<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
APACHE MEDICAL SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(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 no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
APACHE MEDICAL SYSTEMS, INC.
1650 TYSONS BOULEVARD, SUITE 300
MCLEAN, VIRGINIA 22102
April 15, 1998
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 19, 1998 at the Company's principal executive offices, 1650 Tysons
Boulevard, Suite 300, McLean, Virginia 22102.
The matters proposed for consideration at the meeting are the election
of six directors, the ratification of the appointment of Arthur Andersen LLP as
the Company's auditors, and the transaction of 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,
/s/ Thomas W. Hodson
Thomas W. Hodson
Chairman and Acting
Chief Executive Officer
<PAGE> 3
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 19, 1998 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 ratify the appointment of Arthur Andersen LLP as auditors;
and
3. 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 Friday,
March 20, 1998 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 appointment of Arthur Andersen LLP as auditors and the use of
the proxy.
A copy of the Company's Annual Report to Stockholders on Form 10-K for
the fiscal year ended December 31, 1997 accompanies this Proxy Statement.
By Order of the Board of Directors
/s/ Scott A. Mason
Scott A. Mason
Secretary and Executive Vice President
April 15, 1998
IMPORTANT -- PLEASE MAIL YOUR SIGNED PROXY
PROMPTLY IN THE ENCLOSED ENVELOPE
<PAGE> 4
APACHE MEDICAL SYSTEMS, INC.
1650 TYSONS BOULEVARD, SUITE 300
MCLEAN, VIRGINIA 22102
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 19, 1998
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 19, 1998.
This Proxy Statement and the proxy are being mailed to stockholders on or about
April 15, 1998.
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 20, 1998, the record date for the Annual Meeting, the
Company had 7,281,571 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.
<PAGE> 5
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., 55. (President and Chief Executive
Officer until December 31, 1997, Chairman of the Board of Directors from 1989
through November 5, 1997 and director since 1989). Dr. Bisbee is presently
President of The Bisbee Group, which provides financial and strategic advisory
services to the healthcare industry. 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 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.
Edward J. Connors, 69. (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. In December of 1997,
Mr. Connors completed his term as Chairman of the Board of Directors of
Fletcher Allen Health Care in Burlington, Vermont. Fletcher Allen Health Care
is an integrated, academically based health care delivery system involving 250
full-time physicians who serve on the faculty of the University of Vermont
Medical School, two hospitals and several affiliated organizations. In January
of 1998, Mr. Connors became the Chairman of the Board of Catholic Health East
which has been formed through the merger of three Catholic systems and 12
religious congregations on the East Coast. In 1991, Mr. Connors was elected to
membership in the Institute of Medicine of the National Academy of Science. He
holds an M.H.A. degree from the University of Minnesota.
Thomas W. Hodson, 51. (Director since 1994 and Chairman of the Board
of Directors since November 5, 1997 and acting Chief Executive Officer since
December 31, 1997, but not an employee of the Company). Mr. Hodson has been a
director and Vice Chairman and Chief Executive Officer of NeuroSource, Inc., a
private company which manages neuromedical physician practices, since September
1, 1997 and until that time was an independent financial/strategic consultant
since October 1996. From August 1992 until that time, he 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. He holds
- 2 -
<PAGE> 6
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., 51. (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. In addition, Dr. Knaus currently serves as a consultant to the
National Geographic Society. 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, 59. (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, 57. (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 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 1997 fiscal year, there were fourteen meetings of the Board
of Directors, seven of which were 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.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has standing Finance and Audit, and
Compensation Committees, which deal with certain specific areas of the Board's
responsibility.
The Finance and Audit Committee, which met two times in conjunction
with meetings of the Board of Directors during the 1997 fiscal year, recommends
the firm to be appointed as independent
- 3 -
<PAGE> 7
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 Finance and Audit Committee
until November 5, 1997 were Gerald E. Bisbee, Jr., Edward J. Connors, Thomas W.
Hodson, William A. Knaus, M.D., Lawrence S. Lewin and Francis G. Ziegler.
Currently, the members of the Finance and Audit Committee are Messrs. Bisbee,
Hodson, Lewin and Ziegler.
The Compensation Committee, which met ten times during the 1997 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 until November 5, 1997 were
Edward J. Connors, Thomas W. Hodson, William A. Knaus, M.D. and Francis G.
Ziegler. Currently, the members of the Compensation Committee are Messrs.
Connors, Knaus and 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.
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.
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.
During late 1997, in consideration of additional responsibilities
undertaken by members of the Board of Directors following the departures of
several key executive officers, including Dr. Gerald E. Bisbee, Jr., the
Company's Chairman, President and Chief Executive Officer, the Board of
Directors determined to grant additional options to members of the Board in
addition to the automatic annual grants contemplated by the Director Option
Plan. On November 5, 1997, Mr. Hodson, who assumed on that date the title of
Chairman of the Board and has since become the Company's acting Chief Executive
Officer and a member of a four-person Management Committee that oversees the
Company's day-to-day affairs, was granted a non-qualified stock option to
purchase 10,000 shares of the Company's Common Stock with an exercise price
equal to the market price on the date of grant of $2.47 per share. These
options do not vest until November 5, 1998. Effective January 2, 1998, other
members of the Board of Directors were granted non-qualified options at an
exercise
- 4 -
<PAGE> 8
price of $2.00 per share, or $.56 in excess of the average market price on that
date. Such options vest on January 2, 1999. Mr. Connors, who serves on the
Management Committee referred to above and is participating in the search for
the Company's new Chief Executive Officer, was granted options to purchase
5,000 shares. Mr. Lewin, who is heading the Board's search committee and the
search process, was also granted options to purchase 5,000 shares. Dr. Knaus
and Mr. Ziegler, who have been charged with interacting with the Company's
senior staff and assuming additional responsibilities, were each granted
options to purchase 2,500 shares.
RATIFICATION OF APPOINTMENT OF
INDEPENDENT PUBLIC AUDITORS
INDEPENDENT ACCOUNTANTS FOR 1998
The Board of Directors, upon the recommendation of its Finance and
Audit Committee, has selected Arthur Andersen LLP to audit the accounts of the
Company for the fiscal year ending December 31, 1998. Such firm has reported
to the Company that none of its members has any direct financial interest or
material indirect financial interest in the Company. Currently, the Company's
Finance and Audit Committee is composed of Messrs. Bisbee, Hodson, Lewin and
Ziegler and has responsibility for recommending the selection of auditors.
Arthur Andersen LLP was appointed by the Board of Directors to audit
the accounts of the Company for the fiscal year ended December 31, 1997.
Representatives of Arthur Andersen LLP are expected to be present at
the Annual Meeting of Stockholders. Such persons will have an opportunity to
make a statement if they desire to do so and will be available to respond to
appropriate questions.
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.
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
17, 1998 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 former Chief Executive Officer and certain 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. The
number of shares of Common Stock
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<PAGE> 9
outstanding on February 17, 1998 was 7,267,756. Except as noted, all
information with respect to beneficial ownership has been furnished by the
respective director or officer or is based on filings with the Securities and
Exchange Commission (the "SEC"). Unless otherwise indicated below, the persons
named below have sole voting and investment power with respect to the number of
shares set forth opposite their names. Beneficial ownership of the Common
Stock has been determined for this purpose in accordance with Rules 13d-3 and
13d-5 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), which provide, among other things, that a person is deemed to be the
beneficial owner of the Common Stock if such person, directly or indirectly,
has or shares voting power or investment power in respect of such stock or has
the right to acquire such ownership within sixty days. Accordingly, the
amounts shown in the table do not purport to represent beneficial ownership for
any purpose other than compliance with SEC reporting requirements. Further,
beneficial ownership as determined in this manner does not necessarily bear on
the economic incidence of ownership of the Common Stock.
<TABLE>
<CAPTION>
SHARES PERCENTAGE
BENEFICIALLY BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED OWNED
- ------------------------ ------------ ------------
<S> <C> <C>
MedPartners, Inc.(1) . . . . . . . . . . . . . . . . . . . . . . . . . 876,602 12.06%
2215 Sanders Road, Suite 400
Northbrook, IL 60062
Manning & Napier Advisors, Inc.(2). . . . . . . . . . . . . . . . . . . 511,100 7.03%
1100 Chase Square
Rochester, NY 14604
Baxter Healthcare Corporation(3). . . . . . . . . . . . . . . . . . . . 573,346 7.89%
One Baxter Parkway
Deerfield, IL 60015
New York Life Insurance Company(4). . . . . . . . . . . . . . . . . . . 460,405 6.33%
51 Madison Avenue, Room 206
New York, NY 10010
Fairfax Partners/The Venture Fund of Washington, L.P.(5). . . . . . . . 454,546 6.25%
8000 Towers Crescent Drive, Suite 940
Vienna, VA 22182
</TABLE>
- ---------------------------
(1) Includes 144,333 shares issuable upon exercise of vested warrants.
(2) Stock ownership is based on a Schedule 13G filed on February 9, 1998.
Manning & Napier Advisors, Inc. is an investment adviser registered
under the Investment Advisers Act of 1940.
(3) Stock ownership is based on a Schedule 13D filed on February 15, 1997.
Baxter Healthcare Corporation shares the power to vote and dispose of
the shares of Common Stock with Baxter International, Inc., the owner of
100% of the capital stock of Baxter Healthcare Corporation.
(4) Stock ownership is based on a Schedule 13G filed on February 13, 1997.
New York Life Insurance Company is an insurance company as defined in
Section 3(a)(19) of the Exchange Act.
(5) Stock ownership is based on a Schedule 13G filed on February 15, 1997.
Fairfax Partners/The Venture Fund of Washington is a limited partnership.
- 6 -
<PAGE> 10
<TABLE>
<CAPTION>
NAMED EXECUTIVE OFFICERS AND DIRECTORS
- --------------------------------------
<S> <C> <C>
Gerald E. Bisbee, Jr., Ph.D.(6) . . . . . . . . . . . . . . . . . . . . 431,177 5.60%
110 Wellesley Drive
New Canaan, CT 06840
James L. Elder, Jr. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,392 *
Scott A. Mason . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338,164 4.65%
Donna J. Meyers(7) . . . . . . . . . . . . . . . . . . . . . . . . . . 2,133 *
Donald W. Seymour . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,405 *
Edward J. Connors(8). . . . . . . . . . . . . . . . . . . . . . . . . . 15,490 *
Thomas W. Hodson(8) . . . . . . . . . . . . . . . . . . . . . . . . . . 15,490 *
William A. Knaus(9) . . . . . . . . . . . . . . . . . . . . . . . . . . 421,242 5.78%
c/o Department of Health, Evaluation Sciences, University of Virginia,
School of Medicine, Charlottesville, VA 22908
Lawrence S. Lewin(8). . . . . . . . . . . . . . . . . . . . . . . . . . 15,490 *
Francis G. Ziegler(10). . . . . . . . . . . . . . . . . . . . . . . . . 208,084 2.86%
All Directors, Nominees and Executive Officers . . . . . . . . . . . . 1,478,067 19.00%
as a Group (10 persons) (6) (7) (8) (9) (10)
</TABLE>
*Represents less than 1% of the outstanding Common Stock.
- ----------------------------------
(6) Includes 430,177 shares of Common Stock issuable upon exercise of vested
options.
(7) Consists of 2,133 shares of Common Stock issuable upon exercise of
vested options.
(8) Consists of 15,490 shares of Common Stock issuable upon exercise of
vested options.
(9) Includes 15,490 shares of Common Stock issuable upon exercise of vested
options.
(10) Consists of 15,490 shares of Common Stock issuable upon exercise of
vested options held by Mr. Ziegler and 192,594 shares of Common Stock
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.
- 7 -
<PAGE> 11
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to or earned by the
Named Executive Officers for the last three fiscal years. The information
below does not reflect the cancellation of existing employee options and the
issuance of new options with lower exercise prices effective January 2, 1998.
See "Report of the Compensation Committee of the Board of Directors -- Report
on Repricing of Options."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------- -----------
OTHER ANNUAL SECURITIES ALL OTHER
COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($) OPTIONS (#) ($)
- --------------------------- ---- ---------- --------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gerald E. Bisbee, Jr., Ph.D(1). . . . . . 1997 $205,000 -- -- 0 $5,195(2)
Chief Executive Officer, . . . . . 1996 177,500(3) $ 64,600 -- 150,000 5,196
Chairman of the Board and . . . . 1995 150,000 -- -- 0 2,598
President
Scott A. Mason(4) . . . . . . . . . . . . 1997 175,000 100,688 -- 180,000 55,896(5)
Secretary and Executive Vice President
Donald W. Seymour(6) . . . . . . . . . . 1997 150,000 70,465 -- 40,000 4,704(7)
Vice President of National Health
Advisors
James L. Elder, Jr.(8) . . . . . . . . . 1997 118,365(9) -- $19,189(10) 50,000 --
Vice President of Sales
Donna J. Myers(11) . . . . . . . . . . . 1997 114,863 -- -- 40,000 --
Vice President of Operations . . . 1996 19,115 10,000 -- 3,000 --
</TABLE>
- ---------------------------------
(1) Dr. Bisbee resigned as Chairman of the Board on November 5, 1997 and as
President and Chief Executive Officer effective at the close of business
on December 31, 1997.
(2) Dr. Bisbee's all other compensation consists of premiums paid on a life
insurance policy.
(3) Dr. Bisbee's 1996 salary included $27,500 of deferred compensation.
(4) Mr. Mason commenced employment with the Company on June 2, 1997.
(5) Consisted of $2,610 in health insurance premiums, $3,853 in long-term
disability insurance premiums and $49,433 in life insurance premiums.
(6) Mr. Seymour commenced employment with the Company on June 2, 1997.
(7) Consisted of $1,545 in health insurance premiums and $3,160 in long-term
disability insurance premiums.
(8) Mr. Elder commenced employment with the Company on June 23, 1997.
(9) Mr. Elder's salary includes $47,750 in commissions paid.
(10) Consisted of payments for moving expenses.
(11) Ms. Myers commenced employment with the Company on October 28, 1996.
- 8 -
<PAGE> 12
OPTION GRANTS IN 1997
The following table shows information with respect to grants of
options to the Named Executive Officers for the fiscal year ended December 31,
1997. The options were granted under the Company's Employee Stock Option Plan.
The information below does not reflect the cancellation of existing employee
options and the issuance of new options with lower exercise prices effective
January 2, 1998. See "Report of the Compensation Committee of the Board of
Directors -- Report on Repricing of Options."
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for Option
Individual Grants Term ($)(1)
---------------------------------------------------------------------- -----------------------------
Number of Percent of Total
Securities Options Granted to Exercise or
Underlying Options Employees in Fiscal Base Price Expiration
Name Granted Year ($/Share) Date 5% 10%
---- -------------------- ------------------- ----------- ---------- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Gerald E. Bisbee, Jr., Ph.D. -- -- -- -- -- --
James L. Elder, Jr. 50,000(2) 5.7% $7.00 06/23/07 $220,500 $ 557,900
Scott A. Mason 180,000(2) 20.7 6.88 06/02/07 780,192 1,974,010
Donna J. Myers 20,000(2) 2.3 3.31 10/01/07 41,706 105,523
20,000(3) 2.3 1.44 10/01/07 18,144 45,907
Donald W. Seymour 40,000(2) 4.6 6.88 06/02/07 173,376 438,669
</TABLE>
(1) Amounts reflect certain assumed rates of appreciation set forth in the
SEC'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.
(2) Options are granted at the fair market value on the date of grant
which means the average of the highest and lowest quoted selling
prices for the shares on the date of grant. Options vest in five
equal annual installments beginning one year after date of grant and
expire ten years after the date of grant.
(3) Options vest in five equal annual installments, subject to the
Company's satisfaction of certain performance criteria each year. The
per share exercise price of each Option is determined at the time the
Option is earned. In 1997, the performance criteria were met.
Consequently, 1,000 options vested.
- 9 -
<PAGE> 13
1997 YEAR-END OPTION VALUES
The following table provides information regarding stock options held
by the Named Executive Officers as of December 31, 1997. None of those
individuals exercised any stock options during the 1997 fiscal year. The
information below does not reflect the cancellation of existing employee
options and the issuance of new options with lower exercise prices effective
January 2, 1998. See "Report of the Compensation Committee of the Board of
Directors -- Report on Repricing of Options."
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
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. 550,177 0 $96,826 0
James L. Elder, Jr. 0 50,000 0 0
Scott A. Mason 0 180,000 0 0
Donna J. Myers 2,133 42,867 0 0
Donald W. Seymour 0 40,000 0 0
</TABLE>
- ---------------
(1) Value is calculated by subtracting the exercise price per share from
the last reported market price at December 31, 1997 and multiplying
the result by the number of shares subject to the option.
REPORT ON EXECUTIVE COMPENSATION 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
- 10 -
<PAGE> 14
objectives. In designing and administering its executive compensation program,
the Company attempts to strike an appropriate balance among these objectives.
During the Fall of 1996, the Compensation Committee undertook a major
review of the Company's compensation program for senior executives. In
connection with that review, the Compensation Committee directed the Company to
engage a national compensation consulting firm to (1) develop marketplace data,
(2) assess the overall effectiveness of the Company's compensation philosophy
and its alignment with its strategic business needs and (3) develop
recommendations regarding compensation levels, incentive pay programs and the
Company's 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.
The Committee concluded that the Company's most direct competitors for
executive talent are in the decision support industry. 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. Based upon the recommendations of its consultants, the
Committee established as a goal compensation ranges for executive personnel
based on the 50th percentile of competitive data for similarly sized decision
support organizations.
During the Spring of 1997, the Compensation Committee concluded that
the Company should evaluate the manner in which its non-executive senior staff,
principally employees at the vice president level, are compensated, including
salary and stock options. That study and evaluation has not been completed.
However, in response to (1) significant turnover among the Company's senior
management personnel and (2) concerns and recommendations expressed by the
Company's senior staff in mid-December 1997, the Company has implemented
certain changes in its policies with respect to stock options for senior staff,
as discussed below under "Long-Term Incentive Compensation." In addition, the
Company is in the process of entering into employment agreements with members
of its senior staff that are designed to provide additional assurances to these
key employees. Among other things, the employment agreements will provide for
a continuation of salary and Company-provided health insurance benefits for a
period of up to 12 months following a termination without cause, a material
change in the employee's responsibilities, or a change in control of the
Company (defined to include a merger or similar transaction or an acquisition
of 30% or more of the outstanding shares of the Company's Common Stock by a
single person or a group of persons).
The Board of Directors is presently actively engaged in efforts to
recruit, among others, a new President and Chief Executive Officer. The
Compensation Committee will likely revisit the manner in which it implements
the Company's compensation policies in connection with, and following, the
identification of a new President and Chief Executive Officer. However, the
Company's policies will continue to be designed to align the interests of the
Company's executives and senior staff with the long-term interests of the
stockholders.
The Company's executive compensation programs, which include no
special perquisites, consist of three principal elements: base salary;
short-term incentive cash payments; and long-term stock options, each of which
is discussed below.
- 11 -
<PAGE> 15
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 of the comparison group for base salary. The Committee
reviews annually 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 in the past have been
recommended to the Committee by the 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 Committee's
guideline is that base salary and short-term incentive compensation, if earned,
should place executives in the 60th percentile of the comparison group for
total base and bonus compensation. 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 1997, executives participated in the incentive compensation program
at targeted levels (as a percentage of base salaries) ranging between 10% and
42%. Participants in the incentive compensation program receive bonus payments
that include awards for financial (measured by Company revenues and earnings
per share), operational and individual achievement of goals. For 1997, the
Committee established weighted performance measures based upon financial (50%);
operational (25%); and individual (25%) objectives. The Committee assigned
levels of "threshold," "target" and "maximum" bonuses with corresponding
performance expectations for each category of participants. Eligible
executives with the Company's National Health Advisors unit received bonuses
for 1997 consistent with that business unit's historical bonus program at
levels equivalent to 80% of target. The Company's other eligible executives
did not receive a bonus for 1997.
LONG-TERM INCENTIVE COMPENSATION
The Company's stockholders approved in 1996 adoption of a stock option
plan that is designed to reward employees for long-term growth consistent with
stockholder return. The ultimate value of the long-term incentive compensation
awards is dependant on the actual performance of the Company's stock price over
time.
In 1997, members of senior management were awarded stock options in
amounts designed to deliver a percentage of their base salaries over the term
of the stock option. In the past, two types of non-qualified stock option
grants were made to senior staff members. Some options were "fixed" and vested
so long as the employee remained employed by the Company over a period of time,
typically two to five years. Other options were granted on the basis of the
Company's performance, defined in terms of achieving the Company's budget, and
also vested over a period of time, typically two to five years. Options were
awarded to members of senior management at exercise prices equal to or greater
than 100% of fair market value on the date of grant.
- 12 -
<PAGE> 16
In mid-December 1997, the Company's senior staff recommended to the
Board of Directors that the Company's approach to the granting of stock options
be changed in a manner designed to minimize employee turnover and encourage
focus on the Company's 1998 business plan. In response to these
recommendations, for the reasons discussed below under the heading "Report on
Repricing of Options," effective January 2, 1998, the Board of Directors
cancelled outstanding options held by the Company's employees and consultants,
including the Company's senior staff (other than the President and Chief
Executive Officer), and issued replacement options with exercise prices of
$2.00 per share.
In addition, the senior staff recommended an approach for 1998
performance-based option grants. At meetings of the Compensation Committee and
Board of Directors held on December 17, 1997 and January 28, 1998,
respectively, the Compensation Committee and the Board of Directors considered
and granted an aggregate of 156,000 performance-based incentive stock options
to twelve members of the Company's senior staff effective January 28, 1998.
The exercise price of these options is equal to the average of the high and low
prices of the Company's Common Stock on January 28, 1998, or $1.28. The
options will vest on a quarterly basis, based upon the Company's realization of
the 1998 operating budget. During each quarter of 1998, each employee who
received these options will be eligible to earn 25% of the employee's
performance options granted under this program, 12.5% based on achieving
revenue targets and 12.5% based on achieving net income (loss) targets.
Options not earned on these bases during 1998 will nonetheless vest if 1998
revenues exceed 1997 revenues by 30% and the Company experiences a loss during
1998 of not more than $500,000. The options will vest on the fifth anniversary
of the grant date, January 28, 2003, regardless of whether the 1998 performance
criteria have been satisfied, if the employee remains employed by the Company
at that time.
The Compensation Committee plans to further consider during 1998 (1) a
possible redistribution of options among the Company's senior staff in a manner
consistent with their relative responsibilities, and (2) establishing new
performance criteria for performance-based option grants.
CEO COMPENSATION
The Committee established the compensation of Gerald E. Bisbee, Jr.,
Ph.D., the Company's former Chief Executive Officer using the criteria
discussed above. Dr. Bisbee's 1997 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-term and long-term growth.
Dr. Bisbee's aggregate salary in 1997 was increased to $205,000. Incentive
compensation for Dr. Bisbee was based upon achievement of Company-wide
financial and operating performance and achievement of individual goals. Dr.
Bisbee was paid a cash bonus during 1997 at a portion of target level with
respect to performance in the year ended December 31, 1996. However, no bonus
was paid with respect to 1997 performance.
Dr. Bisbee resigned as Chairman of the Board on November 5, 1997 and
as President and Chief Executive Officer effective at the close of business on
December 31, 1997. Under Dr. Bisbee's Employment Agreement, entered into during
April 1997, Dr. Bisbee is entitled to a continuation of his salary and
Company-provided health benefits, life insurance, and other welfare benefits
during 1998 and 1999. Dr. Bisbee will remain a member of the Company's Board
of Directors, and the terms of his outstanding vested options were clarified to
extend the period during which such options
- 13 -
<PAGE> 17
may be exercised until six months following the expiration of his tenure as a
member of the Company's Board of Directors, which is the period applicable to
Board members generally.
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.
REPORT ON REPRICING OF OPTIONS
During 1997, the Company experienced significant turnover among its
executive personnel, including resignations of its Chief Operating Officer and
Chief Financial Officer. Dr. Bisbee resigned as Chairman of the Board on
November 5, 1997, and as President and Chief Executive Officer effective at the
close of business on December 31, 1997. Several other members of management at
the Vice President level also left the Company for other positions during the
course of the year. This turnover is a matter of concern to the Company's
Board of Directors.
As discussed above, in mid-December, 1997, the Company's senior staff,
including all of its vice presidents, recommended to the Board of Directors
that existing employee stock options should be cancelled and replaced with new
non-qualified stock options with lower exercise prices. This proposal was
initially discussed by the Compensation Committee of the Board on December 17,
1997 and then considered at a meeting of the Board of Directors held on
December 31, 1997. The Board was concerned about the impact on stockholders of
the cancellation of old options and issuance of replacement options at a lower
exercise price. However, the Board concluded that, because of the highly
unusual circumstances, the senior staff's recommendation was in the interests
of the Company and its stockholders. Among other things, the Board was eager
to reward members of the senior staff who had demonstrated loyalty to the
Company, and felt that the senior staff's recommendation was important to the
retention and the motivation of the senior staff, who are essential to the
Company's on-going business.
Several features of the new options are designed to preserve the
interests of stockholders. Rather than granting the options with an exercise
price equal to the market price per share, the exercise price was established
at $2.00 per share, or $.56 (38%) in excess of the average market price on
January 2, 1998, the effective date of the new non-qualified stock options. The
new options vest 20% immediately at the date of grant for employees who have
been with the Company for at least one year (but are not exercisable until July
2, 1998) and 20% on January 2, 1999, 2000, 2001, and 2002. For employees who
have been with the Company for less than one year, options vest 20% each year
for five years from the date of grant.
Options for an aggregate of 502,073 shares held by existing employees
and consultants were repriced effective January 2, 1998 as part of the action
described above. The Board determined not
- 14 -
<PAGE> 18
to reprice any options held by Dr. Bisbee and members of the Board of Directors
as part of this action. The table below sets forth information with respect to
the repricing of options held by any executive officer of the Company,
including the Named Executive Officers, since the completion of the Company's
initial public offering.
OPTION REPRICINGS
<TABLE>
<CAPTION>
================================================================================================================================
LENGTH OF
AVERAGE OF THE ORIGINAL
NUMBER OF HIGH AND LOW OPTION TERM
SECURITIES PRICES OF REMAINING AT
EFFECTIVE UNDERLYING COMMON STOCK EXERCISE NEW DATE OF
DATE OF OPTIONS AT TIME OF PRICE AT TIME EXERCISE REPRICING IN
NAME AND POSITION REPRICING REPRICED REPRICING OF REPRICING PRICE YEARS/DAYS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LISA CLEMENTS 1/2/98 1,749 $1.44 $8.18 $2.00 8/61
Controller & Assistant --------------------------------------------------------------------------------
Treasurer 1,749 $1.44 $13.00 $2.00 8/169
--------------------------------------------------------------------------------
5,000 $1.44 $6.63 $2.00 9/49
--------------------------------------------------------------------------------
500 $1.44 $3.31 $2.00 9/271
- --------------------------------------------------------------------------------------------------------------------------------
JAMES L. ELDER, JR. 1/2/98 50,000 $1.44 $7.00 $2.00 9/172
Vice President of Sales
- --------------------------------------------------------------------------------------------------------------------------------
SCOTT A. MASON 1/2/98 180,000 $1.44 $6.88 $2.00 9/151
Executive Vice President
and Secretary
- --------------------------------------------------------------------------------------------------------------------------------
DONNA J. MYERS 1/2/98 20,000 $1.44 $3.31 $2.00 9/272
Vice President of --------------------------------------------------------------------------------
Operations 3,000 $1.44 $11.88 $2.00 8/238
- --------------------------------------------------------------------------------------------------------------------------------
DONALD W. SEYMOUR 1/2/98 40,000 $1.44 $6.88 $2.00 9/151
Vice President of
National Health Advisors
- --------------------------------------------------------------------------------------------------------------------------------
VIOLET SHAFFER 1/2/98 15,000 $1.44 $3.47 $2.00 9/293
Vice President of Marketing
================================================================================================================================
</TABLE>
The Compensation Committee
Edward J. Connors, 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.
- 15 -
<PAGE> 19
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following persons served as members of the Company's Compensation
Committee during the 1997 fiscal year: Edward J. Connors, Thomas W. Hodson,
William A. Knaus, M.D. and Francis G. Ziegler. Thomas W. Hodson served as
Chairman of the Compensation Committee until November 5, 1997 when he became
Chairman of the Board and resigned as a member of the Compensation Committee.
Thereafter, Edward J. Connors served as Chairman.
Effective January 1, 1998, director Thomas W. Hodson, who had been the
Chairman of the Board of the Company since November 5, 1997, assumed the
responsibilities of acting Chief Executive Officer. In addition, a Management
Committee comprised of Mr. Hodson, director Edward J. Connors, Executive Vice
President Scott A. Mason, and Vice President of Operations Donna J. Myers was
formed to oversee the day-to-day operations of the Company pending the
identification of a new Chief Executive Officer. In consideration of the
additional burdens undertaken by Mr. Hodson and other members of the Board of
Directors, the Board of Directors granted non-qualified stock options to Board
members effective January 2, 1998. See "Information Concerning The Board of
Directors and Its Committees -- Director Compensation."
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.
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, 1997 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.
- 16 -
<PAGE> 20
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG APACHE MEDICAL SYSTEMS, INC.,
THE NASDAQ STOCK MARKET - U.S. INDEX AND THE PEER GROUP
[CHART]
<TABLE>
<CAPTION>
=======================================================================================================
June 28, 1996 December 31, 1996 December 31, 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
APACHE Medical Systems, Inc. $100.00 $ 87.24 $ 10.46
- -------------------------------------------------------------------------------------------------------
NASDAQ Stock Market - U.S. Index $100.00 $108.65 $133.32
- -------------------------------------------------------------------------------------------------------
Peer Group $100.00 $ 48.61 $ 50.57
=======================================================================================================
</TABLE>
The comparisons in this table are required by the SEC 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.
- 17 -
<PAGE> 21
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 SEC 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 30,000 options
under the Company's Employee Stock Option Plan to Violet L. Shaffer, upon her
employment with the Company, was inadvertently filed approximately one month
late.
DEADLINE FOR STOCKHOLDER PROPOSALS
Proposals of stockholders intended for inclusion in the Company's
proxy statement relating to the 1999 Annual Meeting must be received at the
Company's offices (addressed to the attention of the Secretary) not later than
December 7, 1998. Any such proposal must comply with Rule 14a-8 of Regulation
14A of the proxy rules of the SEC.
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 calls 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 Common 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 $3,500, plus reasonable expenses.
By Order of the Board of Directors
/s/ Scott A. Mason
Scott A. Mason
Secretary and Executive Vice President
McLean, Virginia
April 15, 1998
- 18 -
<PAGE> 22
PROXY
APACHE MEDICAL SYSTEMS, INC.
PROXY CARD
Proxy for the Annual Meeting of Stockholders to be Held on May 19, 1998.
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby constitutes and appoints Thomas W. Hodson, and Donna J.
Meyers, 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 19, 1998, 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
AND "FOR" THE PROPOSAL TO RATIFY THE APPOINTMENT OF ARTHUR ANDERSEN 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
- --------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- ------------------------------------ -----------------------------
- ------------------------------------ -----------------------------
- ------------------------------------ -----------------------------
-----------
SEE REVERSE
SIDE
-----------
/\ FOLD AND DETACH HERE /\
<PAGE> 23
[ X ] PLEASE MARK YOUR
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.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL PROPOSALS.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
1. Election of Directors FOR WITHHELD FOR ALL EXCEPT
Nominees: Gerald E. Bisbee, Jr., Ph.D., Edward J. Connors, Thomas [ ] [ ] [ ]
W. Hodson, William A. Knaus, M.D., Lawrence S. Lewin, Francis
G. Ziegler. (Instruction: To withhold authority to vote for any
individual nominee, check the "FOR ALL EXCEPT" box at right
and strike a line through the nominee's name listed above.)
2. Ratification of the FOR AGAINST ABSTAIN
appointment of [ ] [ ] [ ]
Arthur Andersen LLP as
independent accountants.
In the discretion of the proxies named herein, the proxies are
authorized to vote upon other matters as are properly brought
before the meeting
I PLAN TO ATTEND [ ]
THE MEETING
The signer hereby revokes all proxies heretofore given by the signer
to vote at said meeting or any other 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
</TABLE>
/\ FOLD AND DETACH HERE /\
<PAGE> 24
APACHE MEDICAL SYSTEMS, INC.
ANNUAL MEETING OF STOCKHOLDERS
MAY 19, 1998
10:00 A.M.
1650 TYSONS BOULEVARD, SUITE 300
MCLEAN, VIRGINIA 22102
