<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, AS AMENDED
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] 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
</TABLE>
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:
- --------------------------------------------------------------------------------
(4) 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:
<PAGE> 2
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 3
[APACHE MEDICAL SYSTEMS, INC. LOGO]
APACHE MEDICAL SYSTEMS, INC.
1650 TYSONS BOULEVARD, SUITE 300
MCLEAN, VIRGINIA 22102
April 27, 2000
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,
Wednesday, May 31, 2000 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
seven directors, the approval of the proposal to amend the Company's
Non-Employee Director Supplemental Stock Option Plan, the ratification of the
appointment of Ernst & Young LLP as the Company's auditors, and the transaction
of such 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/ PETER GLADKIN
Peter Gladkin
President and Chief Executive Officer
<PAGE> 4
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 Wednesday, May 31, 2000 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 seven directors for the ensuing year;
2. To approve the proposal to amend the Company's Non-Employee Director
Supplemental Stock Option Plan;
3. To ratify the appointment of Ernst & Young LLP as independent
accountants; and
4. 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 Wednesday, April
19, 2000 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 the matters to be acted upon at the
Annual Meeting and the use of the proxy. A copy of the Company's Annual Report
for the fiscal year ended December 31, 1999 accompanies this Proxy Statement.
By Order of the Board of Directors
[SIG]
Scott A. Mason
Secretary and Executive Vice President
April 27, 2000
IMPORTANT -- PLEASE MAIL YOUR SIGNED PROXY
PROMPTLY IN THE ENCLOSED ENVELOPE
<PAGE> 5
APACHE MEDICAL SYSTEMS, INC.
1650 TYSONS BOULEVARD, SUITE 300
MCLEAN, VIRGINIA 22102
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 31, 2000
GENERAL INFORMATION
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 Wednesday, May 31, 2000
at 10:00 a.m. Eastern Daylight Time, at the Company's principal executive
offices, 1650 Tysons Boulevard, Suite 300, McLean, Virginia 22102. The purpose
of the Annual Meeting and the matters to be acted upon are set forth in the
accompanying Notice of Annual Meeting of Stockholders. This Proxy Statement and
the proxy are being mailed to stockholders on or about April 27, 2000.
The Company is mailing its Annual Report to Stockholders for the year ended
December 31, 1999, along with this Proxy Statement and the enclosed proxy. The
Annual Report to Stockholders does not form any part of the material for the
solicitation of proxies.
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 presence, in person or by proxy, of a majority of the outstanding
shares of Common Stock entitled to vote will constitute a quorum for the
transaction of business. Votes cast in person or by proxy, abstentions and
broker non-votes (as hereinafter defined) will be tabulated by the inspectors of
election and will be considered in the determination of whether a quorum is
present at the Annual Meeting. The inspectors of election will treat shares
represented by executed proxies which abstain as shares that are present and
entitled to vote for purposes of determining the approval of such matter. If,
with respect to any shares, a broker or other nominee submits a proxy indicating
that instructions have not been received from the beneficial owners or the
persons entitled to vote and that such broker or other nominee does not have
discretionary authority to vote such shares (a "broker non-vote") on one or more
proposals, those shares will not be treated as present and entitled to vote for
purposes of determining the approval of any such proposal.
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. All written
notices of revocation or other communications with respect to revocation of
proxies should be addressed to the Company's Corporate Secretary at its
principal executive offices as follows: APACHE Medical Systems, Inc., 1650
Tysons Boulevard, Suite 300, McLean, Virginia 22102, Attention: Corporate
Secretary. 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.
All holders of record of the Common Stock of the Company at the close of
business on April 19, 2000 will be eligible to vote at the Annual Meeting. As of
April 19, 2000, the Company had 7,430,594 shares of Common Stock, par value $.01
per share ("Common Stock"), issued and outstanding. Each share is entitled to
one vote.
<PAGE> 6
SECURITY OWNERSHIP
The following table sets forth certain information regarding the beneficial
ownership of the shares of the Company's Common Stock as of April 19, 2000 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) each
of the executive officers of the Company named in the Summary Compensation Table
under "Executive Compensation," and (iv) by all directors, nominees for director
and executive officers of the Company as a group. The number of shares of Common
Stock outstanding on April 19, 2000 was 7,430,594. 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 the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), which provides, 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. Unless otherwise indicated below, the address of those identified
in the table is APACHE Medical Systems, Inc., 1650 Tysons Boulevard, Suite 300,
McLean, Virginia 22102.
<TABLE>
<CAPTION>
SHARES PERCENTAGE
BENEFICIALLY BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED OWNED
------------------------ ------------ ------------
<S> <C> <C>
Special Situations Fund III, L.P.(1)........................ 1,117,567 15.04%
Caremark, Inc.(2)........................................... 876,602 11.80%
Baxter Healthcare Corporation(3)............................ 573,346 7.72%
New York Life Insurance Company(4).......................... 460,405 6.20%
Peter Gladkin(5)............................................ 263,100 3.54%
Gerald E. Bisbee, Jr., Ph.D.(6)............................. 438,517 5.57%
Richard Dessimoz(7)......................................... 5,840 *
Scott A. Mason(8)........................................... 383,289 5.09%
Donald W. Seymour(9)........................................ 46,363 *
Edward J. Connors(10)....................................... 23,330 *
Thomas W. Hodson(11)........................................ 41,830 *
William A. Knaus(12)........................................ 438,882 5.89%
Lawrence S. Lewin(13)....................................... 24,330 *
Karen Miller(14)............................................ 30,000 *
Regina M. Campbell(15)...................................... 30,000 *
All Directors, Nominees and Executive Officers as a Group
(13 persons)(16).......................................... 1,779,558 23.95%
</TABLE>
- ---------------
* Represents less than 1% of the outstanding Common Stock
(1) Stock ownership is based on Schedule 13G filed on February 29, 2000 on
behalf of Special Situations Fund III, L.P. ("SSF III"); Special Situations
Cayman Fund, L.P. (the "Cayman Fund"); MGP Advisers Limited Partnership
("MGP"); AWM Investment Company, Inc. ("AWM"); Austin W. Marxe; and David
M. Greenhouse. SSF III is reported as the beneficial owner of 918,500
shares, and the Cayman Fund is reported as the beneficial owner of 199,067
shares. The principal business of SSF III and the Cayman Fund is to invest
in, sell, convey, transfer, exchange and otherwise trade in principally
equity and equity related securities. MGP acts as general partner of, and
investment adviser
2
<PAGE> 7
to, SSF III. AWM acts as the general partner of MGP and as the general
partner of, and the investment adviser to, the Cayman Fund. Austin W. Marxe
and David Greenhouse serve as officers, directors and members or principal
shareholders of the MGP and AWM and, in such capacity, are deemed to be
beneficial owners of the shares owned by SSF III and the Cayman Fund. The
principal address of all of the persons listed above, other than the Cayman
Fund, is 153 East 53 Street, New York, New York 10022. The principal office
and business address of the Cayman Fund is c/o CIBC Bank and Trust Company
(Cayman) Limited, CIBC Bank Building, P.O. Box 694, Grand Cayman, Cayman
Islands, British West Indies.
(2) Stock ownership is based on a Schedule 13G filed on May 18, 1998. Stock
ownership includes 144,333 shares issuable upon exercise of vested
warrants. Caremark, Inc. is a subsidiary of MedPartners, Inc. The address
of Caremark, Inc., is 2215 Sanders Road, Suite 400, Northbrook, IL 60062.
(3) Stock ownership is based on a Schedule 13G filed on September 15, 1998.
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. The address of
Baxter Healthcare Corporation is One Baxter Parkway, Deerfield, IL 60015.
(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. The address of New York Life Insurance
Company is 51 Madison Avenue, Room 206, New York, NY 10010.
(5) Includes 263,000 shares of Common Stock issuable upon exercise of vested
options.
(6) Includes 438,517 shares of Common Stock issuable upon exercise of vested
options. The address of Dr. Bisbee is 110 Wellesley Drive, New Canaan, CT
06840.
(7) Includes 5,840 shares of Common Stock issuable upon exercise of vested
options.
(8) Includes 105,125 shares of Common Stock issuable upon exercise of vested
options. Includes 26,400 shares purchased by Mr. Mason in the names of his
children.
(9) Includes 38,458 shares of Common Stock issuable upon exercise of vested
options.
(10) Includes 22,330 shares of Common Stock issuable upon exercise of vested
options.
(11) Includes 31,830 shares of Common Stock issuable upon exercise of vested
options.
(12) Includes 21,830 shares of Common Stock issuable upon exercise of vested
options. Includes 9,300 shares purchased by Dr. Knaus in the names of his
children. The address of Dr. Knaus is Department of Health, Evaluation
Sciences, University of Virginia, School of Medicine, Charlottesville, VA
22908.
(13) Includes 22,330 shares of Common Stock issuable upon exercise of vested
options.
(14) Includes 30,000 shares of Common Stock issuable upon exercise of vested
options.
(15) Includes 30,000 shares of Common Stock issuable upon exercise of vested
options.
(16) Includes shares which may be acquired pursuant to outstanding options by
the person or persons listed, as follows: Mr. Gladkin, 263,000; Dr. Bisbee,
438,517; Mr. Dessimoz, 5,840; Mr. Mason, 105,125; Mr. Seymour, 38,458; Mr.
Connors, 22,330; Mr. Hodson, 31,830; Dr. Knaus, 21,830; Mr. Lewin, 22,330;
Ms. Campbell, 30,000, Ms. Miller, 30,000; other executive officers, 33,732.
ELECTION OF DIRECTORS
(PROPOSAL 1)
Seven 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. In
the event that any nominee should become unable or unwilling to serve as a
director, it is the intention of the persons named in the proxy to vote for the
election of such substitute nominee for the office of director as the Board of
Directors may recommend. It is not anticipated that any nominee will be unable
or unwilling to serve as a director.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF THE
COMPANY VOTE "FOR" THE ELECTION OF THE NOMINEES TO SERVE AS DIRECTORS.
3
<PAGE> 8
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., 57. (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 Chairman,
President and Chief Executive Officer of ReGen Biologics, Inc., which conducts
research and development, manufacturing and marketing of tissue engineering,
biological and other orthopedic products and services. Before joining APACHE as
Chairman and Chief Executive Officer in December 1989, Dr. Bisbee was the
Chairman and Chief Executive Officer 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 and the athletic medicine
department. He is a director of Cerner Corporation and SG Pacific 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, 71. (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.
Richard Dessimoz, 52. (Director since 1998). Mr. Dessimoz has been Vice
President and Chief Executive Officer of Wabash National Finance Corporation
since its inception in December 1991 and a Director of Wabash since December
1995. Prior to his employment by Wabash, he was employed from 1989 to 1991 by
Premier Equipment Leasing Company as Chief Executive Officer and from 1985 to
1989 by Evans Transportation Company as Chief Operating Officer. Mr. Dessimoz
holds a law degree from Northwestern University Law School and an M.B.A. with a
concentration in finance from the University of Chicago Graduate School of
Business.
Peter Gladkin, 52. (Chief Executive Officer and Director since 1998). Mr.
Gladkin has served as President and Chief Executive Officer and as a director of
the Company since July 1998. Prior to joining the Company, Mr. Gladkin was
President and Chief Operating Officer of Health Data Sciences Corporation
("HDS") from 1994 to 1996, as well as from 1996 to 1997 after HDS was acquired
by Medaphis Corporation. Mr. Gladkin was with Hewlett Packard Company ("HP")
from 1971 to 1994 during which time he was responsible for various sales,
marketing, and business entities throughout the U.S., Europe, and worldwide.
From 1987 to 1994, while at HP, he was General Manager of the Healthcare
Information Systems, a strategic business unit of HP's Medical Products Group.
Mr. Gladkin holds a B.S. from the University of Illinois, an
4
<PAGE> 9
M.B.A. from Northwestern University and is an alumnus of the Harvard Graduate
School of Business, Program for Management Development.
Thomas W. Hodson, 53. (Director since 1994 and Chairman of the Board of
Directors since November 5, 1997 and acting Chief Executive Officer from
December 31, 1997 to July 1998). 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 October 1996, 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 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., 53. (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, 61. (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.
5
<PAGE> 10
INFORMATION CONCERNING THE BOARD OF DIRECTORS AND ITS COMMITTEES
During the 1999 fiscal year, there were six meetings of the Board of
Directors, two 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 with the
exception of Lawrence S. Lewin.
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 Board of Directors does not have a standing nominating
committee or other committee performing a similar function.
The Finance and Audit Committee, which met one time in conjunction with
meetings of the Board of Directors during the 1999 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 Finance and Audit Committee are Messrs. Bisbee, Dessimoz, Hodson and
Lewin.
The Compensation Committee, which met three times during the 1999 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 Messrs. Connors, Hodson and Knaus.
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. Dr.
Knaus is not directly compensated for his services in that capacity.
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 directors, if any, selected
by the Chairman. Pursuant to the Director Option Plan, non-employee directors of
the Company receive options to purchase 2,500 shares of Common Stock in January
of each year. The exercise price of the options is to be no less than the fair
market value of the 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.
Non-employee directors are entitled to stock option grants under the
Company's Non-Employee Director Supplemental Stock Option Plan, which became
effective as of January 1, 1999. Pursuant to this plan, 120,000 shares of the
Company's Common Stock are issuable to individuals who are non-employee members
of the Board of Directors on the date of the grant. An additional 130,000 shares
of Common Stock will be reserved if Proposal 2 contained in this Proxy Statement
is passed at the Annual Meeting of Stockholders. This plan is further described
under Proposal 2 contained in this Proxy Statement.
6
<PAGE> 11
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to or earned by the
Chief Executive Officer and the four most highly compensated executive officers
of the Company for the last three fiscal years (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------- ------------
NUMBER OF
SECURITIES ALL OTHER
UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) ($)
- --------------------------- ---- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Peter Gladkin(1)....................... 1999 $236,875 $100,000(2) 351,500(3) --
Chief Executive Officer and 1998 105,417 -- 500,000 $225,800(4)
President
Scott A. Mason(5)...................... 1999 180,250 148,500 8,000
Secretary and Executive 1998 180,042 44,338 124,236 49,433(6)
Vice President 1997 175,000 100,688 180,000 55,896(7)
Donald W. Seymour(8)................... 1999 154,500 91,575 8,000 --
Vice President of National 1998 154,313 40,825 47,958 --
Health Advisors 1997 150,000 70,465 40,000 4,704(9)
Karen C. Miller (10)................... 1999 128,000 45,000 18,000 --
Vice President, Finance and 1998 26,666 20,000(11) 60,000 --
Chief Financial Officer
Regina M. Campbell (12)................ 1999 150,000 50,000 18,000 --
Vice President and General 1998 38,654 20,000 60,000 --
Counsel
</TABLE>
- ---------------
(1) Mr. Gladkin commenced employment with the Company on July 1, 1998. He has
served as Chief Executive Officer and President since July 1998.
(2) A cash bonus, tied to 1999 Company performance, in the amount of $100,000,
was approved by the Compensation Committee of the Board of Directors and
paid to Mr. Gladkin in 2000.
(3) Includes 12,500 options granted to Mr. Gladkin in 2000.
(4) Includes $80,000 for moving expenses, $25,800 for consulting fees prior to
his employment with the Company, $20,000 for travel expenses prior to
employment and $100,000 which was paid to Mr. Gladkin as an advance against
a pending contractual matter, which was resolved in the first quarter of
1999.
(5) Mr. Mason's 1997 compensation includes payments from National Health
Advisor, Ltd. ("NHA"). On June 2, 1997, the Company merged with NHA, and
Mr. Mason became an employee of the Company.
(6) Includes $49,433 in life insurance premiums.
(7) Includes $2,610 in health insurance premiums, $3,853 in long-term
disability insurance premiums and $49,433 in life insurance premiums.
(8) Mr. Seymour's 1997 compensation includes payments from NHA. On June 2,
1997, the Company merged with NHA, and Mr. Seymour became an employee of
the Company.
(9) Includes $1,545 in health insurance premiums and $3,160 in long-term
disability insurance premiums.
(10) Ms. Miller commenced employment with the Company on October 1, 1998. She
has served as Vice President of Finance and Chief Financial Officer since
October 1998.
(11) A cash bonus was provided to Ms. Miller per the terms of her employment
agreement. $10,000 was paid in 1999 and $10,000 was paid in 2000.
(12) Ms. Campbell commenced employment with the Company on September 14, 1998.
She has served as Vice President and General Counsel since September 1998.
7
<PAGE> 12
OPTION GRANTS IN 1999
The following table shows information with respect to grants of options to
the Named Executive Officers for the fiscal year ended December 31, 1999. The
options were granted under the Company's Employee Stock Option Plan.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
--------------------------------------------------------------------- ANNUAL RATE OF STOCK
NUMBER OF PRICE APPRECIATION FOR
SECURITIES % OF TOTAL OPTIONS OPTION TERM(1)
UNDERLYING OPTIONS GRANTED TO EXERCISE PRICE EXPIRATION -----------------------
NAME GRANTED EMPLOYEES IN 1999 ($/SH)(2) DATE 5%($) 10%($)
- ---- ------------------ ------------------ -------------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Peter Gladkin............... 339,000 60.9% 0.5938 01/04/09 $126,595 $ 320,817
Chief Executive Officer
and President
Scott A. Mason.............. 8,000 1.4% 1.7344 12/15/09 8,726 22,113
Secretary and Executive
Vice President
Donald W. Seymour........... 8,000 1.4% 1.7344 12/15/09 8,726 22,113
Vice President of National
Health Advisors
Karen C. Miller............. 18,000 3.2% 1.7344 12/15/09 19,634 49,755
Vice President, Finance
and Chief Financial
Officer
Regina M. Campbell.......... 18,000 3.2% 1.7344 12/15/09 19,634 49,755
Vice President and General
Counsel
</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.
AGGREGATE OPTION EXERCISES IN 1999 AND
1999 YEAR-END OPTION VALUES
The following table provides information regarding stock options held by
the Named Executive Officers as of December 31, 1999. None of those individuals
exercised any stock options during the 1999 fiscal year.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
NUMBER OF OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
SHARES YEAR-END(#) FISCAL YEAR-END($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Peter Gladkin............... 0 $0 214,000 625,000 $139,415 $246,869
Scott A. Mason.............. 0 0 59,250 252,986 34,810 143,237
Donald W. Seymour........... 0 0 20,583 75,375 10,302 33,721
Karen C. Miller............. 0 0 22,000 56,000 11,011 19,019
Regina M. Campbell.......... 0 0 22,000 56,000 11,011 19,019
</TABLE>
- ---------------
(1) Value is calculated by subtracting the exercise price per share from the
last reported market price at December 31, 1999 and multiplying the result
by the number of shares subject to the option.
8
<PAGE> 13
EXECUTIVE EMPLOYMENT CONTRACTS
In May 1998, the Company entered into an employment agreement with Mr.
Peter Gladkin, the Company's President and Chief Executive Officer. The term of
the agreement is from July 1, 1998 to July 1, 2000. Under the terms of the
Company's employment agreement with Mr. Gladkin, a renewal employment agreement
(if any) must be negotiated and executed by April 1, 2000. In the event a
renewal agreement is not executed, Mr. Gladkin's tenure as CEO will officially
terminate upon conclusion of his current employment agreement. Discussions have
been initiated and as of this date, no such renewal agreement has been
concluded.
In the second quarter of 1999 the Company renegotiated employment
agreements with Scott Mason, Executive Vice President and Donald Seymour, Vice
President. The initial terms of the agreements are from July 1, 1999 to January
31, 2000 with automatic twelve-month extension thereafter unless terminated by
either party upon ninety days prior written notice. The Company has the right to
terminate Mr. Mason without cause provided that the Company pays Mr. Mason's
salary and Company-provided health benefits for a period 12 months thereafter.
The Company has the right to terminate Mr. Seymour without cause provided that
the Company pays Mr. Seymour's salary and Company-provided health benefits for a
period of six months thereafter.
In September 1998, the Company entered into an employment agreement with
Karen C. Miller, Vice President, Finance and Chief Financial Officer. The term
of the agreement is from October 1, 1998 to October 1, 2000. If the Company and
Ms. Miller wish to extend the agreement beyond October 1, 2000, they must enter
into a renewal employment agreement no later than July 1, 2000. The Company may
terminate the agreement without cause upon sixty (60) days written notice
provided that the Company pays Ms. Miller's salary and Company-provided benefits
for a period of six (6) months thereafter.
In August 1998, the Company entered into an employment agreement with
Regina M. Campbell, Vice President and General Counsel. The term of the
agreement is from September 14, 1998 to September 14, 2000. If the Company and
Ms. Campbell wish to extend the agreement beyond September 14, 2000, they must
enter into a renewal employment agreement no later than July 14, 2000. The
Company may terminate the agreement without cause upon sixty (60) days written
notice provided that the Company pays Ms. Campbell's salary and Company-provided
benefits for a period of six (6) months thereafter.
During 1999 the Vice Presidents did not receive any increase in their base
compensation. Instead, on November 18, 1998, all Vice Presidents received an
incremental stock option in the amount of 10,000 shares. The exercise price of
the options is $.9375 per share. The options have accelerated vesting provisions
tied directly to the Company meeting its specific 1999 revenue and profitability
targets. The options were fully vested effective January 1, 2000.
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 executives' 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
9
<PAGE> 14
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.
During 1999, the Compensation Committee performed an annual review of the
Company's compensation program for senior executives. This annual review was
conducted as a follow up to the major review of the Company's compensation
program for senior executives that the Company undertook in 1996. During that
review, the Committee concluded that the Company's most direct competitors for
executive talent remain in the decision support industry. The Committee
principally compared the Company to a self-selected group of decision support
companies of comparable size (the "Compensation Comparable Group"). 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 Committee retained as a goal compensation
ranges for executive personnel nominally based on the 50th percentile of
competitive data for similarly sized decision support organizations.
In response to (1) significant turnover among the Company's senior
management personnel in prior years and (2) concerns and recommendations
originally expressed in September 1998 by the Company's CEO, the Company
implemented certain changes in its policies with respect to stock options for
senior and technical staff, as discussed below under "Long-Term Incentive
Compensation." In addition, the Company entered into employment agreements with
certain members of its senior staff that are designed to provide additional
assurances to these key employees.
The Compensation Committee will annually revisit the manner in which it
implements the Company's compensation policies in connection with executive
staff. 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.
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 upon the recommendation to
the Committee by the CEO.
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 nominally 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 and operations of the Company. The annual incentive
program is funded only if specific financial goals are achieved at threshold
levels. In 1999, certain executives participated in the incentive compensation
program at targeted levels (on a sliding scale as a percentage of base salaries)
ranging up to 70%. Participants in the incentive compensation program receive
bonus payments that include awards for primarily financial (measured by Company
revenues and earnings per share) and secondarily other operational and
individual achievement of goals.
10
<PAGE> 15
LONG-TERM INCENTIVE COMPENSATION
In 1999 the Company's stockholders approved an increase in the number of
shares authorized under the Employee Stock Option Plan. The number of shares was
increased by 500,000 bringing the number of authorized shares to 2,700,000 for 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 dependent on the actual performance of the
Company's stock price over time.
The Company's senior staff recommended to the Board of Directors that the
Company's approach to the granting of employee stock options first initiated in
1998 be continued in a manner designed to minimize employee turnover and
encourage focus on the Company's 1999 business plan.
Accordingly, during 1999, 41 employees received a total of 104,900 stock
options at a prices ranging from $1.125 to $1.7344 per share. These grants were
directly related to previously approved employee performance incentive programs.
All such grants were subject to the terms of the APACHE Employee Stock Option
Plan.
Three Vice Presidents received contractually obligated stock options
totaling 45,000 shares at prices ranging from $1.2344 to $1.7344 per share.
These grants were subject to the terms of the APACHE Employee Stock Option Plan.
In November 1999, the CEO recommended and the Board of Directors approved
and granted 8,000 incentive stock options to each Vice President. The options
were granted on December 15, 1999 at a price of $1.7344 per share. The options
will vest over five years, but the vesting will be accelerated at the end of
2000 if the Company meets certain specific revenue and profit goals during 2000.
CEO COMPENSATION
The Committee established the compensation of Peter Gladkin, the Company's
Chief Executive Officer since July 1999, using the criteria discussed
previously. Mr. Gladkin's 1999 salary was determined based on the Committee's
overall assessment of Mr. Gladkin's actual performance in his role as CEO and
competitive market data on salary levels within the Compensation Comparable
Group. Mr. Gladkin's performance was reviewed in November 1999 with a view to
his accomplishment of certain goals relating to long-term profitability and
short-term and long-term growth. Mr. Gladkin's base salary was increased by a
nominal 6%. Incentive compensation for Mr. Gladkin was based upon achievement of
Company-wide financial and operating performance and achievement of individual
goals. Mr. Gladkin was granted a bonus with respect to performance in the year
ended December 31, 1999. A cash bonus, in the amount of $100,000 was approved
and paid in 2000. In addition, Mr. Gladkin received 12,500 stock options. The
options were granted on March 28, 2000 at a price of $3.9375, The options are
subject to the terms of the APACHE Employee Stock Option Plan.
Dr. Bisbee, the Company's former Chairman, Chief Executive Officer and
President, resigned as Chairman on November 5, 1997 and as President and Chief
Executive Office effective at the close of business on December 31, 1997. Under
Dr. Bisbee's Employment Agreement, entered into during April 1997, Dr. Bisbee
was entitled to a continuation of his salary and Company-provided health
benefits, life insurance, and other welfare benefits through the end of 1999.
Dr. Bisbee remains a member of the Company's Board of Directors, and his
outstanding previously vested options 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
11
<PAGE> 16
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.
The Compensation Committee:
Thomas W. Hodson, Chairman
Edward J. Connors
William A. Knaus, M.D.
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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following persons serve as members of the Company's Compensation
Committee during the 1999 fiscal year: Edward J. Connors, Thomas W. Hodson, and
William A. Knaus, M.D. Mr. Connors served as Chairman of the Compensation
Committee.
During 1999 there were no Compensation Committee interlocks, and there was
no insider participation in the executive compensation decisions of the Company.
COMPANY PERFORMANCE
The following graph compares the cumulative total stockholder return on the
Common Stock of APACHE Medical Systems, Inc. from June 28, 1996 through December
31, 1999 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: Cerner Corporation; Eclipsys
Corporation; IDX Systems Corporation; Mediware Information Systems, Inc.; Per-Se
Technologies, Inc.; Shared Medical Systems; 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.
12
<PAGE> 17
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG APACHE MEDICAL SYSTEMS, INC.,
THE NASDAQ STOCK MARKET -- U.S. INDEX AND THE PEER GROUP
[LINE GRAPH]
<TABLE>
<CAPTION>
APACHE MEDICAL SYSTEMS, NASDAQ STOCK
INC. MARKET--U.S. INDEX PEER GROUP
----------------------- ------------------ ----------
<S> <C> <C> <C>
June 28, 1996 100.00 100.00 100.00
December 31, 1996 87.24 108.68 50.06
December 31, 1997 10.46 133.17 57.68
December 31, 1998 3.06 187.64 62.74
December 31, 1999 11.74 339.00 53.39
</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.
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires that the Company's executive
officers, 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 1999 with the exception of Form 5 for
James L. Elder, Jr., a former executive officer of the Company, which was filed
late.
RATIFICATION OF PROPOSAL TO AMEND AND RESTATE THE COMPANY'S
NON-EMPLOYEE DIRECTOR SUPPLEMENTAL STOCK OPTION PLAN
(PROPOSAL 2)
The Board of Directors of the Company has adopted, and recommends to the
stockholders for approval, the amendment and restatement of the Company's
Non-Employee Director Supplemental Stock Option Plan
13
<PAGE> 18
(the "Supplemental Stock Option Plan") to increase the number of shares reserved
for issuance under the Supplemental Stock Option Plan by 130,000 from 120,000 to
250,000 shares.
The affirmative vote of a majority of the shares present in person or by
proxy and entitled to vote is required to approve the amendment and restatement
of the Supplemental Stock Option Plan. An abstention will be counted as a vote
against approval 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 amendment and restatement of the Supplemental Stock Option Plan is
approved, the grant of an option by the Board of Directors on January 1, 2000 to
each Messrs. Bisbee, Connors, Dessimoz, Hodson, Knaus and Lewin to purchase
8,700 shares of common stock at a price of $1.4845 per share will become
effective.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" THIS PROPOSAL TO AMEND AND RESTATE THE SUPPLEMENTAL STOCK OPTION PLAN.
THE SUPPLEMENTAL STOCK OPTION PLAN
The following summary of the material provisions of the Supplemental Stock
Option Plan reflects the amendment proposed for approval by the stockholders at
the Annual Meeting. Subject to stockholder approval of the Supplemental Stock
Option Plan, the Company intends to file a registration statement on Form S-8
under the Securities Act of 1933, as amended, covering the additional 130,000
shares of Common Stock issuable under the Supplemental Stock Option Plan.
General. The Supplemental Stock Option Plan as adopted by the Board of
Directors and approved by the Company's stockholders became effective as of
January 1, 1999. The purpose of the Supplemental Stock Option Plan 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. By permitting
options to be granted on a discretionary basis, the Supplemental Stock Option
Plan gives the Company more flexibility to address special situations than is
possible under the existing APACHE Medical Systems, Inc. Non-Employee Director
Stock Option Plan.
Eligibility. Options shall be granted under the Supplemental Stock Option
Plan solely to individuals who are non-employee members of the Board of
Directors on the date of grant (the "Participants"). The term "Non-Employee
Directors" shall have the meaning ascribed to it in Rule 16b-3(b)(3) of the
Exchange Act.
Administration. The Supplemental Stock Option Plan is administered by a
committee composed of at least two Non-Employee Directors (the "Committee").
Members of the Committee are designated by the Chairman of the Board and include
the Chairman of the Board if the Chairman is also a Non-Employee Director. The
Committee may employ such legal counsel, consultants and agents as it may deem
desirable for the administration of the Supplemental Stock Option Plan.
The Committee has the authority to construe and interpret the Supplemental
Stock Option Plan and to establish, amend or waive rules and regulations for its
administration. Subject to the limitations of the express provisions of the
Supplemental Stock Option Plan, options may be subject to such provisions as the
Committee may deem advisable, and may be amended by the Committee from time to
time. No amendment, however, may adversely affect the rights of the holder of an
Option without such holder's consent.
No member of the Committee shall be liable for any action or determination
made in good faith with respect to the Supplemental Stock Option 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 Supplemental Stock Option
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.
14
<PAGE> 19
In addition to the authority otherwise expressly granted to the Board under
the Supplemental Stock Option Plan, the Board at its discretion may carry out
any of the functions of the Committee as set forth in the Supplemental Stock
Option Plan.
Shares subject to the Supplemental Stock Option Plan. Pursuant to the
Supplemental Stock Option Plan as it became effective on January 1, 1999, the
aggregate shares of Common Stock that may be issued under the Supplemental Stock
Option Plan shall not exceed 120,000, as adjusted in accordance with the
provisions set forth below (see "Adjustment Provisions"). A description of the
Board's proposal to increase the number of reserved shares to 250,000 shares is
included below under the caption "Increase Number of Shares Reserved for
Issuance." As of December 31, 1999, options on 115,200 shares of Common Stock
were outstanding under the Supplemental Stock Option Plan. If any option granted
under the Supplemental Stock Option Plan (the "Option") should lapse, expire,
terminate, be forfeited or be cancelled without the issuance of shares, the
Common Stock subject to, or reserved for, such Option may be used again for new
grants of Options under the Supplemental Stock Option Plan. However, the number
of shares of Common Stock issued under the Supplemental Stock Option Plan may
never exceed the total number of shares reserved for issuance. Any shares of
Common Stock withheld or surrendered to pay withholding taxes, or withheld or
surrendered in full or partial payment of the exercise price of an Option as
permitted under the terms of the Supplemental Stock Option Plan (see "Terms and
Conditions" below) shall be added to the aggregate shares of Common Stock
available for issuance.
Adjustment Provisions. In the event of a stock split, stock dividend,
recapitalization, reclassification or combination of shares, a merger, a sale of
assets or any such similar event, the Committee shall adjust equitably (a) the
number and class of shares or other securities that are reserved for issuance
under the Supplemental Stock Option Plan, (b) the number and class of shares or
other securities that are subject to outstanding Options, and (c) the
appropriate Fair Market Value (as that term is defined in the Supplemental Stock
Option Plan) and other price determinations applicable to Options pursuant to
the terms set forth in the Supplemental Stock Option Plan.
Terms and Conditions. Each Option granted under the Supplemental Stock
Option Plan shall be evidenced by an agreement, in a form approved by the
Committee. Each Option shall be subject to the following terms and conditions,
and to such other terms and conditions as the Committee may deem appropriate
that are not inconsistent with the provisions of the Supplemental Stock Option
Plan:
Timing of Option Grants and Number of Underlying Shares. Options
shall be granted to such Participants as the Committee may designate, at
such times as the Committee may determine. Each option agreement shall
designate the number of shares of Common Stock underlying the Options to
which the agreement pertains.
Exercise Price. The per share exercise price of each Option granted
under the Supplemental Stock Option Plan shall be no less than the Fair
Market Value per share of Common Stock at the date the Option is granted.
Vesting of Options. Each option agreement shall specify the manner in
which the Option shall vest.
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.
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).
Termination of Options Upon Termination Due to Disability or
Death. Upon the termination of a Participant's membership on the Board by
reason of disability (as defined in Section 22(e)(3) of the Internal
Revenue Code of 1986, as amended, (a "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
15
<PAGE> 20
his or her estate) until not later than the earlier of one year after the
termination date or the expiration of the term of the Options.
Termination of Options Upon Termination Other than for Cause. Upon
the termination of a Participant's membership on the Board or for any
reason other than for Cause (as defined below -- see "Termination of
Options Upon Termination for Cause"), Disability or death, such
Participant's Options (to the extent vested prior to such termination) may
be exercised by such Participant during the three-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 three-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 or the expiration of the term of the Options.
Termination of Options Upon Termination for Cause. Upon termination
of a Participant's membership on the Board for Cause, 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. "Cause" is defined
to 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 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.
Term of Plan. The Supplemental Stock Option Plan shall continue until
terminated by the Board or until no Common Stock remains available for issuance
under the Supplemental Stock Option Plan, whichever occurs first.
Change in Control. In the event of a Change in Control, all outstanding
Options shall fully vest in each Participant. "Change in Control" shall have the
meaning ascribed to it in the Supplemental Stock Option Plan.
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 laws of descent and distribution, and no option shall be
subjected to any encumbrance, pledge or charge of any nature.
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 Supplemental Stock Option Plan or any
Option granted thereunder or may at any time terminate the Supplemental Stock
Option Plan. However, the Board may not take any action that would cause the
Supplemental Stock Option Plan to fail to comply with Rule 16b-3(b)(3) of the
Exchange Act or any other applicable law or exchange requirements. No such
action shall materially and adversely affect any outstanding Options without
consent of the respective Participants.
Withholding 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 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 may be
sufficient to satisfy all or a portion of such income tax liability.
Other Tax Consequences. The foregoing discussion is intended to be a
general summary only of the federal income tax aspects of rights granted under
the Supplemental Stock Option Plan; tax consequences may vary depending on the
particular circumstances at hand. In addition, the administrative and judicial
interpretations of the application of the federal income tax laws are subject to
change. Furthermore, no information is given with respect to state or local
taxes that may be applicable.
16
<PAGE> 21
Outstanding Options. The number of shares acquirable pursuant to stock
options that will be awarded to the Company's Non-Employee Directors under the
Supplemental Stock Option Plan is not currently determinable. As of December 31,
1999, options to purchase an aggregate of 115,200 shares had been granted under
the Supplemental Stock Option Plan to the Company's Non-Employee Directors as
follows: Dr. Bisbee, 16,700; Mr. Connors, 21,700; Mr. Dessimoz, 16,700; Mr.
Hodson, 19,200; Dr. Knaus, 19,200; and Mr. Lewin, 21,700.
Increase Number of Shares Reserved for Issuance. As of December 31, 1999,
stock options covering 115,200 shares of Common Stock were outstanding under the
Supplemental Stock Option Plan and 4,800 shares were available for future
awards. The Board has adopted, subject to shareholder approval, a proposal that
the Supplemental Stock Option Plan be amended and restated to increase the
aggregate number of shares of Common Stock that may be issued under the
Supplemental Stock Option Plan to 250,000, thereby assuring that sufficient
shares are available for future grants.
If the Board's proposal is approved by stockholders, the Supplemental Stock
Option Plan of APACHE Medical Systems, Inc. will be amended and restated
effective January 1, 2000.
RATIFICATION OF APPOINTMENT OF
INDEPENDENT PUBLIC AUDITORS
(PROPOSAL 3)
INDEPENDENT ACCOUNTANTS FOR 2000
The Board of Directors, upon the recommendation of its Finance and Audit
Committee, has selected Ernst & Young LLP to audit the accounts of the Company
for the fiscal year ending December 31, 2000. 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, Dessimoz, Hodson and Lewin and
has responsibility for recommending the selection of auditors.
Representatives of Ernst & Young 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.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" RATIFICATION OF THE APPOINTMENT OF INDEPENDENT PUBLIC AUDITORS.
DEADLINE FOR STOCKHOLDER PROPOSALS
Proposals of stockholders intended for inclusion in the Company's proxy
statement relating to the 2001 Annual Meeting must be received at the Company's
offices (addressed to the attention of the Secretary) not later than December
28, 2000. Any such proposal must comply with Rule 14a-8 of Regulation 14A of the
proxy rules of the SEC. The submission by a stockholder of a proposal for
inclusion in the proxy statement does not guarantee that it will be included.
Any shareholder proposal not included in the proxy materials disseminated by the
Company for its 2001 Annual Meeting in accordance with Rule 14a-8 under the
Exchange Act will be considered untimely for the purposes of Rules 14a-4 and
14a-5 under the Exchange Act if notice of the proposal is received after March
12, 2001. Management proxies will be authorized to exercise discretionary
authority with respect to any shareholder proposal not included in the Company's
proxy materials unless (a) the Company receives notice of such proposal by March
12, 2001, and (b) the conditions set forth in Rule 14a-4(c)(2)(i)-(iii) under
the Exchange Act are met.
17
<PAGE> 22
ADDITIONAL INFORMATION
Management knows of no matters that are to be presented for action at the
Annual Meeting other than those set forth above. If any other matters properly
come before the Annual Meeting, the persons named in the enclosed form of proxy
will vote the shares represented by proxies in accordance with their best
judgment on such matters.
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, personal interview, facsimile 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 Georgeson Shareholder
Communications, Inc. to assist with the solicitation of proxies for a fee not to
exceed $3,500, plus reimbursement for reasonable out of pocket expenses.
By Order of the Board of Directors
[SIG]
Scott A. Mason
Secretary and Executive Vice President
McLean, Virginia
April 27, 2000
STOCKHOLDERS ARE REMINDED TO SIGN AND DATE THE ENCLOSED PROXY
AND MAIL IT PROMPTLY IN THE POSTAGE-PAID ENVELOPE PROVIDED.
18
<PAGE> 23
APPENDIX A
APACHE MEDICAL SYSTEMS, INC.
NON-EMPLOYEE DIRECTOR
SUPPLEMENTAL STOCK OPTION PLAN
(Amended and Restated Effective January 1, 2000,
Subject to Shareholder Approval)
<PAGE> 24
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Section 1. Purpose ....................................1
Section 2. Definitions ................................1
Section 3. Administration .............................2
Section 4. Common Stock Subject to Plan ...............3
Section 5. Eligibility ................................3
Section 6. Terms and Conditions of Options ............3
Section 7. Treatment of Options Upon Termination ......4
Section 8. Adjustment Provisions ......................5
Section 9. Term of Plan ...............................5
Section 10. Change in Control ..........................5
Section 11. General Provisions .........................5
Section 12. Amendment or Discontinuance of the Plan ....6
Section 13. Effective Date of Plan .....................6
</TABLE>
i
<PAGE> 25
APACHE MEDICAL SYSTEMS, INC.
NON-EMPLOYEE DIRECTOR
SUPPLEMENTAL STOCK OPTION PLAN
(Amended and Restated Effective January 1, 2000,
Subject to Shareholder Approval)
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. By permitting Options to be granted
on a discretionary basis, the Plan gives the Company more flexibility to address
special situations than is possible under the existing APACHE Medical Systems,
Inc. Non-Employee Director Stock Option Plan. The Plan is intended to apply to
the supplemental grant of an Option to purchase 16,700 shares of Common Stock to
each non-employee director by the Board on January 16, 1999.
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: A committee composed of at least two Non-Employee Directors,
within the meaning of Rule 16b-3(b)(3) of the Securities and Exchange
Commission, who are responsible for the administration of the Plan in accordance
with Section 3. Members of the Committee shall be designated by the Chairman of
the Board and shall include the Chairman of the Board if that is consistent with
the preceding sentence.
1
<PAGE> 26
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 Supplemental
Stock Option Plan, as amended from time to time.
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 indemni-
2
<PAGE> 27
fied 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.
(e) Authority of the Board. In addition to the authority otherwise
expressly granted to the Board under the Plan, the Board at its discretion may
carry out any of the functions of the Committee as set forth in the Plan, in
which capacity the Board and the members thereof shall have all of the
authority, powers and rights of the Committee and the members thereof as set
forth in the Plan.
SECTION 4. COMMON STOCK SUBJECT TO PLAN.
The aggregate shares of Common Stock that may be issued under the Plan
shall not exceed 250,000, 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 solely to individuals who are
non-employee members of the Board on the date of grant ("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 terms
and conditions and to such other terms and conditions as the Committee may deem
appropriate that are not inconsistent with the provisions of the Plan:
(a) Timing of Option Grants and Number of Underlying Shares. Options shall
be granted to such Participants as the Committee may designate at such time or
times as the Committee may determine. Each Option agreement shall designate the
number of shares of common Stock to which they pertain.
(b) Exercise Price. The per share exercise price of each Option granted
under the Plan shall be no less than the Fair Market Value per share of Common
Stock at the date the Option is granted.
3
<PAGE> 28
(c) Vesting of Options. Each Option agreement shall specify the manner in
which the Option shall vest.
(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.
(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 or 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 three-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 three 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 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 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.
4
<PAGE> 29
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 continue until terminated by the Board or until no Common
Stock remains available for issuance under Section 4, whichever occurs first.
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 issuances 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 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.
5
<PAGE> 30
(f) Nontransferability. During the lifetime of a Participant, any Option
granted to him or her shall be exercisable only by him or her by his or her
guardian or legal representative. No Option shall be assignable or transferable,
except by will or by 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 take any action that would cause the
Plan to fail to comply with Rule 16b-3(b)(3) of the Securities and Exchange
Commission or any other applicable law or any applicable exchange requirements;
and provided further that no such action shall materially and adversely affect
any outstanding Options without consent of the respective Participants.
SECTION 13. EFFECTIVE DATE OF PLAN.
The Plan, as amended herein, is effective on January 1, 2000; provided
that it shall be submitted for approval by the holders of a majority of the
outstanding shares of Common Stock of the Company within 12 months thereafter,
and Options granted prior to such stockholder approval shall become null and
void if such stockholder approval is not obtained. The Plan is intended to
apply to the supplemental grant of an Option to purchase 16,700 shares of
Common Stock to each non-employee director by the Board on January 16, 1999.
6
<PAGE> 31
FORM OF STOCK OPTION AGREEMENT
Participant Name: [insert full name of Participant]
APACHE Medical Systems, Inc.
Stock Option Agreement
You (the "Optionee") have been granted an option (the "Option") to
purchase shares of common stock of APACHE Medical Systems, Inc. under the APACHE
Medical Systems, Inc. Non-Employee Director Supplemental Stock Option Plan (the
"Plan"). The Plan is subject to shareholder approval. The Option is subject to
the terms and conditions set forth below and in the Plan.
1. Number of Shares:
2. Date of Grant:
3. Exercise Price Per Share:
4. Vesting: vests ratably over five years plus provisions for acceleration
on change in control as set forth in the Plan
5. Termination Date: none other than as set forth in the Plan
6. Option Period: ten years
By signing this agreement, the Optionee accepts the Option subject to
the terms and conditions of the Plan and this Agreement.
OPTIONEE: WITNESS:
- ---------------------------- ----------------------------
(Signature) (Signature)
APACHE Medical Systems, Inc., by its duly-authorized officer agrees
that the Option, as hereby amended, is granted under the terms and conditions of
the Plan and this agreement.
ATTEST: APACHE MEDICAL SYSTEMS, INC.
By: By:
------------------------- -------------------------
(Signature) (Signature)
<PAGE> 32
PROXY
APACHE MEDICAL SYSTEMS, INC.
PROXY CARD
Proxy for the Annual Meeting of Stockholders to be held on May 31, 2000. This
Proxy is Solicited on Behalf of the Board of Directors.
The undersigned hereby constitutes and appoints Thomas W. Hodson and Peter
Gladkin, 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 31, 2000, 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" PROPOSALS 1, 2 AND 3; 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> 33
[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> <C> <C>
FOR WITHHELD FOR ALL EXCEPT
1. Election of Directors [ ] [ ] [ ]
Nominees: Gerald E. Bisbee, Jr., Ph.D., Edward J. Connors, Richard Dessimoz,
Peter Gladkin, Thomas W. Hodson, William A. Knaus, M.D., Lawrence S. Lewin.
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, CHECK
THE "FOR ALL EXCEPT" BOX ABOVE, AND STRIKE A LINE THROUGH THE NOMINEE'S NAME
LISTED ABOVE.)
FOR AGAINST ABSTAIN
2. Approval of Amendment to the Non-Employee Director [ ] [ ] [ ]
Supplemental Stock Option Plan.
FOR AGAINST ABSTAIN
3. Ratification of the appointment of Ernst & Young LLP [ ] [ ] [ ]
as independent accountants.
</TABLE>
In the discretion of the proxies named herein, the proxies are authorized to
vote upon such 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 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
/\ FOLD AND DETACH HERE /\
