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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 1943
Filed by Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
APACHE MEDICAL SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(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 number:
- --------------------------------------------------------------------------------
(3) Filing party:
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(4) Date filed:
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<PAGE> 2
Apache Medical Systems (LOGO)
APACHE MEDICAL SYSTEMS, INC.
1650 TYSONS BOULEVARD, SUITE 300
MCLEAN, VIRGINIA 22102
March 26, 1997
Dear Stockholder:
You are cordially invited to attend the APACHE Medical Systems, Inc. Annual
Meeting of Stockholders to be held at 10:00 A.M. Eastern Daylight Time, Tuesday,
May 6, 1997 at the Company's principal executive offices, 1650 Tysons Boulevard,
Suite 300, McLean, Virginia.
The matters proposed for consideration at the meeting are the election of
six directors, the approval of an amendment to the Company's Amended and
Restated Certificate of Incorporation to authorize shares of Preferred Stock,
the approval of an amendment to the Company's Employee Stock Option Plan, the
approval of an amendment to the Company's Non-Employee Director Stock Option
Plan, the ratification of the appointment of Arthur Andersen LLP as the
Company's auditors, and to transact other business as may come before the
meeting or any adjournment thereof. The accompanying Notice of Annual Meeting of
Stockholders and proxy statement discuss these matters in further detail. We
urge you to review this information carefully.
You will have an opportunity to discuss each item of business described in
the Notice of Annual Meeting of Stockholders and proxy statement and to ask
questions about the Company and its operations.
It is important that your shares be represented and voted at the Annual
Meeting. Whether or not you plan to attend, please sign and promptly return the
enclosed proxy card, using the envelope provided. If you do attend the Annual
Meeting, you may withdraw your proxy and vote your shares in person.
Sincerely,
Gerald E. Bisbee, Jr.
Chairman of the Board &
Chief Executive Officer
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APACHE MEDICAL SYSTEMS, INC.
1650 TYSONS BOULEVARD, SUITE 300
MCLEAN, VIRGINIA 22102
------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
------------------------------------
The Annual Meeting of Stockholders of APACHE Medical Systems, Inc. will be
held on Tuesday, May 6, 1997 at 10:00 A.M. Eastern Daylight Time, at the
Company's principal executive offices, 1650 Tysons Boulevard, Suite 300, McLean,
Virginia 22102, for the following purposes:
1. To elect six Directors for the ensuing year;
2. To consider and act upon a proposal to further amend and restate
the Company's Amended and Restated Certificate of Incorporation to
authorize 10,000,000 shares of Preferred Stock of the Company, $.01
par value per share, and to eliminate certain inapplicable
provisions;
3. To consider and act upon a proposal to amend and restate the
Company's Employee Stock Option Plan;
4. To consider and act upon a proposal to amend and restate the
Company's Non-Employee Director Stock Option Plan;
5. To ratify the appointment of Arthur Andersen LLP as auditors; and
6. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on Monday, March 10,
1997 as the record date for the determination of stockholders entitled to notice
of and to vote at the Annual Meeting of Stockholders.
The Company requests that all stockholders, whether or not you expect to
attend the meeting, sign the enclosed proxy and return it as promptly as
possible in the accompanying stamped envelope. You may revoke your proxy at any
time before it is voted. If you are present at the meeting, you may vote your
shares in person and the proxy will not be used.
You are respectfully urged to read the proxy statement contained in this
booklet for further information concerning individuals nominated as directors,
the Company's Amended and Restated Certificate of Incorporation, the Company's
Employee Stock Option Plan, the Company's Non-Employee Director Stock Option
Plan, the appointment of Arthur Andersen LLP as auditors and the use of the
proxy.
A copy of the Company's Annual Report to Stockholders for the fiscal year
ended December 31, 1996 accompanies this proxy statement.
By Order of the Board of Directors
Elizabeth A. Draper
Secretary
March 26, 1997
IMPORTANT -- PLEASE MAIL YOUR SIGNED PROXY
PROMPTLY IN THE ENCLOSED ENVELOPE
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APACHE MEDICAL SYSTEMS, INC.
1650 TYSONS BOULEVARD, SUITE 300
MCLEAN, VIRGINIA 22102
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 6, 1997
This proxy statement is furnished in connection with the solicitation of
proxies to be voted at the Annual Meeting of Stockholders of APACHE Medical
Systems, Inc. (the "Company" or "APACHE"), to be held on Tuesday, May 6, 1997.
This proxy statement and the proxy are being mailed to stockholders on or about
March 26, 1997.
The enclosed proxy is solicited by the Board of Directors of the Company
and will be voted at the Annual Meeting and any adjournments thereof. Shares
represented by a properly executed proxy in the accompanying form will be voted
at the Annual Meeting in accordance with any instructions specified by the
stockholder. If no instructions are given, the stockholder's shares will be
voted in accordance with the recommendations of the Board of Directors FOR each
of the proposals presented in this proxy statement. Those recommendations are
described later in this proxy statement.
The proxy may be revoked at any time before it is exercised by delivering a
written notice of revocation to the Secretary of the Company. If you attend the
Annual Meeting in person, you may revoke your proxy by either giving notice of
revocation to the inspectors of election at the Annual Meeting or by voting at
the Annual Meeting in person.
The only items of business that the Board of Directors intends to present
or knows will be presented at the Annual Meeting are the items discussed in this
proxy statement. The proxy confers discretionary authority upon the persons
named therein, or their substitutes, to vote on any other items of business that
may properly come before the meeting.
As of March 10, 1997, the record date for the Annual Meeting, the Company
had 6,871,353 shares of Common Stock, par value $.01 per share ("Common Stock"),
issued and outstanding. Each share is entitled to one vote. A majority of the
issued and outstanding shares constitutes a quorum at the meeting.
ELECTION OF DIRECTORS
Six directors are to be elected to serve for a term of one year or until
their respective successors are duly elected and qualified. Directors are
elected by a plurality of the votes of the shares of Common Stock present in
person or represented by proxy and entitled to vote at the Annual Meeting.
Consequently, any shares not voted (whether by abstention, broker non-vote or
votes withheld) will have no effect on the election of directors. Unless
otherwise directed, proxies will be voted at the Annual Meeting for the election
of the six nominees listed below, or in the event of a contingency not presently
foreseen, for different persons as substitutes. The Board of Directors is
recommending this slate.
NOMINEES FOR DIRECTORSHIPS
The names, ages, principal occupations and other information concerning the
director nominees, based upon information received from them, are set forth
below.
Gerald E. Bisbee, Jr., Ph.D., 54. (Chairman of the Board of Directors
since 1989). Before joining APACHE as Chairman and Chief Executive Officer in
December 1989, Dr. Bisbee was the Chairman and CEO of the Hanger Orthopedic
Group, Inc., which he created and financed. He founded and managed the Health
Care Group of the Corporate Finance Department of Kidder, Peabody & Co., leaving
to found Hanger in 1988. From 1978 until moving to Kidder, Peabody in 1984, he
was President of the Hospital Research and Educational Trust, a new venture and
product development company affiliated with the American Hospital Association.
Dr. Bisbee also managed the Yale University Health Services, which included a
22,000-member health maintenance organization. He is a director of Cerner
Corporation and Yamaichi Funds, Inc. Dr. Bisbee
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received his B.A. from North Central College, his M.B.A. from the Wharton School
of the University of Pennsylvania and his Ph.D. from Yale University, where his
dissertation was instrumental in the development of Diagnosis Related Groups
("DRGs").
Edward J. Connors, 68. (Director since 1990). Mr. Connors retired as the
President and Chief Executive Officer of Mercy Health Services in 1993, where he
had been employed since 1976, and he is currently acting as President Emeritus.
Since 1993, Mr. Connors has been the President of Connors/Roberts & Associates,
a healthcare consulting firm located in Morrisville, Vermont. He has also held
academic and management leadership positions at the University of Michigan and
its hospital in Ann Arbor and the University of Wisconsin Hospital in Madison.
Mr. Connors has served as chair of the American Hospital Association Board of
Trustees and of the American Healthcare Systems Board of Governors, as a
Commissioner of the Joint Commission on Accreditation of Healthcare
Organizations and on the Board of the American Hospital Association's Hospital
Research and Educational Trust. Currently, Mr. Connors serves on the Board of
Trustees for the Eastern Mercy Health System in Radnor, Pennsylvania, the
Sisters of Providence Health System in Springfield, Massachusetts, and Trinity
College in Burlington, Vermont and as Chairman of the Board of Trustees of
Fletcher Allen Health Care in Burlington, Vermont. In 1991, Mr. Connors was
elected to membership in the Institute of Medicine of the National Academy of
Science. Mr. Connors holds an M.H.A. from the University of Minnesota.
Thomas W. Hodson, 50. (Director since 1994). Mr. Hodson has been an
independent financial/strategic consultant since October 1996 and, from August
1992 until that time, was the Senior Vice President, Chief Financial Officer and
a director of Caremark International Inc. Caremark was spun off in 1992 from
Baxter International, Inc., a manufacturer and marketer of healthcare products,
where Mr. Hodson had been Group Vice President for the Alternate Site businesses
from April 1992 until November 1992. From 1990 until April 1992, Mr. Hodson was
a Senior Vice President of Baxter, responsible for financial relations,
strategic planning, acquisitions and divestitures and corporate communications.
Mr. Hodson serves as a director of MedPartners, Inc. He holds a B.S. in business
administration and economics from Lehigh University and an M.B.A. from the
Harvard Business School.
William A. Knaus, M.D., 50. (Director since 1994). Dr. Knaus was a founder
of the Company and currently serves as the Company's Chief Scientific Advisor.
Since October 1995, Dr. Knaus has been the Evelyn Troop Hobson Professor and
Chairman of the Department of Health Evaluation Sciences at the University of
Virginia School of Medicine and a Fellow of the American College of Physicians.
He was the founder and, from 1978 to October 1995, a director of the ICU
Research Unit at George Washington University and developer of the APACHE
prognostic scoring system. Dr. Knaus has been honored with an appointment as a
professor at the University of Paris as well as numerous visiting lectureships
at universities in Western Europe, New Zealand and Australia. He is a
distinguished alumnus of both Widener and West Virginia Universities.
Lawrence S. Lewin, 58. (Director since 1989). Mr. Lewin has acted as the
Chief Executive Officer of the Lewin Group, a healthcare policy and management
consulting firm he founded in 1970, which was successively acquired by ICF Inc.,
in December 1987, and VHI, in December 1992. In May of 1996, the firm became
part of Quintiles Transnational Inc. He serves as a Trustee of Intermountain
Health Care, Inc., is a member of the Advisory Board of Hambrecht & Quist
Healthcare Investors and Life Sciences Funds and is a Director of Quintiles
Transnational and Accountable Oncology Associates. Mr. Lewin holds an A.B. from
Princeton's Woodrow Wilson School of Public and International Affairs and an
M.B.A. from the Harvard Business School where he was a Baker Scholar. He is an
elected member of the National Academy of Sciences/Institute of Medicine and
serves on its governing council.
Francis G. Ziegler, 56. (Director since 1994). Mr. Ziegler has acted as
the President and Chief Executive Officer of Claneil Enterprises, Inc., a
privately owned holding company, since January 1993. He joined Claneil in 1993
after thirty years as an operations and marketing executive with Johnson &
Johnson, where he served as President of five domestic and international
subsidiaries. Mr. Ziegler currently serves on the Boards of Claneil Enterprises,
Inc., Scandipharm, Inc., Children's National Medical Center and LHC Corporation.
Mr. Ziegler holds a B.S. in economics from St. Peter's College and attended the
University of
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Santa Clara Business School as well as Advanced Management Programs at the
Harvard and Columbia Business Schools.
INFORMATION CONCERNING THE BOARD OF DIRECTORS
AND ITS COMMITTEES
During the 1996 fiscal year, there were five meetings of the Board of
Directors and six telephonic meetings. Each Director attended at least 75% of
the aggregate total number of the meetings of the Board of Directors and the
meetings of the Board Committees on which he served, except for Mr. Lewin who
attended seven of the 11 Board meetings and one of the two Audit Committee
meetings.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has standing Audit and Compensation Committees,
which deal with certain specific areas of the Board's responsibility.
The Audit Committee, which met two times in conjunction with meetings of
the Board of Directors during the 1996 fiscal year, recommends the firm to be
appointed as independent public accountants to audit the Company's financial
statements and reviews the scope and results of the audit and other services
provided by the Company's independent public accountants. The members of the
Audit Committee are Edward J. Connors, Thomas W. Hodson, Lawrence S. Lewin and
Francis G. Ziegler.
The Compensation Committee, which met four times during the 1996 fiscal
year, develops the Company's executive compensation philosophy and reviews and
recommends the compensation programs for officers of the Company, including
salaries and incentive compensation. The Compensation Committee also administers
the Employee Stock Option Plan and the Employee Stock Purchase Plan. The members
of the Compensation Committee are Thomas W. Hodson, William A. Knaus, M.D. and
Francis G. Ziegler.
DIRECTOR COMPENSATION
Directors who are not currently receiving compensation as officers or
employees of the Company are entitled to reimbursement of expenses for attending
each meeting of the Board of Directors and each meeting of any committee.
The Company's directors who are not employees of the Company are eligible
to participate in the Company's Non-Employee Director Stock Option Plan (the
"Director Option Plan"). The Director Option Plan is administered by the
Chairman of the Board of Directors along with other employee directors, if any,
selected by the Chairman. Pursuant to the Director Option Plan, non-employee
directors of the Company will receive options to purchase 2,500 shares of Common
Stock for each year of service. The exercise price of the options is the fair
market value of the Company's Common Stock on the date of grant. Stock options
granted under the Director Option Plan have a term of 10 years and are not
exercisable during the first 12 months following grant. The Company has reserved
70,000 shares of Common Stock for issuance under the Director Option Plan. The
Director Option Plan may be terminated by the Board of Directors at any time.
Upon the occurrence of a Change of Control, as defined in the Director Option
Plan, all outstanding unvested options under the Director Option Plan
immediately vest.
William A. Knaus, M.D. is the Chief Scientific Advisor of the Company.
While Dr. Knaus is not directly compensated for his services in that capacity,
the Company does pay the University of Virginia, his current employer, for
services rendered to the Company by Dr. Knaus.
AMENDMENT AND RESTATEMENT OF CERTIFICATE
OF INCORPORATION TO AUTHORIZE PREFERRED STOCK
AND TO ELIMINATE CERTAIN INAPPLICABLE PROVISIONS
The Board of Directors of the Company has adopted a resolution approving
and recommending to the Company's stockholders for their approval a proposal to
further amend and restate the Company's Amended
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and Restated Certificate of Incorporation to (i) create 10,000,000 shares of
"Blank Check" Preferred Stock, par value $.01 per share (the "Preferred Stock"),
and (ii) eliminate certain provisions of the Amended and Restated Certificate of
Incorporation that are no longer applicable (the "Proposed Amendment and
Restatement").
AUTHORIZATION OF PREFERRED STOCK
The term "Blank Check" Preferred Stock refers to stock for which the
designations, preferences, conversion rights, cumulative, relative
participating, optional or other rights, including voting rights,
qualifications, limitations or restrictions thereof (collectively, the
"Limitations and Restrictions") are determined by the board of directors of a
company. Upon approval of the Proposed Amendment and Restatement, the Board of
Directors of the Company will be entitled to authorize the creation and issuance
of 10,000,000 shares of Preferred Stock in one or more series with such
Limitations and Restrictions as may be determined by the Board of Directors with
no further authorization by stockholders.
The Board of Directors is required to make any determination to issue
shares of Preferred Stock based on its judgment as to the best interests of the
Company's stockholders. Presently, the Board of Directors intends to create a
series of Preferred Stock comprised of 30,000 shares of Series A Junior
Participating Preferred Stock, par value $.01 per share (the "Junior Preferred
Stock"), to be reserved for issuance upon the exercise of Preferred Stock
Purchase Rights created pursuant to the terms of the Stockholder Rights Plan
described below. The terms of the Junior Preferred Stock are described below
under the caption "Stockholder Rights Plan -- Description of Junior Preferred
Stock."
While the Board of Directors has no present intention to do so, it could
issue up to an additional 9,970,000 shares of Preferred Stock that could,
depending on the terms of a series, make more difficult or discourage an attempt
to obtain control of the Company by merger, tender offer, proxy contest or other
means. When in the judgment of the Board of Directors this action will be in the
best interest of the stockholders and the Company, Preferred Stock could be used
to create voting or other impediments or to discourage persons seeking to gain
control of the Company. The Company is not aware of any current efforts to
acquire control of the Company.
The issuance of additional shares of Preferred Stock could be used to
dilute the stock ownership of a person or entity seeking to obtain control of
the Company, or could result in a private placement with purchasers who might
side with the Board of Directors if they choose to oppose a specific change of
control. Moreover, the Board of Directors could authorize holders of a series of
Preferred Stock to vote either separately as a class or with the holders of the
Company's Common Stock on any merger, sale or exchange of assets by the Company
or any other extraordinary corporate transaction.
Securities laws require the disclosure of any provisions contained in the
Company's charter or by-laws that arguably could have an anti-takeover effect.
Like many publicly-held companies, the by-laws of the Company restrict the
ability of its stockholders to call a special meeting. The Company's by-laws
provide that special meetings may be called only by the President or Chairman of
the Board and that a special meeting must be called by the President, Chairman
of the Board or Secretary only upon the written request of a majority of the
holders of Common Stock of the Company. Such a provision could delay, deter or
otherwise make more difficult a takeover of the Company. While permitted under
Delaware law, the Company's charter and by-laws do not provide stockholders with
cumulative voting.
Although the Company may consider effecting an equity offering of Preferred
Stock in the future for the purpose of raising additional working capital or
otherwise, the Company currently has no agreements or understandings with any
third party to effect such an offering or to purchase any shares offered in
connection with such an offering, and no assurances are given that any offering
will in fact be effected. Furthermore, the Board of Directors has no present
intention to create any series of Preferred Stock other than the Junior
Preferred Stock. Consequently, the terms of any Preferred Stock subject to this
proposal cannot be stated or estimated with respect to any of the securities
authorized other than with respect to the Junior Preferred Stock.
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STOCKHOLDER RIGHTS PLAN
PLAN OVERVIEW. The Board of Directors adopted a Stockholder Rights Plan
(the "Rights Plan") at a meeting held on January 28, 1997. The Rights Plan will
be implemented upon stockholder approval of the Proposed Amendment and
Restatement. In connection with the adoption of the Rights Plan, and subject to
stockholder approval of the Proposed Amendment and Restatement, the Board has
declared a dividend distribution of one Preferred Stock Purchase Right (a
"Right") for each outstanding share of Common Stock that will be outstanding on
June 2, 1997 (the "Rights Record Date").
In the event that the Proposed Amendment and Restatement is not approved by
the stockholders, the Rights Plan as adopted by the Board on January 28, 1997
will not be implemented. The Board has indicated, however, that, in such an
event, it will consider the adoption of an alternative form of stockholder
rights plan that would not require the approval of stockholders or the creation
of a new class of stock.
The Rights Plan contains provisions that are designed to protect the
Company's stockholders in the event of an unsolicited attempt to acquire the
Company, including a gradual accumulation of shares in the open market, a
partial or two-tiered tender offer that does not treat all stockholders equally
and other takeover tactics that the Board of Directors believes may be abusive
and not in the best interests of the Company's stockholders. The Board believes
that these tactics tend to unfairly pressure stockholders, coerce them to
relinquish their investment without giving them any meaningful choice and
deprive them of the full value of their shares.
The implementation of the Rights Plan increases the ability of the Board to
effectively represent the interests of the Company's stockholders in the event
of an unsolicited proposal. The Rights Plan will give the Board of Directors an
opportunity to evaluate an offer and exercise good faith business judgment and,
if necessary, to take appropriate steps to protect and advance stockholder
interests by negotiating with the bidder, auctioning the Company, implementing a
recapitalization or restructuring designed as an alternative to the offer, or
taking other action.
Although the Rights Plan is intended to benefit the Company's stockholders,
it also could have the effect of discouraging tender offers or other attempts to
obtain control of the Company and thereby make more difficult the removal of
incumbent management. The Rights Plan, however, does not inhibit stockholders
from utilizing the proxy mechanism to promote a change in the management or
direction of the Company.
CONSIDERATION OF THE BOARD OF DIRECTORS. In adopting the Rights Plan, the
Board of Directors considered numerous factors. The Company has traditionally
emphasized management policies designed to take into account the interests of
its stockholders. Similarly, the Board has indicated that it believes its
adherence to these policies has been a key factor in the Company's growth and
that maintaining the Company as an independent entity best ensures the
continuation of these management policies. The Board has reviewed various forms
of defensive measures designed to enable the Company to maintain its
independence and has determined that the implementation of the Rights Plan is
desirable.
DESCRIPTION OF JUNIOR PREFERRED STOCK. Junior Preferred Stock purchasable
upon exercise of the Rights will not be redeemable. Each share of Junior
Preferred Stock will be entitled to a minimum preferential quarterly dividend
payment of $1 per share, but will be entitled to an aggregate dividend of 1,000
times the dividend declared per share of the Company's Common Stock. In the
event of liquidation, the holders of the Junior Preferred Stock will be entitled
to a minimum preferential liquidation payment of $1,000 per share, but will be
entitled to an aggregate payment of 1,000 times the payment made per share of
Common Stock. Each share of Junior Preferred Stock will have 1,000 votes, voting
together with the Common Stock. In the event of any merger, consolidation or
other transaction in which Common Stock is exchanged, each share of Junior
Preferred Stock will be entitled to receive 1,000 times the amount received per
share of Common Stock. The rights of the Junior Preferred Stock will be
protected by customary antidilution provisions.
DESCRIPTION OF RIGHTS. Initially the Rights will trade with, and cannot be
separated from, the outstanding shares of the Company's Common Stock. With
respect to any shares of Common Stock outstanding as of the Rights Record Date,
the Rights will be evidenced by the Common Stock certificates and the Summary of
Rights to Purchase Preferred Shares, which will be distributed to all holders of
record as of
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the Rights Record Date. Ten days after a person or group of affiliated or
associated persons (excluding certain entities related to the Company) either
acquires 15% or more of the Common Stock or announces or commences a tender or
exchange offer that would result in such person or group acquiring beneficial
ownership of 30% or more of the Common Stock, the Rights will become exercisable
and separate certificates representing the Rights will be distributed. The Board
of Directors expects that the Rights will be traded independently from the
Common Stock at that time. At no time will the Rights have any voting power.
When the Rights become exercisable, a Right holder will be entitled to
purchase from the Company one one-thousandth of a share of Junior Preferred
Stock for $60. If the Company is involved in a merger or other business
combination at any time after the Rights become exercisable, each Right will
entitle a holder to buy a number of shares of common stock of the acquiring
company having a market value equal to twice the exercise price of each Right.
Alternatively, if any person or group acquires 15% or more of the Company's
Common Stock, the Rights will entitle the holder other than such person or any
member of such group, to buy a number of shares of Common Stock of the Company
having a market value equal to twice the exercise price of each Right.
The Rights may be redeemed by the Company at a price of $.01 per Right at
any time before any person acquires beneficial ownership of 15% or more of the
Common Stock. In addition, at any time after any person acquires beneficial
ownership of 15% or more of the Common Stock and prior to such person's
acquisition of 50% or more of the Common Stock, the Board of Directors may elect
to exchange all or part of the Rights for Common Stock at an exchange ratio of
one share of Common Stock (or of a share of a class or series of the Company's
Preferred Stock having equivalent rights, preferences and privileges) per Right
(subject to adjustment for stock splits, stock dividends and other similar
actions).
REASON FOR ADOPTION. The Board of Directors has adopted the Rights Plan
with a view toward ensuring the Company's continued independence and ability to
focus on long-term goals. The Rights are not intended to prevent a takeover of
the Company and will not preclude a successful cash tender offer for all of the
outstanding shares of the Common Stock coupled with a requirement for the tender
of Rights formerly attached to such shares. The Board of Directors believes,
however, that the Rights should discourage most efforts to acquire the Company
(short of an all inclusive tender offer) in a manner or on terms not approved by
the Board. The Rights are designed to deal with an acquiror's potential use of
coercive tactics to deprive the Company's Board and stockholders of a reasonable
opportunity to determine the future of the Company.
EFFECTS OF THE RIGHTS PLAN. The Rights Plan will not result in any change
in the corporate structure of the Company. The issuance of the Rights has no
dilutive effect, will not affect reported earnings per share, and will not
change the way in which stockholders can trade the Common Stock. The Rights
should not interfere with any merger or other business combination approved by
the Board of Directors prior to the time a person or group has acquired
beneficial ownership of 15% or more of the Common Stock, since until such time
the Rights may be redeemed by the Company at $.01 per Right.
It is the intention of the Board of Directors that the Rights Plan will
encourage potential acquirors of the Company to negotiate at arms-length with
the Company's management and Board. The Rights Plan could, however, have the
effect of discouraging tender offers or other attempts to obtain control of the
Company, some of which might be beneficial to the Company and it stockholders,
since acquirors may be deterred by the substantial economic and voting power
dilution to their holdings of the Company's Common Stock that would result
should the Board determine not to redeem the Rights.
Moreover, since the Rights Plan is designed to discourage accumulations of
large blocks of Common Stock by purchasers whose objective is to receive a
substantial profit by having the Common Stock repurchased by the Company or a
third party at a premium, the Rights Plan could tend to reduce temporary
fluctuations in the market price of the Company's Common Stock that are due to
the accumulation of such blocks. The Company's stockholders could therefore be
deprived of opportunities to sell their stock at a temporarily higher market
price.
The Board of Directors of the Company will consider the fairness of the
financial and other terms of an offer to its stockholders. The Rights Plan does
not relieve the Board of Directors of its fiduciary obligation to
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consider in good faith any proposal to acquire the Company and does not permit
the Board to act to the detriment of the Company's stockholders for the purpose
of entrenching management.
ELIMINATION OF CERTAIN INAPPLICABLE PROVISIONS
Upon the consummation of the Company's initial public offering in July
1996, all of the shares of the Company's issued and outstanding Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock and Series F Preferred Stock were
converted into shares of Common Stock. Consequently, the Proposed Amendment and
Restatement eliminates provisions of the Company's Amended and Restated
Certificate of Incorporation that relate to these series of Preferred Stock,
which are no longer outstanding. In addition, the Proposed Amendment and
Restatement eliminates language that provided for a stock split upon the
effectiveness of the Company's initial public offering.
REQUIRED VOTE
The Proposed Amendment and Restatement to authorize Preferred Stock and to
eliminate certain inapplicable provisions requires the affirmative vote of a
majority of the outstanding shares. Consequently, abstentions from voting and
broker non-votes will be counted as votes against the Proposed Amendment and
Restatement since they are less votes for approval.
If the Board's proposal is approved by stockholders, the Proposed Amendment
and Restatement will become effective upon the filing of a Certificate of
Amendment and Restatement in accordance with the General Corporation Law of
Delaware.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR THIS PROPOSAL TO FURTHER AMEND AND RESTATE THE COMPANY'S AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION.
AMENDMENT AND RESTATEMENT OF
EMPLOYEE STOCK OPTION PLAN
The Board of Directors of the Company has adopted, and recommends to
stockholders for approval, the further amendment and restatement of the Employee
Stock Option Plan of APACHE Medical Systems, Inc. (the "Employee Option Plan")
to (i) increase the number of shares reserved for issuance under the Employee
Option Plan from 1,700,000 to 2,200,000, (ii) allow the Board maximum
flexibility in amending the Employee Option Plan as permitted by the recently
revised securities regulations relating to employee benefit plans, (iii) conform
certain technical aspects of the Employee Option Plan to these securities
regulations and (iv) eliminate qualifications in the Employee Option Plan that
relate to the Company's then anticipated initial public offering of Common
Stock, which has since been effected. The description of the Employee Option
Plan set forth below is qualified in its entirety by reference to the full text
of the Amended and Restated Employee Stock Option Plan, which is attached as
Appendix A to this proxy statement.
THE EMPLOYEE OPTION PLAN
GENERALLY. The Employee Option Plan as adopted by the Board of Directors
of the Company and approved by the Company's stockholders was originally
effective as of November 8, 1990 and was amended and restated effective April 1,
1996. The Employee Option Plan provides for the grant of stock options to
employees of the Company or its subsidiaries, including employees who are
officers and/or members of the Board, and to any non-employee (with the
exception of non-employee directors) who is a consultant or advisor to the
Company. Unless terminated sooner by the Board, the Employee Option Plan will
terminate on April 1, 2006.
SHARES SUBJECT TO THE PLAN. The Company has reserved 1,700,000 shares of
Common Stock for issuance under the Employee Option Plan. A description of the
Board's proposal to increase the number of reserved shares to 2,200,000 shares
is included below under the caption "Proposed Amendment and Restatement of the
Employee Option Plan -- Increase Number of Shares Reserved for Issuance." As of
March 10, 1997, options on 1,273,020 shares of Common Stock were outstanding
under the Employee Option Plan.
7
<PAGE> 11
PLAN ADMINISTRATION. The Employee Option Plan is administered by the
Compensation Committee of the Board. The Committee has the authority and
discretion, subject to the provisions of the Employee Option Plan, to select
persons to whom options will be granted, to designate the number of shares to be
covered by options, to specify the type of consideration to be paid to the
Company, and to establish all other terms and conditions of each stock option.
TERMS AND CONDITIONS OF OPTIONS. The exercise price for a stock option may
not be less than the fair market value of the Company's Common Stock on the date
the stock option is granted. Stock options granted under the Employee Option
Plan may not be transferred other than by will or by the laws of descent and
distribution. Upon the occurrence of a Change of Control, as defined in the
Employee Option Plan, all outstanding unvested options under the Employee Option
Plan immediately vest.
NATURE OF OPTIONS. Options granted under the Employee Option Plan may be
either "incentive stock options" ("ISOs"), as defined under the tax laws, or
non-qualified stock options. ISOs may be granted only to employees of the
Company and are subject to certain additional limitations relating to such
things as employment status, minimum exercise price, length of the exercise
period, maximum value of the stock underlying the options and a required holding
period for stock received upon exercise of an ISO.
PLAN AMENDMENT. The Employee Option Plan currently provides that a
majority of the Board of Directors of the Company may, without further action of
the stockholders, terminate, alter, amend or suspend the Employee Option Plan,
provided that the Board may not materially increase participants' benefits or
the number of shares issuable under the Employee Option Plan, materially modify
the eligibility requirements for participation in the Employee Option Plan, or
take any action that would cause the Employee Option Plan to fail to comply with
certain applicable federal tax or securities laws. In addition, any action taken
by the Board may not materially and adversely affect any options outstanding
under the Employee Option Plan without the consent of the participants. A
discussion of the Board's proposal to increase its flexibility in amending the
Employee Option Plan as permitted by the recently revised securities regulations
is included below under the caption "Proposed Amendment and Restatement of the
Employee Option Plan -- Board of Directors' Ability to Amend."
TAX CONSEQUENCES. Certain federal income tax consequences are associated
with (i) the grant of a stock option under the Employee Option Plan, (ii) the
exercise of such option and (iii) the disposition of shares received upon the
exercise of an option. The following description of tax consequences is based
upon present federal tax laws and regulations, but does not purport to be a
complete description of the federal income tax consequences applicable to a
participant under the Employee Option Plan. Accordingly, information relating to
tax consequences is qualified in its entirety by reference to current tax laws.
NON-QUALIFIED STOCK OPTIONS. The grant of a non-qualified option
(including any option exceeding any additional limitations on ISOs) to a
participant will not be a taxable event so long as the option does not have a
readily ascertainable fair market value. Options granted pursuant to the
Employee Option Plan should not have a readily ascertainable fair market value
because they are not actively traded on an established securities market, are
not transferable, are not immediately exercisable in full upon grant and have
more than a nominal exercise price. Accordingly, the participant will not be
subject to any income tax consequences with respect to such option unless and
until the option is exercised.
Upon the exercise of a non-qualified stock option, the participant
generally must recognize ordinary compensation income equal to the "spread"
between the exercise price and the fair market value of the Common Stock on the
date of exercise. The amount and character of any gain or loss realized on a
subsequent disposition of Common Stock by the participant generally would depend
on, among other things, whether an election under the Internal Revenue Code of
1986, as amended (the "Code") Section 83(b) with respect to such shares had been
made and the length of time such shares had been held.
INCENTIVE STOCK OPTIONS. There are no federal income tax consequences
associated with the grant of an ISO to an employee. In contrast to the exercise
of a non-qualified stock option, the exercise of an ISO will not cause an
employee to recognize taxable income for regular income tax purposes (although
the employee could be subject to an alternative minimum tax liability as
described below). If the employee holds the shares
8
<PAGE> 12
acquired upon exercise of the ISO for a minimum of two years from the date of
the grant of the ISO, and for at least one year after exercise, any gain
realized by the participant on the subsequent sale or exchange of such shares
generally would be treated as long-term capital gain. The amount of this gain
generally will equal the "spread" between the sales price and the exercise price
of the Common Stock. If the shares are sold or otherwise disposed of prior to
the expiration of such periods (a "disqualifying disposition"), then a portion
of any gain recognized by the employee that would otherwise be characterized as
capital gain would instead be taxable as ordinary compensation income. The
amount of such gain that would be characterized as ordinary income would not
exceed an amount equal to the excess of (i) the fair market value of such shares
as of the date the option was exercised over (ii) the amount paid for such
shares. Any loss recognized upon a taxable disposition of the shares generally
would be characterized as a capital loss.
Upon exercise of an ISO by an employee, the alternative minimum taxable
income of such employee must be determined as if such ISO were a non-qualified
stock option. Accordingly, he or she will be required to include as alternative
minimum taxable income the excess (if any) of the value of the shares received
upon exercise as of the date such shares are vested over the amount paid for
such shares. He or she would then be required to pay the greater of his or her
regular or alternative minimum tax liability computed with respect to such year.
WITHHOLDING TAXES. The Company may condition the exercise of any option
under the Employee Option Plan on the receipt of an amount sufficient to pay,
and will deduct from the compensation of a holder of an option under the
Employee Option Plan, the amount of any tax required by any governmental
authority to be withheld and paid over by the Company to such governmental
authority for the account of the participant with respect to such options and
the exercise thereof.
COMPENSATION DEDUCTION. To the extent compensation income is recognized by
a participant in connection with the exercise of a non-qualified stock option or
a "disqualifying disposition" of stock obtained upon exercise of an ISO, the
Company generally will be entitled to a corresponding compensation deduction
(assuming the withholding requirements are satisfied).
OUTSTANDING OPTIONS. The number of shares acquirable pursuant to stock
options that will be awarded to the Company's Chief Executive Officer and the
other four most highly compensated executive officers of the Company under the
Employee Option Plan is not currently determinable. As of February 28, 1997,
options to purchase an aggregate of 849,446 shares had been granted under the
Employee Option Plan to the Company's Chief Executive Officer and the other four
most highly compensated executive officers as follows: 550,177 to Dr. Bisbee
(Chairman and Chief Executive Officer); 187,413 to Mr. Ciri (President and Chief
Operating Officer); 40,212 to Ms. Jones (Vice President, New Business
Development); 71,644 to Mr. Umidi (Vice President, Finance and Administration,
Treasurer and Chief Financial Officer) and none to Ms. Draper (Executive Vice
President and Secretary). As of the same date, options to purchase 929,657
shares had been granted to all current executive officers as a group. In
addition, options to purchase 41,960 shares had been awarded pursuant to the
Employee Option Plan to all current directors who are not executive officers as
a group and the nominees for election as a director, in addition to Dr. Bisbee,
had been granted options to purchase the following number of shares: 10,490 to
Mr. Connors, 10,490 to Mr. Hodson, none to Dr. Knaus, 10,490 to Mr. Lewin, and
10,490 to Mr. Ziegler. Also as of February 28, 1997, options to purchase 343,363
shares had been granted to plan participants, including all current officers who
are not executive officers, as a group. On March 19, 1997, the last reported
sale price of the Common Stock on the Nasdaq National Market was $6.125 per
share.
PROPOSED AMENDMENT AND RESTATEMENT OF THE EMPLOYEE OPTION PLAN
INCREASE NUMBER OF SHARES RESERVED FOR ISSUANCE. As of March 10, 1997,
stock options covering 1,273,020 shares of Common Stock were outstanding under
the Employee Option Plan and 423,569 shares were available for future awards.
The Board of Directors proposes that the Employee Option Plan be amended and
restated to increase the aggregate number of shares of Common Stock that may be
issued under the Employee Option Plan to 2,200,000, thereby assuring that
sufficient shares are available for future grants.
9
<PAGE> 13
BOARD OF DIRECTORS' ABILITY TO AMEND. Recently revised securities
regulations have increased the ability of a company's board of directors to
amend employee benefit plans while maintaining the exempt status of option
grants under Section 16(b) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). The proposed amendment and restatement of the Employee
Option Plan would permit the Board of Directors of the Company to materially
increase benefits to participants and to materially modify eligibility
requirements without receiving stockholder consent, so long as the amendments to
the Employee Option Plan would not materially adversely affect any outstanding
options. Stockholder approval would still be required, however, to increase the
number of shares of Common Stock subject to the Employee Option Plan. Under the
Employee Option Plan as the Board proposes it be amended and restated, approval
of the participants in the Employee Option Plan would still be required for any
amendments that would have a material adverse effect on outstanding options.
CONFORMING TECHNICAL CHANGES. The amendments proposed by the Board of
Directors include conforming certain terminology used in the Employee Option
Plan to the recently amended securities regulations.
ELIMINATION OF CERTAIN QUALIFICATIONS. The Employee Option Plan currently
contains certain qualifying references to the Company's then anticipated initial
public offering of Common Stock. The offering was consummated in July 1996,
thereby eliminating the necessity of these qualifications.
REQUIRED VOTE
The proposed amendment and restatement of the Employee Option Plan requires
the affirmative vote of a majority of the shares present in person or
represented by proxy at the meeting and entitled to vote on the proposal. An
abstention will be counted as a vote against the amendment and restatement since
it is one less vote for approval. Broker non-votes will not affect the outcome
since they are not considered "shares present" for voting purposes.
If the Board's proposal is approved by stockholders, the Employee Stock
Option Plan of APACHE Medical Systems, Inc. will be amended and restated
effective May 1, 1997.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR THIS PROPOSAL TO AMEND AND RESTATE THE EMPLOYEE STOCK OPTION PLAN OF APACHE
MEDICAL SYSTEMS, INC.
AMENDMENT AND RESTATEMENT OF
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
The Board of Directors of the Company has adopted, and recommends to
stockholders for approval, the amendment and restatement of the APACHE Medical
Systems, Inc. Non-Employee Director Stock Option Plan (the "Director Option
Plan") to (i) allow the Board maximum flexibility in amending the Director
Option Plan as permitted by the recently revised securities regulations relating
to employee benefit plans and (ii) eliminate qualifications in the Director
Option Plan that relate to the Company's then anticipated initial public
offering of Common Stock, which has since been effected. The description of the
Director Option Plan set forth below is qualified in its entirety by reference
to the full text of the Amended and Restated Non-Employee Director Stock Option
Plan, which is attached as Appendix B to this proxy statement.
GENERALLY. The Director Option Plan as adopted by the Board of Directors
of the Company and approved by the Company's stockholders was originally
effective as of April 1, 1996. On January 1 of each calendar year, each
non-employee member of the Board of Directors of the Company will be granted an
option to purchase up to 2,500 shares of Common Stock under the Director Option
Plan. The Director Option Plan will continue until it is terminated by the Board
or until no Common Stock remains available for issuance.
SHARES SUBJECT TO THE PLAN. The Company has reserved 70,000 shares of
Common Stock for issuance under the Director Option Plan. As of March 10, 1997,
options on 12,500 shares of Common Stock were issued and outstanding under the
Director Option Plan.
10
<PAGE> 14
PLAN ADMINISTRATION. The Director Option Plan is administered by the
Chairman of the Board of Directors and other employee members of the Board, if
any, selected by the Chairman. This Committee has the authority to construe and
interpret the Director Option Plan and to establish, amend or waive rules and
regulations for its administration. Options granted under the Director Option
Plan may be subject to such provisions as the Committee deems advisable and may
be amended by the Committee from time to time, provided that no amendment may
adversely affect the rights of an option holder without his or her consent.
TERMS AND CONDITIONS OF OPTIONS. All options granted under the Director
Option Plan are non-qualified stock options. The exercise price of each option
will be the fair market value of the stock underlying the option on the date of
grant. Each option will become fully vested and exercisable on the December 31
of the year in which the option is granted. Stock options granted under the
Director Option Plan may not be transferred other than by will or by the laws of
descent and distribution. Upon the occurrence of a Change of Control, as defined
in the Director Option Plan, all outstanding unvested options under the Director
Option Plan immediately vest.
PLAN AMENDMENT. The Director Option Plan currently provides that a
majority of the Board of Directors of the Company may, without further action of
the stockholders, terminate, alter, amend or suspend the Director Option Plan,
provided that the Board may not materially increase participants' benefits or
the number of shares issuable under the Director Option Plan, materially modify
the eligibility requirements for participation in the Director Option Plan, or
take any action that would cause the Director Option Plan to fail to comply with
certain applicable federal tax or securities laws. In addition, any action taken
by the Board may not materially and adversely affect any options outstanding
under the Director Option Plan without the consent of the participants.
Furthermore, the Board currently may not amend the Director Option Plan with
respect to the amount, price and timing of grants more than once every six
months, other than to comport with changes in law. A discussion of the Board's
proposal to increase its flexibility in amending the Director Option Plan as
permitted by the recently revised securities regulations is included below under
the caption "Proposed Amendment and Restatement of the Director Option
Plan -- Board of Directors' Ability to Amend."
TAX CONSEQUENCES. Certain federal income tax consequences are associated
with (i) the grant of a stock option under the Director Option Plan, (ii) the
exercise of such option and (iii) the disposition of shares received upon the
exercise of an option. The following description of tax consequences is based
upon present federal tax laws and regulations, but does not purport to be a
complete description of the federal income tax consequences applicable to a
participant under the Director Option Plan. Accordingly, information relating to
tax consequences is qualified in its entirety by reference to current tax laws.
GRANT AND EXERCISE OF OPTIONS; DISPOSITION OF ACQUIRED SHARES. The grant
of a non-qualified option to a participant will not be a taxable event so long
as the option does not have a readily ascertainable fair market value. Options
granted pursuant to the Director Option Plan should not have a readily
ascertainable fair market value because they are not actively traded on an
established securities market, are not transferable, are not immediately
exercisable in full upon grant and have more than a nominal exercise price.
Accordingly, the participant will not be subject to any income tax consequences
with respect to such option unless and until the option is exercised.
Upon the exercise of a non-qualified stock option, the participant
generally must recognize ordinary compensation income equal to the "spread"
between the exercise price and the fair market value of the Common Stock on the
date of exercise. The amount and character of any gain or loss realized on a
subsequent disposition of Common Stock by the participant generally would depend
on, among other things, whether an election under Code Section 83(b) with
respect to such shares had been made, and the length of time such shares had
been held.
WITHHOLDING TAXES. The Company may condition the exercise of any option
under the Director Option Plan on the receipt of an amount sufficient to pay,
and will deduct from the compensation of a holder of an option under the
Director Option Plan, the amount of any tax required by any governmental
authority to be withheld and paid over by the Company to such governmental
authority for the account of such person with respect to such options and the
exercise thereof.
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<PAGE> 15
COMPENSATION DEDUCTION. To the extent compensation income is recognized by
a participant in connection with the exercise of a non-qualified stock option,
the Company generally will be entitled to a corresponding compensation deduction
(assuming the withholding requirements are satisfied).
OUTSTANDING OPTIONS. Each non-employee director of the Company will be
granted an option to purchase 2,500 shares for each year of service; however,
the number of years that such individuals will serve as directors of the Company
is not currently determinable. As of February 28, 1997, options to purchase
12,500 shares had been granted under the Director Option Plan to all current
directors who are not executive officers as a group. Each nominee for election
as a director (Mr. Connors, Mr. Hodson, Dr. Knaus, Mr. Lewin and Mr. Ziegler)
has been granted an option to purchase 2,500 shares. On March 19, 1997, the last
reported sale price of the Common Stock on the Nasdaq National Market was $6.125
per share.
PROPOSED AMENDMENT AND RESTATEMENT OF THE DIRECTOR OPTION PLAN
BOARD OF DIRECTORS' ABILITY TO AMEND. The proposed amendment and
restatement of the Director Option Plan would, in accordance with recently
revised securities regulations, permit the Board of Directors of the Company to
materially increase benefits to participants and to materially modify
eligibility requirements without receiving stockholder consent, so long as the
amendments to the Director Option Plan would not materially adversely affect any
outstanding options. Stockholder approval would still be required, however, to
increase the number of shares of Common Stock subject to the Director Option
Plan. In addition, the amendment and restatement would eliminate the restriction
that the Director Option Plan could only be amended once every six months. Under
the Director Option Plan as the Board proposes it be amended and restated,
approval of the participants in the Director Option Plan would still be required
for any amendments that would have a material adverse effect on outstanding
options.
ELIMINATION OF CERTAIN QUALIFICATIONS. The Director Option Plan currently
contains certain qualifying references to the Company's then anticipated initial
public offering of Common Stock. The offering was consummated in July 1996,
thereby eliminating the necessity of these qualifications.
REQUIRED VOTE
The proposed amendment and restatement of the Director Option Plan requires
the affirmative vote of a majority of the shares present in person or
represented by proxy at the meeting and entitled to vote on the proposal. An
abstention will be counted as a vote against the amendment and restatement since
it is one less vote for approval. Broker non-votes will not affect the outcome
since they are not considered "shares present" for voting purposes.
If the Board's proposal is approved by stockholders, the APACHE Medical
Systems, Inc. Non-Employee Director Stock Option Plan will be amended and
restated effective May 1, 1997.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR THIS PROPOSAL TO AMEND AND RESTATE THE APACHE MEDICAL SYSTEMS, INC.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN.
RATIFICATION OF APPOINTMENT OF
INDEPENDENT PUBLIC AUDITORS
The principal independent public accounting firm utilized by the Company
during the fiscal years ended December 31, 1995 and 1996 was KPMG Peat Marwick
LLP ("KPMG"), independent certified public accountants. The Company does not
anticipate that a representative of KPMG will attend the Annual Meeting.
Following a review of the services provided by KPMG and of proposals from a
variety or other independent public accountants, management and the Audit
Committee recommended that the Board of Directors replace KPMG with Arthur
Andersen LLP ("Arthur Andersen") as soon as practicable following the completion
of the audit for fiscal year 1996. There were no disagreements with KPMG on any
matter of accounting principle or practice, of financial statement disclosure or
of auditing scope or procedure during
12
<PAGE> 16
fiscal years 1995 and 1996. KPMG's report on the financial statements of the
Company for fiscal years 1995 and 1996 contained no adverse opinion or
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope or accounting principles. The Company provided notice to KPMG on February
14, 1997 of its dismissal and received a response from KPMG to the statements of
the Company in accordance with the requirements of Rule 304 of Regulation S-K of
the Securities and Exchange Commission. Neither the Company nor anyone on its
behalf has consulted with Arthur Andersen regarding (A) the application of
accounting principles to a specified transaction, either completed or proposed;
or the type of audit opinion that might be rendered on the Company's financial
statements, or (B) any matter that was either the subject of a disagreement or a
reportable event.
The management of the Company and members of the Board of Directors have
discussed the Company's methods of operation with Arthur Andersen and are
satisfied as to the professional competence and integrity of Arthur Andersen.
The Board of Directors recommends that stockholders ratify the appointment of
Arthur Andersen, independent public accountants, to audit the accounts of the
Company for fiscal year 1997.
Although the appointment of auditors is not required to be submitted to a
vote of stockholders, the Board of Directors believes that it is appropriate as
a matter of policy to request that the stockholders ratify the appointment. If
the stockholders should not ratify the appointment, the Audit Committee will
investigate the reasons for the stockholders' rejection and the Board of
Directors will reconsider the appointment.
REQUIRED VOTE
The affirmative vote of a majority of the shares present in person or by
proxy and entitled to vote is required to ratify the appointment of Arthur
Andersen LLP as the Company's independent public auditors. An abstention will be
counted as a vote against the ratification of the appointment since it is one
less vote for approval. Broker non-votes will not affect the outcome since they
are not considered "shares present" for voting purposes.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR RATIFICATION OF THE APPOINTMENT OF INDEPENDENT PUBLIC AUDITORS.
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<PAGE> 17
SECURITY OWNERSHIP
The following table sets forth certain information regarding the beneficial
ownership of the shares of the Company's Common Stock as of February 14, 1997 by
(i) each person known by the Company to beneficially own more than 5% of the
Company's Common Stock, (ii) each director and nominee for director, (iii) the
Chief Executive Officer and the four next most highly compensated executive
officers of the Company (together, the "Named Executive Officers"), and (iv) by
all directors, nominees for director and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
SHARES PERCENTAGE
BENEFICIALLY BENEFICIALLY
NAME OWNED OWNED (1)
--------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Caremark, Inc. (2)............................................. 876,602 12.5%
The TCW Group, Inc. (3)........................................ 577,800 8.4
Baxter Healthcare Corporation (4).............................. 573,346 8.3
New York Life Insurance Company (5)............................ 460,405 6.5
Fairfax Partners/The Venture Fund of Washington, L.P. (6)...... 454,546 6.6
NAMED EXECUTIVE OFFICERS AND DIRECTORS
---------------------------------------------------------------
Gerald E. Bisbee, Jr., Ph.D. (7)............................... 401,177 5.5
Robert E. Ciri (8)............................................. 88,413 1.3
Sherrie L. Jones (9)........................................... 9,963 *
Brion D. Umidi (10)............................................ 31,644 *
Elizabeth A. Draper, R.N., M.S................................. 173,914 2.5
Edward J. Connors (11)......................................... 10,490 *
Thomas W. Hodson (12).......................................... 6,993 *
William A. Knaus, M.D. (13).................................... 405,752 5.9
Lawrence S. Lewin (14)......................................... 10,490 *
Francis G. Ziegler (15)........................................ 199,587 2.9
All directors and executive officers as a group (14 persons)
(16)......................................................... 1,362,448 18.2
</TABLE>
- ------------------
* Represents less than 1% of the outstanding Common Stock.
(1) Unless otherwise indicated in these footnotes, each stockholder has sole
voting and investment power with respect to the shares listed in the table.
Share ownership information includes shares of Common Stock issuable
pursuant to outstanding options that may be exercised within 60 days of
February 14, 1997.
(2) Includes 144,333 shares issuable upon exercise of vested warrants. The
address of Caremark, Inc. is 2215 Sanders Road, Suite 400, Northbrook,
Illinois 60062.
(3) As reported on a Schedule 13G dated February 12, 1997 filed with the
Securities and Exchange Commission by The TCW Group, Inc. and Robert Day.
The 577,800 shares may be held by one or more of the following entities,
which are controlled by The TCW Group, Inc. and/or Robert Day; Trust
Company of the West, TCW Asset Management Company, Oakmont Corporation and
Cypress International Partners Limited. The address of The TCW Group, Inc.
is 865 South Figueroa Street, Los Angeles, California 90017.
(4) The address of Baxter Healthcare Corporation is 17221 Red Hill Avenue,
Irvine, California 92714. Baxter Healthcare Corporation is a publicly
traded corporation.
(5) Includes 172,067 shares issuable upon exercise of vested warrants. The
address of New York Life Insurance Company is 51 Madison Avenue, New York,
New York 10010. New York Life Insurance Company is a mutual insurance
company owned by its policyholders.
(6) Includes 17,483 shares issuable upon exercise of a vested warrant. The
address of Fairfax Partners/The Venture Fund of Washington L.P. is 1568
Spring Hill Road, Suite 200, McLean, Virginia 22102.
14
<PAGE> 18
(7) Consists of 1,000 shares held jointly with Linda Bisbee and 400,177 shares
issuable upon exercise of vested options. Dr. Bisbee's address is c/o
APACHE Medical Systems, Inc., 1650 Tysons Boulevard, McLean, Virginia
22102.
(8) Includes 87,413 shares issuable upon exercise of vested options.
(9) Consists of 9,963 shares issuable upon exercise of vested options.
(10) Consists of 31,644 shares issuable upon exercise of vested options.
(11) Consists of 10,490 shares issuable upon exercise of vested options.
(12) Consists of 6,993 shares issuable upon exercise of vested options.
(13) Dr. Knaus' address is c/o Department of Health Evaluation Sciences,
University of Virginia School of Medicine, Charlottesville, Virginia 22908.
(14) Consists of 10,490 shares issuable upon exercise of vested options.
(15) Consists of 6,993 shares issuable upon exercise of vested options held by
Mr. Ziegler and 192,594 shares owned of record by LHC Corporation (32,207
of which are issuable upon exercise of vested warrants). Mr. Ziegler
disclaims beneficial ownership of such 192,594 shares.
(16) Includes 620,145 shares issuable upon exercise of vested options and
warrants and options that will vest within 60 days after February 14, 1997.
Also includes 192,594 shares (32,207 of which are issuable upon the
exercise of vested warrants), the beneficial ownership of which is
disclaimed by the directors and executive officers.
CERTAIN RELATIONSHIPS
In November 1996, the Company prepaid a $250,000 convertible promissory
note issued by Benefit Capital Management Corporation as Investment Manager for
the Prudential Insurance Company of America ("Benefit Capital"). The note was
originally due and payable on December 31, 1996. As of December 31, 1996,
Benefit Capital owned more than 5% of the outstanding Common Stock of the
Company.
At the time of the Company's initial public offering of Common Stock in
July 1996, New York Life Insurance Company elected to convert an $800,000
convertible promissory note due and payable on December 31, 1997 into 97,805
shares of Common Stock. As of February 14, 1997, New York Life Insurance Company
owned 6.5% of the outstanding Common Stock of the Company.
LHC Corporation also elected to convert two $100,000 convertible promissory
notes due and payable on December 31, 1997 into an aggregate of 24,452 shares of
Common Stock at the time of the Company's initial public offering. Francis G.
Ziegler, a director of the Company, is the Chairman of LHC Corporation.
William A. Knaus, M.D. is the Chief Scientific Advisor of the Company.
While Dr. Knaus is not directly compensated for his services in that capacity,
the Company does pay the University of Virginia, his current employer, for
services rendered to the Company by Dr. Knaus.
15
<PAGE> 19
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to or earned by the
Named Executive Officers for the fiscal year ended December 31, 1996 and the
previous fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($)
- --------------------------------------------------- ---- ---------- --------- ----------------
<S> <C> <C> <C> <C>
Gerald E. Bisbee, Jr., Ph.D. (1)................... 1996 177,500 -- 5,196
Chairman and Chief Executive Officer.......... 1995 150,000 -- 2,598
Robert E. Ciri (2)................................. 1996 146,802 45,000 --
President and Chief Operating Officer......... 1995 -- -- --
Sherrie L. Jones (3)............................... 1996 149,376 -- --
Vice President, New Business Development...... 1995 108,045 -- --
Brion D. Umidi..................................... 1996 120,893 15,000 --
Vice President, Finance and Administration,... 1995 94,500 -- --
Treasurer and Chief Financial Officer
Elizabeth A. Draper, R.N., M.S..................... 1996 114,480 10,000 --
Executive Vice President and Secretary........ 1995 106,000 -- --
</TABLE>
- ---------------
(1) Dr. Bisbee's other compensation consists of premiums paid on a life
insurance policy. Dr. Bisbee's 1996 salary includes $27,500 of deferred
compensation.
(2) Figures for Mr. Ciri represent compensation beginning February 5, 1996, his
date of hire. Mr. Ciri's 1996 salary includes $15,000 of deferred
compensation.
(3) Ms. Jones' salary for 1996 includes $32,960 of earned commissions.
OPTION GRANTS IN 1996
The following table shows information with respect to grants of options to
the Named Executive Officers for the fiscal year ended December 31, 1996. The
options were granted under the Company's Employee Stock Option Plan.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS EXERCISE PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM ($)(1)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ----------------------
NAME GRANTED FISCAL YEAR ($/SHARE) DATE 5% 10%
- ---------------------------- ---------- ------------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Gerald E. Bisbee, Jr.,
Ph.D...................... 150,000 29.4 12.00 11/12/06 1,132,010 2,868,736
Robert E. Ciri.............. 87,413 17.1 8.18 2/5/06 449,684 1,139,587
100,000 19.6 12.00 11/12/06 754,674 1,912,491
Sherrie L. Jones............ 19,232 3.8 8.18 4/1/06 98,936 250,724
Brion D. Umidi.............. 40,000 7.8 12.00 11/12/06 301,869 764,996
Elizabeth A. Draper, R.N.,
M.S....................... -- -- -- -- -- --
</TABLE>
- ---------------
(1) Amounts reflect certain assumed rates of appreciation set forth in the
Securities and Exchange Commission's executive compensation disclosure
rules. Actual gains, if any, on stock options exercised, will depend on
future performance of the Common Stock. No assurance can be given that the
amounts reflected in these columns will be achieved.
16
<PAGE> 20
1996 YEAR-END OPTION VALUES
The following table provides information regarding stock options held by
the Named Executive Officers as of December 31, 1996. None of those individuals
exercised any stock options during the 1996 fiscal year.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END AT FISCAL YEAR-END (1)
----------------------------- -------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE ($) UNEXERCISABLE ($)
------------------------------- ----------- ------------- --------------- -----------------
<S> <C> <C> <C> <C>
Gerald E. Bisbee, Jr., Ph.D.... 400,177 150,000 3,451,262 --
Robert E. Ciri................. 87,413 100,000 219,223 --
Sherrie L. Jones............... 9,963 30,249 24,986 75,861
Brion D. Umidi................. 31,644 40,000 247,693 --
Elizabeth A. Draper, R.N.,
M.S.......................... -- -- -- --
</TABLE>
- ---------------
(1) Value is calculated by subtracting the exercise price per share from the
last reported market price at December 31, 1996 and multiplying the result
by the number of shares subject to the option.
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
EXECUTIVE COMPENSATION PHILOSOPHY
The Compensation Committee of the Board is responsible for reviewing the
Company's executive compensation program and policies each year and determining
the compensation of the Company's executive officers. The Compensation
Committee's decisions are made within parameters established by the Company's
Board of Directors in the form of an overall executive compensation philosophy.
The Company's compensation program and policies are designed to help the
Company attract, motivate and retain individuals of outstanding ability in key
positions in order to maximize return to stockholders. The primary objectives of
the Company's executive compensation program are to: (1) provide total
compensation opportunities that are competitive with opportunities provided to
executives of comparable companies in the decision support industry at
comparable levels of performance; (2) ensure that executive's total compensation
levels vary based on both the Company's short-term financial performance, and
growth in stockholder value over time; (3) focus and motivate executives on the
achievements of defined objectives; and (4) reward executives in accordance with
their relative contributions to achieving strategic milestones and upholding key
mission-related objectives.
In designing and administering its executive compensation program, the
Company attempts to strike an appropriate balance among these objectives. It
believes that its executive compensation program includes elements which, taken
together, constitute a flexible and balanced method of establishing total
compensation for senior management. In Fall 1996, the Compensation Committee
undertook a major review of the Company's compensation program for senior
management. The focus of its review was to assess both the marketplace
competitiveness of APACHE's compensation practices and the degree to which the
amounts and design of the compensation programs support the strategic goals of
the Company. With a view to making the foregoing assessment, the Board directed
the Company to engage a national compensation consulting firm to develop
marketplace data and assess APACHE's practices against such data; assess the
overall effectiveness of the Company's pay program; assess APACHE's compensation
philosophy and its alignment with its strategic business needs; and finally,
develop recommendations regarding compensation levels, incentive pay programs
and its ongoing compensation philosophy. The market analysis included data from
the following sectors: decision support, information systems, investor owned
healthcare companies, combined profit and not-for-profit healthcare companies
and all industrial companies.
Based upon a previous review and the recommendations of its consultants,
the Committee had identified compensation ranges based on the 50th percentile of
competitive data for similarly sized decision support
17
<PAGE> 21
organizations. The Committee had concluded that the Company's most direct
competitors for executive talent are in the decision support industry and,
accordingly, although it reviewed information from all of the sectors identified
above, it principally compared its actions to a self-selected group of decision
support companies of comparable size (the "Compensation Comparable Group") and
used the other data compiled by its consultants as a reference point. The
Compensation Comparable Group is similar, but not identical to, the peer
performance group used in calculating the cumulative total return discussed
under "Company Performance" below.
The Company's executive compensation programs, which contain no special
perquisites, consist of three principle elements: base salary, short-term
incentive cash payments and long-term stock options. Since the compensation
program was adopted during 1996, the implementation of the base compensation
part of the executive compensation program also took place during 1996.
BASE COMPENSATION
Generally, in establishing compensation the Committee believes that
positions are competitively paid if the executive's salary falls within 20% of
the 50th percentile for base salary. The Committee reviews updated competitive
salary and total compensation levels for executive staff. Individual adjustments
are determined within the total executive compensation budget as approved by the
Committee and are based upon individual achievement and contribution. Salary
decisions are made as part of the Company's structured annual review process and
are recommended to the Committee by the Chairman and Chief Executive Officer.
SHORT-TERM INCENTIVE COMPENSATION
The Company's compensation philosophy emphasizes incentive pay to leverage
both individual and organizational performance and to raise the Company's total
compensation position in the marketplace. The Company's short-term incentive
compensation program rewards executives for accomplishing annual financial,
operational, and individual objectives. The program provides varied award
opportunities that correspond to each participant's level of responsibility and
influence on strategic initiatives of the Company. The annual incentive program
is funded only if specific financial goals are achieved at threshold levels. In
1996, executives participated in the incentive compensation program at targeted
levels (as percentage of base salaries) ranging between 25.2% and 36.4%.
Participants in the incentive compensation program receive bonus payments that
include awards for financial, operational and individual achievement of goals.
The Committee assigned levels of threshold, target and maximum bonuses with
corresponding performance expectations for each category of participants. For
1996, the Committee established weighted performance measures based upon
financial (50%); operational (25%); and individual (25%) objectives. The average
bonus paid to eligible executives for 1996 was 31.3% of base salaries,
representing 85% to 95% achievement of the three objectives.
LONG-TERM INCENTIVE COMPENSATION
The Company's stockholders approved adoption of a stock option plan in
1996, which is designed to reward employees for long-term growth consistent with
stockholder return. In 1996, senior management was awarded stock options in
amounts designed to deliver a percentage of their base salaries over the term of
the stock option. Option values for senior management are targeted at 100% of
market value. The ultimate value of the long-term incentive compensation awards
will be determined by the actual performance of the Company's stock price over
time.
CEO COMPENSATION
The Committee established the compensation of Gerald E. Bisbee, Jr., Ph.D.,
Chairman and Chief Executive Officer of the Company, mid-way through 1996, using
the above criteria. Dr. Bisbee's salary was determined based on the Committee's
overall assessment of Dr. Bisbee's performance and competitive market data on
salary levels within the Compensation Comparable Group. Dr. Bisbee's performance
was reviewed with a view to his accomplishment of certain goals relating to
long-term profitability and short and long-term growth. Dr. Bisbee's aggregate
salary in 1996 was increased 18.3% over 1995 levels. No bonus was paid in
18
<PAGE> 22
fiscal year 1996. The CEO was paid a cash bonus in 1997 with respect to
performance in the year ended December 31, 1996. Incentive compensation for Dr.
Bisbee is based upon achievement of Company-wide financial and operating
performance and achievement of individual goals.
COMPENSATION DEDUCTIBILITY
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), imposes a limit on tax deductions for annual compensation in excess of
one million dollars paid by a corporation to its chief executive officer and the
other four most highly compensated executive officers of the corporation. This
provision excludes certain forms of "performance based compensation" from the
compensation taken into account for purposes of the limit. The Committee
believes that it has structured its current compensation programs in a manner to
preserve full deductibility to the Company of executive compensation under the
Code. The Committee will continue to assess the impact of Section 162(m) of the
Code on its compensation practices and determine what further action, if any, is
appropriate.
It is the opinion of the Committee that the aforementioned compensation
structures provide features that properly align the Company's executive
compensation with corporate performance and the interests of its stockholders
and offer competitive opportunities in the marketplace.
The Compensation Committee
Thomas W. Hodson, Chairman
William A. Knaus, M.D.
Francis G. Ziegler
The report of the Compensation Committee of the Board of Directors shall
not be deemed to be incorporated into any filing under the Securities Act of
1933, as amended (the "Securities Act"), or the Exchange Act, notwithstanding
any general statement contained in any such filing incorporating this proxy
statement by reference, except to the extent that the Company specifically
incorporates this information by reference.
19
<PAGE> 23
COMPANY PERFORMANCE
The following graph compares the cumulative total stockholder return on the
Common Stock of APACHE Medical Systems, Inc. from June 28, 1996 (the date the
Common Stock was first offered to the public at an initial public offering price
of $12.00 per share) through December 31, 1996 with the cumulative total return
on the NASDAQ Stock Market - U.S. and the cumulative total return on the stock
of a group of public companies in the healthcare information business (the "Peer
Group"). The Peer Group, which was selected by the Company, is comprised of:
HCIA Inc.; HPR Inc.; Impath Laboratories Inc.; Mecon, Inc.; Oacis Health Care
Holdings, Corp.; Summit Medical Systems, Inc.; Transition Systems Inc; and
Vitalcom Inc. The Company did not pay any dividends during this period. The
NASDAQ Stock Market - U.S. and the stock prices of the Companies in the Peer
Group are published daily.
The graph assumes an investment of $100 in each of APACHE Medical Systems,
Inc., the NASDAQ Stock Market - U.S. and the Peer Group on June 28, 1996. The
comparison also assumes that all dividends are reinvested and that the Peer
Group Returns are weighted for market capitalization.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG APACHE MEDICAL SYSTEMS, INC., THE NASDAQ STOCK
MARKET - U.S. INDEX AND THE PEER GROUP
<TABLE>
<CAPTION>
MEASUREMENT PERIOD APACHE MEDICAL NASDAQ STOCK
(FISCAL YEAR COVERED) SYSTEMS, INC. MARKET - U.S. PEER GROUP
<S> <C> <C> <C>
JUNE 28, 1996 100.00 100.00 100.00
DECEMBER 31, 1996 87.24 108.65 48.61
</TABLE>
The comparisons in this table are required by the Securities and Exchange
Commission and are not intended to forecast or be indicative of possible future
performance of the Company's Common Stock. The stock price performance graph
shall not be deemed to be incorporated into any filing under the Securities Act
or the Exchange Act, notwithstanding any general statement contained in any such
filing incorporating this proxy statement by reference, except to the extent
that the Company specifically incorporates this information by reference.
20
<PAGE> 24
EXECUTIVE OFFICERS
Following is certain information concerning the executive officers of
APACHE Medical Systems, Inc., based on information furnished by them.
Gerald E. Bisbee, Jr., Ph.D., 54. Chairman and Chief Executive Officer.
Dr. Bisbee has been Chairman and Chief Executive Officer of the Company since
December 1989. Before joining APACHE, Dr. Bisbee was the Chairman and CEO of the
Hanger Orthopedic Group, Inc., which he created and financed. He founded and
managed the Health Care Group of the Corporate Finance Department of Kidder,
Peabody & Co., leaving to found Hanger in 1988. From 1978 until moving to
Kidder, Peabody in 1984, he was President of the Hospital Research and
Educational Trust, a new venture and product development company affiliated with
the American Hospital Association. Dr. Bisbee also managed the Yale University
Health Services, which included a 22,000-member health maintenance organization.
He is a director of Cerner Corporation and Yamaichi Funds. Dr. Bisbee received
his B.A. from North Central College, his M.B.A. from the Wharton School of the
University of Pennsylvania and his Ph.D. from Yale University, where his
dissertation was instrumental in the development of Diagnosis Related Groups
("DRGs").
Robert E. Ciri, 45. President and Chief Operating Officer. Mr. Ciri has
been President and Chief Operating Officer of APACHE since February 1996. For 15
years prior to joining APACHE, Mr. Ciri was employed by Hewlett-Packard Company
in the area of clinical systems and healthcare information systems. From 1989 to
1995, he served as Hewlett-Packard's National and North American Field
Operations Manager of internally developed applications, consulting, hardware,
and services. From 1995 until joining APACHE, he served as part of a special
task force developing strategic business plans for Hewlett-Packard's healthcare
operation and integrated health system account structure. Before joining
Hewlett-Packard, Mr. Ciri was a hospital administrator in New York, where he was
involved with both inpatient and ambulatory care programs. In addition to a B.S.
from Rensselaer Polytechnic Institute and an M.S. in medical biology and
education, he has done post-graduate work in an M.P.A. in healthcare
administration and finance and in the executive program at the Wharton School of
the University of Pennsylvania. Mr. Ciri has announced his resignation from the
Company, effective on or about March 31, 1997.
Elizabeth A. Draper, R.N., M.S., 50. Executive Vice President and
Secretary. Ms. Draper has been Executive Vice President and Secretary of the
Company since March 1988 and served as a director from the founding of the
Company until December 1994. From 1981 to 1988, Ms. Draper was Senior Research
Scientist at the ICU Research Unit at George Washington University, where she
was a founding member of the APACHE team. From 1976 until 1988, she was an
adjunct professor of physiology at the Graduate School of Nursing at The
Catholic University. Ms. Draper has 12 years of clinical experience in intensive
care nursing. She received her B.S. in nursing from the University of
Massachusetts and an M.S. in physiology from George Washington University.
James C. Flounlacker, 36. Vice President, Client Services. Mr. Flounlacker
has been Vice President, Client Services of the Company since April 1995. He
joined APACHE in January of 1994 as Director of Client Services. From September
of 1991 until joining APACHE, Mr. Flounlacker was Manager of Installation
Services at American International Healthcare, Inc., where he lead a team of
Project Managers responsible for installation and implementation of a managed
healthcare information system. From January 1991 until September 1991, Mr.
Flounlacker was Manager of Acquisitions Development of Columbia Freestate Health
Plan, a health maintenance organization. Mr. Flounlacker received his B.A. in
English from the University of Maryland, and his M.B.A. from Loyola College in
Baltimore, Maryland.
Sherrie L. Jones, 41. Vice President, New Business Development. Ms. Jones
has served as Vice President, New Business Development since August 1996 and had
served as Vice President, Sales and Marketing from February 1996 until that
time. From October 1994 until February 1996, she held the position of Vice
President, Marketing. Ms. Jones joined APACHE in early 1990 as a marketing
consultant responsible for assisting the design plan and market definition for
the APACHE Critical Care System, and later that year she assumed a permanent
position as a sales representative. Prior to joining APACHE, she spent 12 years
with Datapoint Corporation in the areas of accounting, finance, contracts
management and sales. Ms. Jones holds a B.A. in accounting from the University
of Texas.
21
<PAGE> 25
Bonnie L. Semega, 45. Vice President, Product Delivery. Ms. Semega has
served as Vice President, Product Delivery since January 1997. From July 1996
until December 1996, she held the position of Vice President, Marketing. Prior
to joining APACHE, she was employed as a healthcare consultant by Horizon Data
Corporation (HDC), where she developed a business plan and organizational
structure that allowed them to establish a new healthcare division. From 1994 to
1996 she served as the Sr. Vice President of Operations for Integrated Systems
Technologies, where her expertise in business re-engineering was significant in
the restructuring of the company. Prior to that, Ms. Semega spent three years as
a Managing Director in Healthcare Systems Integration with TDS Healthcare
Systems Corporation and 20 years with AT&T. Ms. Semega holds a B.A. in business
administration from the University of Pittsburgh and has done post-graduate work
in project management at George Washington University.
Timothy C. Summers, 37. Vice President, Information Technology. Mr.
Summers has served as Vice President, Information Technology since February
1997. From June 1996 until joining the Company, Mr. Summers held the position of
Vice President, Research and Development with MAXM Systems Corporation, a
company involved in the development of systems management software and event
automation software, where he was responsible for product development support,
quality assurance and distribution. Prior to that, since 1992, Mr. Summers
served as Director of Development for Legent Corporation/Computer Associates,
Inc., a systems management software company, where he was involved with various
development groups and was responsible for new product development, maintenance
and support. Mr. Summers holds a B.S. in computer science from Indiana
University of Pennsylvania.
Douglas I. Thompson, 38. Vice President, Consulting Services. Mr. Thompson
has served as Vice President, Consulting Services since August 1993. From the
time he joined APACHE until August 1993, he acted as Vice President, Client
Services. Mr. Thompson was a manager at Ernst & Young L.L.P. in Phoenix, Arizona
from 1989 until joining APACHE. While at Ernst & Young, he led process
improvement projects for hospital clients, which involved consulting with
physician groups on marketing, operations and organizational structure issues,
and prepared business plans for startup healthcare firms. Before joining Ernst &
Young, Mr. Thompson was employed from 1987 to 1988 by APM, Inc. in both New York
City and San Francisco as a consultant for healthcare clients. Mr. Thompson
received an M.B.A. in marketing from Columbia University and a B.S. in business
from Brigham Young University.
Brion D. Umidi, 33. Vice President, Finance and Administration, Treasurer
and Chief Financial Officer. Mr. Umidi has served as the Company's Chief
Financial Officer since July 1996 and as Vice President, Finance and
Administration and Treasurer since joining the Company in February 1991. From
1987 until joining APACHE, he was a commercial finance loan officer at the
Mercantile Safe Deposit and Trust Company in Baltimore, Maryland and an auditor
with MNC Financial, Inc. in Baltimore, Maryland from 1986 to 1987. He received
his B.B.A. from Loyola College in Baltimore, Maryland.
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires that the Company's executive
officers and directors, and beneficial owners of 10% or more of the Company's
stock file initial reports of ownership and of changes of ownership with the
Securities and Exchange Commission and the NASDAQ Stock Market. Executive
officers, directors and 10% beneficial owners are required by securities
regulations to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely on a review of the copies of such forms furnished to the
Company and written representations from the Company's executive officers and
directors, the Company believes that all filing requirements were met during
fiscal year 1996 except that a Form 3 reporting a grant of 20,000 options under
the Company's Employee Stock Option Plan to Bonnie L. Semega, Vice President,
Marketing, upon her employment with the Company was inadvertently filed
approximately one week late.
22
<PAGE> 26
DEADLINE FOR STOCKHOLDER PROPOSALS
Proposals of stockholders intended for inclusion in the Company's proxy
statement relating to the 1998 Annual Meeting must be received at the Company's
offices (addressed to the attention of the Secretary) not later than November
21, 1997. Any such proposal must comply with Rule 14a-8 of Regulation 14A of the
proxy rules of the Securities and Exchange Commission.
ADDITIONAL INFORMATION
The expenses in connection with the solicitation of proxies will be borne
by the Company. Solicitation will be made by mail, but may also be made by
telephone or personal call by officers, directors or employees of the Company
who will not be specially compensated for such solicitation. The Company may
request brokerage houses and other nominees or fiduciaries to forward copies of
the Company's proxy statement and Annual Report to Stockholders to beneficial
owners of stock held in their names, and the Company may reimburse them for
reasonable out-of-pocket expenses incurred in doing so. The Company has retained
Kissel-Blake Inc. to assist in solicitation for a fee not to exceed $7,500, plus
reasonable expenses.
By Order of the Board of Directors
Elizabeth A. Draper
Secretary
23
<PAGE> 27
APPENDIX A
EMPLOYEE STOCK OPTION PLAN OF
APACHE MEDICAL SYSTEMS, INC.
(AMENDED AND RESTATED EFFECTIVE MAY 1, 1997)
SECTION 1. PURPOSE.
The purpose of the Plan, as hereinafter set forth, is to enable the Company
to attract, retain and reward corporate officers, managerial and other
significant employees, and non-employees (other than non-employee directors) who
have an ongoing consultant or independent contractor relationship with the
Company, by offering such individuals an opportunity to have a greater
proprietary interest in and a closer identity with the Company and its financial
success.
Options granted under this Plan may be Incentive Stock Options or
Nonqualified Stock Options. However, Incentive Stock Options may only be granted
to employees of the Company.
SECTION 2. DEFINITIONS.
Board: The Board of Directors of the Company.
Change in Control: The purchase or other acquisition by any person, entity
or group of persons, within the meaning of section 13(d) or 14(d) of the
Exchange Act or any comparable successor provisions, of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or
more of either the outstanding shares of common stock or the combined voting
power of the Company's then outstanding voting securities entitled to vote
generally; the approval by the stockholders of the Company of a reorganization,
merger, or consolidation, in each case, with respect to which persons who were
stockholders of the Company immediately prior to such reorganization, merger or
consolidation do not, immediately thereafter, own more than 30% of the combined
voting power entitled to vote generally in the election of directors of the
reorganized, merged or consolidated Company's then outstanding securities; a
liquidation or dissolution of the Company; or of the sale of all or
substantially all of the Company's assets.
Code: The Internal Revenue Code of 1986, as amended from time to time.
Committee: The Compensation Committee of the Board or such other committee
as shall be appointed by the Board to administer the Plan pursuant to Section 3.
Common Stock: The common stock, $0.01 par value, of the Company or such
other class of shares or other securities as may be applicable pursuant to the
provisions of Section 8.
Company: APACHE Medical Systems, Inc., a Delaware corporation, its
subsidiary or subsidiaries, and any successor thereto.
Disabled or Disability: Permanent and total disability, as defined in Code
Section 22(e)(3). A Participant shall not be considered Disabled unless the
Committee determines that the Disability arose prior to such Participant's
termination of employment or, in the case of a non-employee Participant, prior
to the termination of the consulting or independent contractor relationship
between such Participant and the Company.
Exchange Act: The Securities Exchange Act of 1934, as amended from time to
time.
Fair Market Value: The amount determined by the Committee from time to
time, using such good faith valuation methods as it deems appropriate, except
that as long as the Common Stock is traded on NASDAQ or a recognized stock
exchange, it shall mean the average of the highest and lowest quoted selling
prices for the shares on the relevant date, or, if there were no sales on such
date, the weighted average of the means between the highest and the lowest
quoted selling prices on the nearest day before and the nearest day after the
relevant date, as prescribed by Treasury Regulation Section 20.2031-2(b)(2), as
reported in the Wall Street Journal or a similar publication selected by the
Committee.
A-1
<PAGE> 28
Incentive Stock Option: An Option that is intended to qualify as an
"incentive stock option" under Code Section 422.
Nonqualified Stock Option: An Option that is not an Incentive Stock
Option.
Option: An option to purchase shares of Common Stock granted to a
Participant pursuant to Section 6.
Participant: An employee of the Company (including any employee who is a
member of the Board) or any non-employee consultant or advisor to the Company
whose participation in the Plan is determined by the Committee to be in the best
interest of the Company.
Plan: The Employee Stock Option Plan of APACHE Medical Systems, Inc., as
amended from time to time.
SECTION 3. ADMINISTRATION.
(a) Committee. The Plan shall be administered by the Committee. To the
extent required to comply with the relevant provisions of Rule 16b-3 under the
Exchange Act, each member of the Committee shall qualify as a "non-employee
director," as defined in Rule 16b-3 or in any successor definition adopted by
the Securities and Exchange Commission.
(b) Authority of the Committee. The Committee shall have the authority to
approve individuals for participation; to construe and interpret the Plan; to
establish, amend or waive rules and regulations for its administration; and to
accelerate the exercisability of any Option or the termination of any
restriction under any Option. Options may be subject to such provisions as the
Committee shall deem advisable, and may be amended by the Committee from time to
time; provided that no such amendment may adversely affect the rights of the
holder of an Option without such holder's consent.
(c) Powers of the Committee. The Committee may employ such legal counsel,
consultants and agents as it may deem desirable for the administration of the
Plan and may rely upon any opinion received from any such counsel or consultant
and any computation received from any such consultant or agent.
(d) Indemnification. No member of the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or any
Option awarded under it. To the maximum extent permitted by applicable law, each
member of the Committee shall be indemnified and held harmless by the Company
against any cost or expense (including legal fees) or liability (including any
sum paid in settlement of a claim with the approval of the Company) arising out
of any act or omission to act in connection with the Plan unless arising out of
such member's own fraud or bad faith. Such indemnification shall be in addition
to any rights of indemnification the members may have as members of the Board or
under the by-laws of the Company.
SECTION 4. COMMON STOCK SUBJECT TO PLAN.
The aggregate shares of Common Stock that may be issued under the Plan
shall not exceed 2,200,000, as adjusted in accordance with the provisions of
Section 8.
In the event of a lapse, expiration, termination, forfeiture or
cancellation of any Option granted under the Plan without the issuance of
shares, the Common Stock subject to or reserved for such Option may be used
again for new grants of Options hereunder; provided that in no event may the
number of shares of Common Stock issued hereunder exceed the total number of
shares reserved for issuance. Any shares of Common Stock withheld or surrendered
to pay withholding taxes pursuant to Section 11(e) or withheld or surrendered in
full or partial payment of the exercise price of an Option pursuant to Section
6(d) shall be added to the aggregate shares of Common Stock available for
issuance.
SECTION 5. ELIGIBILITY.
Options may be granted under the Plan to any employee of the Company,
including employees who are officers and/or members of the Board, whose
participation the Committee determines is in the best interest of the Company
and to any non-employee who is a consultant or advisor to the Company whose
participation the Committee determines is in the best interests of the Company
(collectively, "Participants"). The Committee
A-2
<PAGE> 29
shall have absolute discretion to determine, within the limits of the express
provisions of the Plan, those Participants to whom and the time or times at
which Options shall be granted. The Committee shall also determine, within the
limits of the express provisions of the Plan, the number of shares to be subject
to each Option, the duration of each Option, the exercise price under each
Option, the time or times within which (during the term of the Option) all or
portions of each Option may become vested and exercisable, and whether an Option
shall be an Incentive Stock Option, a Nonqualified Stock Option or a combination
thereof. In making such determination, the Committee may take into account the
nature of the services rendered by the Participant, his or her present and
potential contributions to the Company's success and such other factors as the
Committee in its discretion shall deem relevant.
Notwithstanding the foregoing, no Incentive Stock Option shall be granted
to any Participant who is not an employee of the Company and no non-employee
member of the Board shall be eligible to receive any new Option grant hereunder.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
Each Option granted under the Plan shall be evidenced by an agreement, in a
form approved by the Committee, which shall be subject to the following express
terms and conditions and to such other terms and conditions as the Committee may
deem appropriate:
(a) Option Period. Each Option agreement shall specify the period for
which the Option thereunder is granted (which, in the case of Incentive Stock
Options, shall not exceed ten years from the date of grant) and shall provide
that the Option shall expire at the end of such period.
(b) Exercise Price. The per share exercise price of each Option shall be
determined by the Committee at the time the Option is granted, and, in the case
of Incentive Stock Options, shall not be less than the Fair Market Value of
Common Stock on the date the Option is granted.
(c) Vesting of Options. No part of any Option may be exercised until the
Participant shall have satisfied the vesting conditions (i.e., such as remaining
in the employ of the Company for a certain period of time), if any, as the
Committee may specify in the applicable Option agreement. Subject to the
provisions of Section 6(e), any Option may be exercised, to the extent
exercisable by its terms, at such time or times as may be determined by the
Committee.
(d) Payment. The exercise price of an Option shall be paid in full at the
time of exercise (i) in cash, (ii) through the surrender of previously-acquired
shares of Common Stock having a Fair Market Value equal to the exercise price of
the Option, (iii) through the withholding by the Company (at the election of the
Participant) of shares of Common Stock having a Fair Market Value equal to the
exercise price or (iv) by a combination of (i), (ii) and (iii).
(e) Other Rules Applicable to Incentive Stock Options.
(i) Grant Period. Consistent with Section 9, an Incentive Stock
Option must be granted within ten years of the date this Plan is adopted
(i.e., the Effective Date, as defined in Section 13) or the date the Plan
is approved by the stockholders of the Company, whichever is earlier.
(ii) Ten Percent Owner. If a Participant, on the date that an
Incentive Stock Option is granted, owns, directly or indirectly, within the
meaning of Section 424(d) of the Code, stock representing more than 10% of
the voting power of all classes of stock of the Company, then the exercise
price per share shall in no instance be less than 110% of the Fair Market
Value per share of Common Stock at the time the Incentive Stock Option is
granted, and no Incentive Stock Option shall be exercisable by such
Participant after the expiration of five years from the date it is granted.
(iii) Employee Status. To retain favorable Incentive Stock Option tax
treatment, the Option holder must at all times from the date the Option is
granted through a date that is no more than three months prior to the date
it is exercised (or no more than one year prior to the date it is
exercised, where the Participant's termination of employment is due to
death or Disability) remain an employee of the
A-3
<PAGE> 30
Company. For this purpose, authorized leaves of absence shall not be deemed
to sever the employment relationship.
(iv) Limitations on Dispositions. To retain favorable Incentive Stock
Option tax treatment, Common Stock received upon the exercise of an
Incentive Stock Option may not be disposed of prior to the later of two
years from the date the Incentive Stock Option is granted or one year from
the date the shares of Common Stock are transferred to the Participant upon
exercise of the Incentive Stock Option.
(v) Value of Shares. The aggregate Fair Market Value (determined at
the date of grant) of the Incentive Stock Options exercisable for the first
time by a Participant during any calendar year shall not exceed $100,000 or
any other limit imposed by the Code.
(f) Limit on the Exercisability of all Options. No Option granted under
this Plan may become exercisable prior to six months following the date it is
granted or six months after stockholders approve the Plan, whichever date is
later.
SECTION 7. TREATMENT OF OPTIONS UPON TERMINATION.
(a) Termination due to Disability or Death. Upon the termination of
employment of an employee Participant or upon the termination of the consulting
or advisor relationship of a non-employee Participant by reason of Disability or
death, such Participant's Options shall become or remain fully vested and shall
be exercisable by such Participant (or, in the case of death, by his or her
estate) for not later than the earlier of one year after the termination date or
the expiration of the term of the Options.
(b) Termination Other than For Cause. Upon the termination of employment
of an employee Participant or upon the termination of the consulting or advisor
relationship of a non-employee Participant for any reason other than for Cause
(as defined in Section 7(c)), Disability or death, such Participant's Options
(to the extent vested prior to such termination) may be exercised by such
Participant during the six-month period commencing on the date of termination,
but not later than the expiration of the term of the Options. If a Participant
dies during such six-month period, his or her estate may exercise the Options
(to the extent such Options were vested and exercisable prior to death), but not
later than the earlier of one year after the date of death or the expiration of
the term of the Options. Notwithstanding the foregoing, to retain favorable
Incentive Stock Option tax treatment, Incentive Stock Options must be exercised
within three months of the Participant's termination of employment.
(c) Termination for Cause. Upon termination of the employment of an
employee Participant or upon the termination of the consulting or advisor
relationship of a non-employee Participant for Cause (as defined below), the
Participant's right to exercise his or her Options shall terminate at the time
notice of termination is given by the Company to such Participant. For purposes
of this provision, substantial cause shall include:
(i) The commission of an action against or in derogation of the
interests of the Company which constitutes an act of fraud, dishonesty or
moral turpitude or which, if proven in a court of law, would constitute a
violation of a criminal code or similar law;
(ii) A material breach of any material duty or obligation imposed upon
the Participant by the Company;
(iii) Divulging the Company's confidential information; or
(iv) The performance of any similar action that the Committee, in its
sole discretion, may deem to be sufficiently injurious to the interests of
the Company so as to constitute substantial cause for termination.
SECTION 8. ADJUSTMENT PROVISIONS.
In the event of a stock split, stock dividend, recapitalization,
reclassification or combination of shares, merger, sale of assets or similar
event, the Committee shall adjust equitably (a) the number and class of shares
or other securities that are reserved for issuance under the Plan, (b) the
number and class of shares or other securities that are subject to outstanding
Options, and (c) the appropriate Fair Market Value and other
A-4
<PAGE> 31
price determinations applicable to Options. The Committee shall make all
determinations under this Section 8, and all such determinations shall be
conclusive and binding.
SECTION 9. TERM OF PLAN.
The Plan shall be deemed adopted and shall become effective on the date it
is approved by the stockholders of the Company and shall continue until April 1,
2006, or, if earlier, upon termination of the Plan by the Board or until no
Common Stock remains available for issuance under Section 4.
SECTION 10. CHANGE IN CONTROL.
In the event of a Change in Control, all outstanding Options shall fully
vest in each Participant. The Committee, in its discretion, may also provide in
any Option agreement for adjustment of certain terms of such Option upon the
occurrence of a Change in Control.
SECTION 11. GENERAL PROVISIONS.
(a) Employment. Nothing in the Plan or in any related instrument shall
confer upon any employee Participant or other employee any right to continue in
the employ of the Company or shall affect the right of the Company to terminate
the employment of any employee Participant or other employee with or without
cause.
(b) Legality of Issuance of Shares. No Common Stock shall be issued
pursuant to the exercise of an Option unless and until all legal requirements
applicable to such issuance have been satisfied.
(c) Ownership of Common Stock Allocated to Plan. No Participant
(individually or as a member of a group), and no beneficiary or other person
claiming under or through such Participant, shall have any right, title or
interest in or to any Common Stock allocated or reserved for purposes of the
Plan or subject to any Option, except as to shares of Common Stock, if any, as
shall have been issued to such Participant or beneficiary.
(d) Governing Law. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of Virginia.
(e) Withholding of Taxes. The Company may withhold, or allow a Participant
to remit to the Company, any Federal, state or local taxes required by law to be
withheld with respect to any event giving rise to income tax liability with
respect to an Option. In order to satisfy all or any portion of such income tax
liability, a Participant may elect to surrender Common Stock previously acquired
by the Participant or to have the Company withhold Common Stock that would
otherwise have been issued to the Participant pursuant to the exercise of an
Option, the number of shares of such withheld or surrendered Common Stock to be
sufficient to satisfy all or a portion of the income tax liability that arises
upon the event giving rise to income tax liability with respect to an Option.
(f) Nontransferability. During the lifetime of a Participant, any Option
granted to him or her shall be exercisable only by him or her or by his or her
guardian or legal representative. No Option shall be assignable or transferable,
except by will or by the laws of descent and distribution, and no option shall
be subjected to any encumbrance, pledge or charge of any nature.
SECTION 12. AMENDMENT OR DISCONTINUANCE OF THE PLAN.
The Board, acting by a majority of its members, without further action on
the part of the stockholders, may from time to time alter, amend or suspend the
Plan or any Option granted hereunder or may at any time terminate the Plan;
provided, however, that the Board may not materially increase the number of
shares of Common Stock subject to the Plan (except as provided in Section 8
hereof); and provided further that no such action shall materially and adversely
affect any outstanding Options without the consent of the respective
Participants.
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<PAGE> 32
SECTION 13. EFFECTIVE DATE OF PLAN.
The Plan as adopted by the Board and approved by stockholders was
originally effective as of November 8, 1990 and amended and restated as of April
1, 1996. The Plan is hereby further amended and restated effective May 1, 1997
(the "Effective Date"), subject to approval by the holders of a majority of the
outstanding shares of Common Stock of the Company.
A-6
<PAGE> 33
APPENDIX B
APACHE MEDICAL SYSTEMS, INC.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
(AMENDED AND RESTATED MAY 1, 1997)
SECTION 1. PURPOSE.
The purpose of the Plan, as hereinafter set forth, is to enable the Company
to attract, retain and reward qualified non-employee directors by offering them
an opportunity to have a greater proprietary interest in and a closer identity
with the Company and its financial success.
Options granted under this Plan shall be nonqualified stock options.
SECTION 2. DEFINITIONS.
Board: The Board of Directors of the Company.
Change in Control: The purchase or other acquisition by any person, entity
or group of persons, within the meaning of section 13(d) or 14(d) of the
Exchange Act or any comparable successor provisions, of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or
more of either the outstanding shares of common stock or the combined voting
power of the Company's then outstanding voting securities entitled to vote
generally; the approval by the stockholders of the Company of a reorganization,
merger, or consolidation, in each case, with respect to which persons who were
stockholders of the Company immediately prior to such reorganization, merger or
consolidation do not, immediately thereafter, own more than 30% of the combined
voting power entitled to vote generally in the election of directors of the
reorganized, merged or consolidated Company's then outstanding securities; a
liquidation or dissolution of the Company; or of the sale of all or
substantially all of the Company's assets.
Code: The Internal Revenue Code of 1986, as amended from time to time.
Committee: The Chairman of the Board and such other employee members of
the Board, if any, who the Chairman may select to assist him or her in the
administration of the Plan in accordance with Section 3.
Common Stock: The common stock, $0.01 par value, of the Company or such
other class of shares or other securities as may be applicable pursuant to the
provisions of Section 8.
Company: APACHE Medical Systems, Inc., a Delaware corporation, its
subsidiary or subsidiaries, and any successor thereto.
Disabled or Disability: Permanent and total disability, as defined in Code
Section 22(e)(3). A Participant shall not be considered Disabled unless the
Committee determines that the Disability arose prior to such Participant's
termination of membership on the Board.
Exchange Act: The Securities Exchange Act of 1934, as amended from time to
time.
Fair Market Value: The amount determined by the Committee from time to
time, using such good faith valuation methods as it deems appropriate, except
that as long as the Common Stock is traded on NASDAQ or a recognized stock
exchange, it shall mean the average of the highest and lowest quoted selling
prices for the shares on the relevant date, or, if there were no sales on such
date, the weighted average of the means between the highest and the lowest
quoted selling prices on the nearest day before and the nearest day after the
relevant date, as prescribed by Treasury Regulation Section 20.2031-2(b)(2), as
reported in the Wall Street Journal or a similar publication selected by the
Committee.
Option: A nonqualified stock option to purchase shares of Common Stock
granted to a Participant pursuant to Section 6.
Participant: Any non-employee member of the Board.
Plan: The APACHE Medical Systems, Inc. Non-Employee Director Stock Option
Plan, as amended from time to time.
B-1
<PAGE> 34
SECTION 3. ADMINISTRATION.
(a) Committee. The Plan shall be administered by the Committee.
(b) Authority of the Committee. The Committee shall have the authority to
construe and interpret the Plan and to establish, amend or waive rules and
regulations for its administration. Subject to the limitations of the express
provisions of the Plan, Options may be subject to such provisions as the
Committee shall deem advisable, and may be amended by the Committee from time to
time; provided that no such amendment may adversely affect the rights of the
holder of an Option without such holder's consent.
(c) Powers of the Committee. The Committee may employ such legal counsel,
consultants and agents as it may deem desirable for the administration of the
Plan and may rely upon any opinion received from any such counsel or consultant
and any computation received from any such consultant or agent.
(d) Indemnification. No member of the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or any
Option awarded under it. To the maximum extent permitted by applicable law, each
member of the Committee shall be indemnified and held harmless by the Company
against any cost or expense (including legal fees) or liability (including any
sum paid in settlement of a claim with the approval of the Company) arising out
of any act or omission to act in connection with the Plan unless arising out of
such member's own fraud or bad faith. Such indemnification shall be in addition
to any rights of indemnification the members may have as members of the Board or
under the by-laws of the Company.
SECTION 4. COMMON STOCK SUBJECT TO PLAN.
The aggregate shares of Common Stock that may be issued under the Plan
shall not exceed 70,000, as adjusted in accordance with the provisions of
Section 8.
In the event of a lapse, expiration, termination, forfeiture or
cancellation of any Option granted under the Plan without the issuance of
shares, the Common Stock subject to or reserved for such Option may be used
again for new grants of Options hereunder; provided that in no event may the
number of shares of Common Stock issued hereunder exceed the total number of
shares reserved for issuance. Any shares of Common Stock withheld or surrendered
to pay withholding taxes pursuant to Section 11(e) or withheld or surrendered in
full or partial payment of the exercise price of an Option pursuant to Section
6(d) shall be added to the aggregate shares of Common Stock available for
issuance.
SECTION 5. ELIGIBILITY.
Options shall be granted under the Plan to all non-employee members of the
Board ("Participants").
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
Each Option granted under the Plan shall be evidenced by an agreement, in a
form approved by the Committee, which shall be subject to the following express
terms and conditions and to such other terms and conditions as the Committee may
deem appropriate:
(a) Timing of Option Grants and Number of Underlying Shares. On January 1
of each calendar year, each individual who is a non-employee member of the Board
on that date shall be granted an Option to purchase up to 2,500 shares of Common
Stock. This number of shares shall be subject to adjustment in accordance with
the provisions of Section 8.
(b) Exercise Price. The per share exercise price of each Option granted
under the Plan shall be 100% of the Fair Market Value per share of Common Stock
at the date the Option is granted.
(c) Vesting of Options. Each Option granted under the Plan shall become
fully vested and exercisable on the December 31 immediately following the date
on which the Option is granted.
(d) Option Period. Each Option agreement shall specify the period for
which the Option thereunder is granted and shall provide that the Option shall
expire at the end of such period.
B-2
<PAGE> 35
(e) Payment. The exercise price of an Option shall be paid in full at the
time of exercise (i) in cash, (ii) through the surrender of previously-acquired
shares of Common Stock having a Fair Market Value equal to the exercise price of
the Option, (iii) through the withholding by the Company (at the election of the
Participant) of shares of Common Stock having a Fair Market Value equal to the
exercise price or (iv) by a combination of (i), (ii) and (iii).
SECTION 7. TREATMENT OF OPTIONS UPON TERMINATION.
(a) Termination due to Disability or Death. Upon the termination of a
Participant's membership on the Board by reason of Disability or death, such
Participant's Options shall become or remain fully vested and shall be
exercisable by such Participant (or, in the case of death, by his or her estate)
for not later than the earlier of one year after the termination date or the
expiration of the term of the Options.
(b) Termination Other than For Cause. Upon the termination of a
Participant's membership on the Board for any reason other than for Cause (as
defined in Section 7(c)), Disability or death, such Participant's Options (to
the extent vested prior to such termination) may be exercised by such
Participant during the six-month period commencing on the date of termination,
but not later than the expiration of the term of the Options. If a Participant
dies during such six-month period, his or her estate may exercise the Options
(to the extent such Options were vested and exercisable prior to death), but not
later than the earlier of one year after the date of death or the expiration of
the term of the Options.
(c) Termination for Cause. Upon termination of a Participant's membership
on the Board for Cause (as defined below), the Participant's right to exercise
his or her Options shall terminate at the time notice of termination is given by
the Company to such Participant. For purposes of this provision, substantial
cause shall include:
(i) The commission of an action against or in derogation of the
interests of the Company which constitutes an act of fraud, dishonesty or
moral turpitude or which, if proven in a court of law, would constitute a
violation of a criminal code or similar law;
(ii) A material breach of any material duty or obligation imposed upon
the Participant by the Company;
(iii) Divulging the Company's confidential information; or
(iv) The performance of any similar action that the Committee, in its
sole discretion, may deem to be sufficiently injurious to the interests of
the Company so as to constitute substantial cause for termination.
SECTION 8. ADJUSTMENT PROVISIONS.
In the event of a stock split, stock dividend, recapitalization,
reclassification or combination of shares, merger, sale of assets or similar
event, the Committee shall adjust equitably (a) the number and class of shares
or other securities that are reserved for issuance under the Plan, (b) the
number and class of shares or other securities that are subject to outstanding
Options, and (c) the appropriate Fair Market Value and other price
determinations applicable to Options. The Committee shall make all
determinations under this Section 8, and all such determinations shall be
conclusive and binding.
SECTION 9. TERM OF PLAN.
The Plan shall be deemed adopted and shall become effective on the date it
is approved by the stockholders of the Company and shall continue until
terminated by the Board or until no Common Stock remains available for issuance
under Section 4, whichever occurs first.
B-3
<PAGE> 36
SECTION 10. CHANGE IN CONTROL.
In the event of a Change in Control, all outstanding Options shall fully
vest in each Participant.
SECTION 11. GENERAL PROVISIONS.
(a) Board Membership. Nothing in the Plan or in any related instrument
shall confer upon any Participant any right to continue as a member of the Board
or shall affect the right of the Company to terminate the Board membership of
any Participant with or without cause.
(b) Legality of Issuance of Shares. No Common Stock shall be issued
pursuant to the exercise of an Option unless and until all legal requirements
applicable to such issuance have been satisfied.
(c) Ownership of Common Stock Allocated to Plan. No Participant
(individually or as a member of a group), and no beneficiary or other person
claiming under or through such Participant, shall have any right, title or
interest in or to any Common Stock allocated or reserved for purposes of the
Plan or subject to any Option, except as to shares of Common Stock, if any, as
shall have been issued to such Participant or beneficiary.
(d) Governing Law. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of Virginia.
(e) Withholding of Taxes. The Company may withhold, or allow a Participant
to remit to the Company, any Federal, state or local taxes required by law to be
withheld with respect to any event giving rise to income tax liability with
respect to an Option. In order to satisfy all or any portion of such income tax
liability, a Participant may elect to surrender Common Stock previously acquired
by the Participant or to have the Company withhold Common Stock that would
otherwise have been issued to the Participant pursuant to the exercise of an
Option, the number of shares of such withheld or surrendered Common Stock to be
sufficient to satisfy all or a portion of the income tax liability that arises
upon the event giving rise to income tax liability with respect to an Option.
(f) Nontransferability. During the lifetime of a Participant, any Option
granted to him or her shall be exercisable only by him or her or by his or her
guardian or legal representative. No Option shall be assignable or transferable,
except by will or by the laws of descent and distribution, and no option shall
be subjected to any encumbrance, pledge or charge of any nature.
SECTION 12. AMENDMENT OR DISCONTINUANCE OF THE PLAN.
The Board, acting by a majority of its members, without further action on
the part of the stockholders, may from time to time alter, amend or suspend the
Plan or any Option granted hereunder or may at any time terminate the Plan;
provided, however, that the Board may not materially increase the number of
shares of Common Stock subject to the Plan (except as provided in Section 8
hereof); and provided further that no such action shall materially and adversely
affect any outstanding Options without the consent of the respective
Participants.
SECTION 13. EFFECTIVE DATE OF PLAN.
The Plan as adopted by the Board and approved by stockholders was
originally effective on April 1, 1996. The Plan is hereby amended and restated
effective May 1, 1997 (the "Effective Date"), subject to approval by the holders
of a majority of the outstanding shares of Common Stock of the Company.
B-4
<PAGE> 37
FORM OF PROXY CARD
[X] Please mark
votes as in this
example
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR EACH PROPOSAL.
<TABLE>
<CAPTION>
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL PROPOSALS
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<S> <C> <C>
FOR ALL
1. Election of Directors. FOR WITHHELD EXCEPT 3. Approval, Amendment FOR AGAINST ABSTAIN
Nominees: Gerald E. Bisbee, Jr., Ph.D., [ ] [ ] [ ] and Restatement of [ ] [ ] [ ]
Edward J. Connors, Thomas W. Hodson, the Employee Stock
William A. Knaus, M.D., Lawrence S. Option Plan.
Lewin, Francis G. Ziegler. (Instruction:
To withhold authority to vote for any 4. Approval, Amendment FOR AGAINST ABSTAIN
individual nominee, check the "For All and Restatement of [ ] [ ] [ ]
Except" box above and strike a line the Non-Employee
through the nominee's name listed above.) Director Stock Option
Plan.
5. Ratification of the FOR AGAINST ABSTAIN
appointment of Arthur [ ] [ ] [ ]
Anderson, LLP as
independent
accountants.
2. Approval, Amendment and Restatement of FOR AGAINST ABSTAIN 6. In the discretion
the Amended and Restated Certificate of [ ] [ ] [ ] of the proxies named
Incorporation. herein, the proxies
are authorized to
vote upon other
matters as are
properly brought
before the meeting.
YES NO
I PLAN TO ATTEND [ ] [ ]
THE MEETING
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</TABLE>
The signer hereby revokes all proxies
heretofore given by the signer to vote
at said meeting or any adjournments
thereof.
Please sign exactly as your name
appears hereon. Joint owners should
each sign. When signing as attorney,
executor, administrator, trustee or
guardian, please give full title as
such.
--------------------------------------
--------------------------------------
Signature(s) Date
(LOGO)
APACHE MEDICAL SYSTEMS, INC.
ANNUAL MEETING OF STOCKHOLDERS
MAY 6, 1997
10:00 A.M.
1650 TYSONS BOULEVARD, SUITE 300
MCLEAN, VIRGINIA 22102
<PAGE> 38
APACHE MEDICAL SYSTEMS, INC.
PROXY CARD
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 6, 1997.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby constitutes and appoints Gerald E. Bisbee, Jr. and Brion
D. Umidi, and each of them, true and lawful agents and proxies of the
undersigned, with full power of substitution, to represent the undersigned and
to vote all shares of stock that the undersigned is entitled to vote at the
Annual Meeting of Stockholders of APACHE Medical Systems, Inc. (the "Company")
to be held on May 6, 1997, and at any and all adjournments and postponements
thereof, on all matters before such meeting.
THIS PROXY WILL BE VOTED AS SPECIFIED ON THE REVERSE SIDE. HOWEVER, IF NO VOTE
IS SPECIFIED, THIS PROXY WILL BE VOTED "FOR" EACH OF THE NOMINEES FOR DIRECTOR;
"FOR" THE PROPOSAL TO AMEND AND RESTATE THE COMPANY'S AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION; "FOR" THE PROPOSAL TO AMEND AND RESTATE THE
EMPLOYEE STOCK OPTION PLAN; "FOR" THE PROPOSAL TO AMEND AND RESTATE THE
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN; AND "FOR" THE PROPOSAL TO RATIFY THE
APPOINTMENT OF ARTHUR ANDERSON LLP AS INDEPENDENT ACCOUNTANTS; ALL OF WHICH
MATTERS ARE MORE FULLY DESCRIBED IN THE PROXY STATEMENT OF WHICH THE UNDERSIGNED
STOCKHOLDER ACKNOWLEDGES RECEIPT.
THIS PROXY GRANTS DISCRETIONARY AUTHORITY TO VOTE IN ACCORDANCE WITH THE BEST
JUDGMENT OF THE NAMED PROXIES ON OTHER MATTERS THAT MAY COME BEFORE THE MEETING.
PLEASE VOTE, SIGN AND DATE THIS PROXY ON THE OTHER SIDE AND RETURN PROMPTLY IN
THE ENCLOSED ENVELOPE
<TABLE>
<S> <C> <C>
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
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</TABLE>
