Board of
Directors. See "Report of the Human Resources Committee."
(4) Options granted under the 1988 Stock Option Plan. Includes options reissued
pursuant to a repricing of certain of the Company's outstanding options.
See "Ten-Year Option Repricing Table."
(5) Mr. Riepenhausen resigned as President and Chief Executive Officer of the
Company effective as of February 2, 1998.
(6) Mr. Riepenhausen received a housing adjustment of $87,000 in 1995.
(7) Mr. Brainard-Smith commenced employment with the Company in November 1996.
(8) Mr. Brainard-Smith was paid a $15,000 signing bonus relating to the
commencement of his employment with the Company in 1996.
(9) Mr. Joder was paid 285,337 Swiss Francs in salary plus an additional 9,089
Swiss Francs for an automobile allowance in 1997. The compensation reported
above assumes an average exchange rate of $1 U.S. per each 1.45 Swiss
Franc.
(10) Mr. Joder commenced employment with the Company in April 1996. Mr. Joder
was paid 164,795 Swiss Francs in 1996. The compensation reported above
assumes an average exchange rate of $1 U.S. per each 1.23 Swiss Franc from
the commencement of Mr. Joder's employment through December 31, 1996.
16
<PAGE> 19
(11) Mr. Becker-Vogt was paid 355,300 DM in salary plus an additional 23,400 DM
for an automobile allowance in 1997. The compensation reported above
assumes an average exchange rate of $1 U.S. per each 1.73 DM.
(12) Mr. Becker-Vogt was paid 331,250 DM in 1996. The compensation reported
above assumes an average exchange rate of $1 U.S. per each 1.51 DM.
(13) Mr. Becker-Vogt was paid 305,000 DM in 1995. The compensation reported
above assumes an average exchange rate of $1 U.S. per each 1.42 DM.
STOCK OPTION GRANTS IN 1997
The following table sets forth information for the executive officers named
in the Summary Compensation Table with respect to grants of options to purchase
Common Stock of the Company made in 1997 and the value of all options held by
such executive officers on December 31, 1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF
SECURITIES PERCENT OF STOCK PRICE
UNDERLYING TOTAL OPTIONS APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OPTION TERM(2)
GRANTED EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME (SHARES) FISCAL YEAR(1) (PER SHARE) DATE 5%($) 10%($)
---- ---------- -------------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Peter Riepenhausen....... 400,000(3) 11.8% $4.4375 5/1/00 $281,708 $591,847
100,000(3) 3.0% $4.4375 6/15/01 $ 99,393 $214,826
50,000(3) 1.5% $4.4375 4/18/02 $ 61,073 $134,897
Stephan Becker-Vogt...... 25,000 0.7% $4.4375 4/25/02 $ 30,669 $ 67,775
26,250(3) 0.8% $4.4375 3/31/00 $ 17,929 $ 37,588
15,000(3) 0.4% $4.4375 5/12/00 $ 10,678 $ 22,450
65,000(3) 1.9% $4.4375 2/23/01 $ 59,359 $127,299
25,000(3) 0.7% $4.4375 4/18/02 $ 30,536 $ 67,449
John H. Giroux........... 30,000 0.9% $4.4375 4/25/02 $ 36,803 $ 81,330
10,000(3) 0.3% $4.4375 4/15/99 $ 4,483 $ 9,179
41,771(3) 1.2% $4.4375 3/31/00 $ 28,530 $ 59,812
25,000(3) 0.7% $4.4375 4/18/02 $ 30,536 $ 67,449
Warren Brainard-Smith.... 50,000(3) 1.5% $4.4375 11/1/02 $ 68,623 $153,731
Andreas Joder............ 25,000 0.7% $4.4375 4/25/02 $ 30,669 $ 67,775
75,000(3) 2.2% $4.4375 12/13/01 $ 84,521 $185,025
</TABLE>
- ---------------
(1) The Company granted options to employees to purchase an aggregate of
3,378,452 shares of Common Stock during 1997, 2,626,877 of which were
reissuances of previously granted options pursuant to a repricing of certain
of the Company's outstanding options. See "Ten-Year Option Repricing Table."
(2) Potential realizable values are reported net of the option exercise price
but before taxes associated with exercise. These amounts represent certain
assumed rates of appreciation only. Actual realized gains, if any, on stock
option exercises are dependent on future performance of the Company's Common
Stock, as well as the optionee's continued employment through the vesting
period.
(3) Option was issued on April 25, 1997 pursuant to the 1997 option repricing
program. See "Ten-Year Option Repricing Table."
17
<PAGE> 20
AGGREGATED OPTION EXERCISES IN 1997
AND YEAR-END OPTION VALUES
The following table sets forth information for the executive officers named
in the Summary Compensation Table with respect to exercises in 1997 of options
to purchase Common Stock of the Company.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR END AT FISCAL YEAR END($)
ACQUIRED ON VALUE (EXERCISABLE/ (EXERCISABLE/
NAME EXERCISE REALIZED($)(1) UNEXERCISABLE) UNEXERCISABLE)(2)
---- ----------- -------------- ----------------------- ---------------------
<S> <C> <C> <C> <C>
Peter Riepenhausen....... 5,000 $ 7,500 5,000/550,000 $0/$584,375
Stephan Becker-Vogt...... -- -- 4,166/152,084 $4,426/$161,589
John H. Giroux........... 10,000 $35,000 45,625/101,771 $208,438/$108,132
Warren Brainard-Smith.... -- -- 0/50,000 $0/$53,125
Andreas Joder............ -- -- 4,166/95,834 $4,426/$101,824
</TABLE>
- ---------------
(1) Value realized is calculated based on the closing price of the Company's
Common Stock as reported on the Nasdaq Stock Market on the date of exercise
minus the exercise price of the option, and does not necessarily indicate
that the optionee sold such stock.
(2) Based on the closing price of the Company's Common Stock as reported on the
Nasdaq Stock Market on December 31, 1997 of $5.50 per share.
TEN-YEAR OPTION REPRICING TABLE
On April 25, 1997, the Company permitted employees, including executive
officers named in the Summary Compensation Table, to cancel outstanding options
that had been granted under the Company's 1988 Stock Option Plan but that had
not yet been exercised and that had an exercise price in excess of the
then-current fair market value of the Company's Common Stock and replace them
with new options for an equal number of shares with an exercise price equal to
such fair market value on April 25, 1997. Such new options were granted at a
price of $4.4375 per share, the fair market value of the Company's Common Stock
on the date on which the repriced options were granted. Each repriced option
granted is not exercisable until and will become vested and exercisable on April
25, 1998 as to the number of shares subject to the canceled options that were
vested as of April 25, 1997; thereafter, the vesting schedules under the
original option agreements continue as to the unvested shares. In accordance
with regulations promulgated by the Securities and Exchange Commission, such
repricing requires the Company to disclose all repricings of the Company's
options held by its executive officers that have occurred during the last ten
completed fiscal years (exclusive of years prior to the year in which the
Company became a reporting company under the Exchange Act), in the format set
forth below:
<TABLE>
<CAPTION>
LENGTH OF ORIGINAL
NUMBER OF SHARES MARKET PRICE EXERCISE OPTION TERM
OF COMMON STOCK OF STOCK AT PRICE AT NEW REMAINING AT DATE
DATE OF UNDERLYING TIME OF TIME OF EXERCISE OF REPRICING
NAME REPRICING OPTIONS REPRICED REPRICING REPRICING PRICE (IN MONTHS)
---- --------- ---------------- ------------ --------- -------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Peter Riepenhausen..... 4/25/97 38,000 $4.4375 $10.50 $4.4375 24.2
Former President and 4/25/97 362,000 4.4375 10.50 4.4375 24.2
Chief Executive 4/25/97 100,000 4.4375 7.812 4.4375 37.6
Officer(1) 4/25/97 50,000 4.4375 12.50 4.4375 47.8
Stephan Becker-Vogt.... 4/25/97 21,595 4.4375 11.75 4.4375 23.1
Senior Vice President 4/25/97 25,000 4.4375 12.50 4.4375 47.8
and Executive 4/25/97 4,655 4.4375 11.75 4.4375 23.1
Vice President of 4/25/97 7,600 4.4375 10.00 4.4375 24.5
ReSound Europe 4/25/97 7,400 4.4375 10.00 4.4375 24.5
4/25/97 65,000 4.4375 8.00 4.4375 34.0
5/12/94 7,400 10.00 18.00 10.00 51.0
5/12/94 7,600 10.00 18.00 10.00 51.0
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
LENGTH OF ORIGINAL
NUMBER OF SHARES MARKET PRICE EXERCISE OPTION TERM
OF COMMON STOCK OF STOCK AT PRICE AT NEW REMAINING AT DATE
DATE OF UNDERLYING TIME OF TIME OF EXERCISE OF REPRICING
NAME REPRICING OPTIONS REPRICED REPRICING REPRICING PRICE (IN MONTHS)
---- --------- ---------------- ------------ --------- -------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Joseph Black........... 4/25/97 60,000 $4.4375 $8.734 $4.4375 39.3
Vice President 4/25/97 17,500 4.4375 7.875 4.4375 55.6
Human Resources
Warren
Brainard-Smith....... 4/25/97 50,000 4.4375 7.625 4.4375 54.2
Senior Vice President
Asia Pacific-Latin
America
John H. Giroux......... 4/25/97 17,435 4.4375 11.75 4.4375 23.1
President of USA 4/25/97 10,000 4.4375 9.50 4.4375 11.6
Profit Center 4/25/97 24,336 4.4375 11.75 4.4375 23.1
4/25/97 25,000 4.4375 12.50 4.4375 47.8
Andreas Joder.......... 4/25/97 75,000 4.4375 7.75 4.4375 43.6
Senior Vice President
Operations
David Muhlitner........ N/A
Vice President,
General Counsel and
Secretary
Chaslav Pavlovic....... 4/25/97 19,047 4.4375 10.00 4.4375 24.5
Vice President 4/25/97 24,000 4.4375 8.125 4.4375 35.3
Research and 4/25/97 17,750 4.4375 7.875 4.4375 55.6
Development 4/25/97 15,953 4.4375 10.00 4.4375 24.5
5/12/94 19,047 10.00 21.00 10.00 57.3
5/12/94 15,953 10.00 21.00 10.00 57.3
Rodney Perkins, M.D.... 4/25/97 23,000 4.4375 19.50 4.4375 19.5
Chairman of the Board 4/25/97 25,000 4.4375 11.75 4.4375 29.6
4/25/97 6,250 4.4375 6.875 4.4375 41.8
4/25/97 25,000 4.4375 7.75 4.4375 54.2
Steven Puthuff......... 4/25/97 30,000 4.4375 8.00 4.4375 34.0
Vice President and 4/25/97 10,000 4.4375 7.875 4.4375 55.6
General Manager of
ReSound
Communications
Arthur Taylor.......... N/A
Vice President and
Chief Financial
Officer
</TABLE>
- ---------------
(1) Mr. Riepenhausen resigned as President and Chief Executive Officer effective
as of February 2, 1998.
HUMAN RESOURCES COMMITTEE AND STOCK AND
OPTION COMMITTEE REPORT ON REPRICING
The Company grants stock options to officers, employees, consultants and
directors in order to incentivize such persons in their provision of services to
the Company. The Human Resources and the Stock and Option Committees of the
Company's Board of Directors believe that such equity incentives are a
significant factor in the Company's ability to attract, retain and motivate
employees who are critical to the Company's business plan and long-term success.
As a result of the decline in the fair market value of the Company's Common
Stock in the approximately nine months prior to April 25, 1997, many of the
participants in the Company's 1988 Stock Option Plan held stock options with
exercise prices substantially in excess of the fair market value of the
Company's Common Stock in the early months of 1997. It was the view of the Human
Resources Committee that stock options with exercise prices substantially above
the fair market value of the Company's Common Stock were viewed negatively by,
and provided little incentive to, optionees of the Company.
19
<PAGE> 22
After meeting with an outside compensation consultant and considering
various alternatives to address employee retention, compensation incentives and
long-term compensation issues, the Human Resources Committee approved on April
24, 1997 an option exchange program (the "Exchange Program") whereby persons
other than executive officers or directors holding options under the 1988 Stock
Option Plan were given the opportunity to surrender their outstanding options
with exercise prices in excess of the then-current fair market value of the
Company's Common Stock in exchange for new options with an exercise price equal
to the then-current fair market value. On April 25, 1997, the Stock and Option
Committee of the Board of Directors, which administers the Company's stock plans
with respect to executive officers and directors, approved the participation of
executive officers and directors in the Exchange Program. In approving the
Exchange Program, the Human Resources and the Stock and Option Committees were
of the opinion that the disparity between the original exercise prices of the
Company's outstanding stock options and the fair market value of the Company's
Common Stock did not provide a meaningful incentive or retention device to the
employees holding such stock options. The Human Resources and the Stock and
Option Committees therefore decided that offering the Exchange Program was in
the best interests of the Company and its shareholders.
Under the Exchange Program, new stock options were granted on a one-for-one
basis with stock options surrendered for cancellation effective April 25, 1997
at an exercise price of $4.4375 per share, the fair market value of the
Company's Common Stock on such date. All new stock options granted under the
Exchange Program are not exercisable until and will become vested and
exercisable on April 25, 1998 as to the number of shares subject to the canceled
options that were vested as of April 25, 1997; thereafter, the vesting schedules
under the original option agreements continue as to the unvested shares. Stock
options to purchase a total of 2,626,877 shares of the Company's Common Stock
were issued in the Exchange Program. Included in such option grants under the
Exchange Program were new grants to nine executive officers and one non-employee
director.
MEMBERS OF THE HUMAN RESOURCES COMMITTEE
Philip S. Schlein (Chairman)
Donald M. Kendall
Rodney Perkins, M.D.
MEMBERS OF THE STOCK AND OPTION COMMITTEE
Donald M. Kendall (Chairman)
Philip S. Schlein
TRANSACTIONS WITH MANAGEMENT AND OTHERS
See "Proposal No. 1 Election of Directors -- Compensation of Directors" and
"Human Resources Committee and Stock and Option Committee Interlocks and Insider
Participation" for a description of certain transactions between Dr. Rodney
Perkins and the Company.
Commencing in April 1997, the Company entered into Change of Control
Agreements with each of its then-current executive officers (the "Change of
Control Agreements") which provide for the continuation of salary to the
Company's executive officers in case of a Hostile Takeover as well as certain
other benefits. See "Report of the Human Resources Committee and Stock and
Option Committee -- Change of Control Agreements."
See "Report of the Human Resources Committee and Stock and Option
Committee -- Compensation of Chief Executive Officer" for a description of the
Agreement in Contemplation of Separation entered into between the Company and
Peter Riepenhausen.
In October 1995, the Company borrowed $1.7 million under a guaranteed loan
from Silicon Valley Bank. This loan was repaid in full in October 1996. Such
loan was guaranteed by six of the Company's directors at the time it was entered
into: Drs. Goode and Perkins, James J. Gallogly and Messrs. Kleiner,
Riepenhausen
20
<PAGE> 23
and Wilson. In connection with their agreement to execute and deliver personal
guarantees to Silicon Valley Bank with respect to this loan, the Company issued
warrants to purchase an aggregate of 105,492 shares of Common Stock to the six
directors who executed such guarantees at an initial exercise price of $8.13 per
share, exercisable immediately, expiring December 1, 2000.
The Company has entered into indemnification agreements with each of its
directors and executive officers which may require the Company, among other
things, to indemnify them against certain liabilities that may arise by reason
of their status or service as directors or officers, to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified, and to obtain directors' and officers' liability insurance if
available on reasonable terms.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Company's directors,
its executive officers and any persons holding more than ten percent of the
Company's Common Stock are required to report their initial ownership of the
Company's Common Stock and any subsequent changes in that ownership to the
Securities and Exchange Commission ("SEC"). Specific filing deadlines for these
reports have been established, and the Company is required to disclose in this
Proxy Statement any failure to file by these dates during 1997.
To the best of the Company's knowledge, all of these filing requirements
have been satisfied, except for the following: (i) Richard L. Goode, M.D. bought
100 shares of the Company's Common Stock and failed to file the SEC Form 4
related to this transaction on a timely basis, and (ii) Christopher H. Pascoe,
who temporarily served as Principal Financial Officer during 1997, failed to
file on a timely basis the SEC Form 3 related to his beneficial ownership of the
Company's Common Stock as an interim executive officer. In making this
statement, the Company has relied solely on written representations of its
directors and executive officers and any ten percent holders and copies of the
reports that they filed with the SEC.
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Proposals of shareholders of the Company intended to be presented by such
shareholders at the Company's 1999 Annual Meeting must be received by the
Company by December 16, 1998 to be included in the proxy statement and form of
proxy relating to that meeting.
OTHER MATTERS
The Board of Directors knows of no other matters to be submitted to the
meeting. If any other matters properly come before the meeting, it is the
intention of the persons named in the enclosed form of proxy to vote the shares
they represent as the Board of Directors may recommend.
BY ORDER OF THE BOARD OF DIRECTORS
LOGO
DAVID R. MUHLITNER
Secretary
Dated: April 20, 1998
21
<PAGE> 24
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
RESOUND CORPORATION
1998 ANNUAL MEETING OF SHAREHOLDERS
The undersigned shareholder of ReSound Corporation, a California corporation,
hereby acknowledges receipt of the Notice of Annual Meeting of Shareholders and
Proxy Statement, each dated April 20, 1998, and hereby appoints Rodney Perkins,
M.D. and Arthur T. Taylor, or either of them, proxies and attorneys-in-fact,
with full power to each of substitution, on behalf and in the name of the
undersigned, to represent the undersigned at the 1998 Annual Meeting of
Shareholders of ReSound Corporation to be held on May 21, 1998 at 9:00 a.m.,
local time, at the Hotel Sofitel, 223 Twin Dolphin Drive, Redwood City,
California 94065 and at any adjournment or postponement thereof, and to vote
all shares of Common Stock which the undersigned would be entitled to vote if
then and there personally present, on the matters set forth on the reverse side
and, in their discretion, upon such other matter or matters that may properly
come before the meeting and any adjournment(s) thereof.
(TO BE SIGNED ON REVERSE SIDE.)
SEE REVERSE
SIDE
<PAGE> 25
PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED
Please mark your
A [X] votes as in this
example.
<TABLE>
<S> <C> <C> <C>
FOR all nominees WITHHOLD authority to
listed to the right vote for all nominees Nominees: Richard L. Goode, M.D.
(except as indicated) listed to the right Russell D. Hays
1. Election of [ ] [ ] Eugene Kleiner
Directors Rodney Perkins, M.D.
Philip S. Schlein
Robert C. Wilson
</TABLE>
If you wish to withhold authority to vote for any
individual nominee, strike a line through that nominee's
name in the list to the right.
FOR AGAINST ABSTAIN
2. Proposal to authorize an amendment to the [ ] [ ] [ ]
Company's 1992 Employee Stock Purchase
Plan to increase the number of shares of
Common Stock reserved for issuance
thereunder by 200,000 shares to an
aggregate of 600,000 shares.
3. Proposal to ratify the appointment of FOR AGAINST ABSTAIN
Ernst & Young LLP as the independent [ ] [ ] [ ]
auditors of the Company for the year
ending December 31, 1998.
THIS PROXY WILL BE VOTED AS SOLICITED OR, IF NO CONTRARY
DIRECTION IS INDICATED, WILL BE VOTED AS FOLLOWS:
(1) FOR THE ELECTION OF DIRECTORS, (2) FOR APPROVAL OF
THE AMENDMENT TO THE COMPANY'S 1992 EMPLOYEE STOCK
PURCHASE PLAN; (3) FOR RATIFICATION OF THE APPOINTMENT
OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS, AND AS SAID
PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY COME
BEFORE THE MEETING.
SIGNATURE(S)__________________________________ DATE ___________________
Note: This Proxy should read, dated, signed by the shareholder(s) exactly
as his or her name appears hereon, and returned in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are
held by joint tenants or as community property, both should sign.
