<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
FILED BY THE REGISTRANT [X]
FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
CHECK THE APPROPRIATE BOX:
[ ] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission Only as permitted by
RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-111(c) or Rule 14a-12
SPACELABS MEDICAL, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] NO FEE REQUIRED
[ ] FEE COMPUTED ON TABLE BELOW PER EXCHANGE ACT RULES 14a-6(i)(1) AND 0-11.
(1) TITLE OF EACH CLASS OF SECURITIES TO WHICH TRANSACTION APPLIES:
(2) AGGREGATE NUMBER OF SECURITIES TO WHICH TRANSACTION APPLIES:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing registration statement number, or the
Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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[SPACELABS LOGO]
Dear Stockholder: March 24, 1999
You are cordially invited to attend the 1999 Annual General Meeting of
Stockholders of Spacelabs Medical, Inc. at 10:00 a.m. on Friday, May 7, 1999, at
the Bellevue Club, 11200 SE 6th Street, Bellevue, Washington.
The accompanying Notice of 1999 Annual General Meeting of Stockholders and
the Proxy Statement describe the matters to be presented at the meeting.
Whether or not you plan to attend the meeting, we hope you will have your
stock represented by completing, signing, dating and returning your proxy card
in the enclosed postage-paid envelope as soon as possible. Your stock will be
voted in accordance with the instructions you have given in your proxy.
Sincerely,
/s/ CARL A. LOMBARDI
Carl A. Lombardi
Chairman of the Board
and Chief Executive Officer
IMPORTANT
A Proxy Statement and proxy card are enclosed. All stockholders are urged to
complete and mail the proxy card promptly. The enclosed envelope for return of
the proxy card requires no postage. Any stockholder attending the meeting may
personally vote on all matters that are considered, in which event the signed
proxy will be revoked.
IT IS IMPORTANT THAT YOUR STOCK BE VOTED.
<PAGE> 3
[SPACELABS LOGO]
NOTICE OF ANNUAL GENERAL MEETING OF STOCKHOLDERS
MAY 7, 1999
------------------------
To the Stockholder:
The 1999 Annual General Meeting of Stockholders of Spacelabs Medical, Inc.
will be held at the Bellevue Club, 11200 SE 6th Street, Bellevue, Washington on
Friday, May 7, 1999, at 10:00 a.m. for the following purposes:
(1) To elect seven directors to hold office until the next Annual
General Meeting of Stockholders and until their respective successors are
elected and qualified;
(2) To ratify the appointment of KPMG LLP as auditors for Spacelabs
Medical, Inc. for 1999; and
(3) To transact such other business as may properly come before the
meeting and any adjournment and postponement thereof.
Nominees for directors are named in the enclosed Proxy Statement.
March 8, 1999 has been set as the record date for the meeting. Only
stockholders of record at the close of business on that date will be entitled to
notice of and to vote at the meeting.
ALL STOCKHOLDERS ARE INVITED TO ATTEND THE MEETING IN PERSON, BUT EVEN IF
YOU EXPECT TO BE PRESENT AT THE MEETING, YOU ARE REQUESTED TO COMPLETE, SIGN,
DATE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE
POSTAGE-PAID ENVELOPE PROVIDED TO ENSURE YOUR REPRESENTATION. STOCKHOLDERS
ATTENDING THE MEETING MAY VOTE IN PERSON EVEN IF THEY HAVE PREVIOUSLY SENT IN A
PROXY.
By Order of the Board of Directors
/s/ EUGENE V. DeFELICE
Eugene V. DeFelice
Secretary
Redmond, Washington
March 24, 1999
THE 1998 ANNUAL REPORT OF SPACELABS MEDICAL, INC.
ACCOMPANIES THIS PROXY STATEMENT.
<PAGE> 4
1999 PROXY STATEMENT
GENERAL
The enclosed proxy is solicited by the Board of Directors of Spacelabs
Medical, Inc. ("Spacelabs Medical" or the "Company") for use at the 1999 Annual
General Meeting of Stockholders to be held at 10:00 a.m. on Friday, May 7, 1999,
at the Bellevue Club, 11200 SE 6th Street, Bellevue, Washington 98004, and at
any adjournment or postponement thereof (the "Meeting"). Only holders of record
of Spacelabs Medical's Common Stock, par value $0.01 per share (the "Common
Stock"), at the close of business on March 8, 1999 will be entitled to notice of
and to vote at the Meeting. On that date, Spacelabs Medical had 9,415,147 shares
of Common Stock issued and outstanding. Each share of Common Stock outstanding
on the record date is entitled to one vote.
The address of Spacelabs Medical's principal executive offices is 15220 NE
40th Street, Redmond, Washington 98052.
This Proxy Statement and the accompanying proxy are being mailed to the
stockholders of Spacelabs Medical on or about March 24, 1999.
VOTING
Shares of Common Stock for which proxies are properly executed and returned
will be voted at the Meeting in accordance with the directions noted thereon or,
in the absence of directions to the contrary, will be voted (i) "FOR" the
election of the seven nominees for the Board of Directors named on the following
pages, provided that if any one or more of such nominees should become
unavailable for election for any reason, such shares will be voted for the
election of such substitute nominee or nominees as the Board of Directors may
propose, and (ii) "FOR" the ratification of the appointment of KPMG LLP as
auditors for Spacelabs Medical for 1999. Under Delaware law, Spacelabs Medical's
Certificate of Incorporation and Spacelabs Medical's By-Laws, the presence at
the Meeting, in person or by duly authorized proxy, of the holders of one-third
of the outstanding shares of Common Stock entitled to vote constitutes a quorum
for the transaction of business. The seven nominees for the Board of Directors
who receive the greatest number of votes cast for the election of directors by
the shares present in person or represented by proxy at the Meeting and entitled
to vote shall be elected directors. The affirmative vote of a majority of shares
entitled to vote and present in person or by proxy at the Meeting is required
for approval of any other matters submitted to a vote of the shareholders. In
the election of directors, an abstention or broker non-vote will have no effect
on the outcome. In the case of any other matter, abstention from voting will
have the practical effect of voting against such matter. Broker non-votes will
be included in determining the presence of a quorum at the Meeting but will have
no effect on the outcome of any matters, other than to reduce the number of
"FOR" votes necessary to approve such matters.
REVOCATION
Any stockholder giving a proxy may revoke it at any time before it is voted
by delivering to the Secretary of Spacelabs Medical a written notice of
revocation or a duly executed proxy bearing a later date, or by attending the
Meeting and electing to vote in person.
PROPOSAL 1: ELECTION OF DIRECTORS
In accordance with Spacelabs Medical's By-Laws, the Board of Directors has
fixed the number of directors constituting the Board at seven. It is proposed
that seven directors be elected, each to hold office for a term of one year and
until his successor shall have been elected and qualified. It is intended that
votes will be cast pursuant to the accompanying proxy for the election of the
nominees named below, each of whom is currently a director of Spacelabs Medical.
If any nominee should become unavailable for any reason, it is intended that
votes will be cast for a substitute nominee designated by the Board of
Directors. The Board of Directors has no reason to believe that the nominees
named will be unable to serve if elected. The seven
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nominees who receive the greatest number of votes cast by stockholders present
in person or by proxy and certified to vote at the Meeting, a quorum being
present, shall be elected directors.
NOMINEES FOR THE BOARD OF DIRECTORS
GILBERT W. ANDERSON. Mr. Anderson (age 70) has served as a director of
Spacelabs Medical since July 28, 1995. Mr. Anderson is the former President,
Chief Executive Officer and director of Physio-Control Corporation, a
manufacturer of medical equipment. Mr. Anderson joined Physio-Control in 1976,
was appointed its President and Chief Executive Officer and a director in 1985,
and retired in 1991. Mr. Anderson is a member of the Board of Directors of
Esterline Technologies. He serves on the Advisory Board of the University of
Washington Schools of Business and Business Administration and is a member of
the Board of Directors and of the Board of Trustees of the Seattle Public
Library Foundation. He is also past Chairman of the United Way of King County.
Principal Occupation: Retired President, Chief Executive Officer
and Director of Physio-Control Corporation and Private Investor
THOMAS J. DUDLEY, D.B.A. Dr. Dudley (age 67) has served as a director,
Chairman of the Audit Committee and member of the Executive Committee and the
Compensation Committee of Spacelabs Medical since June 26, 1992. Dr. Dudley has
been a Professor of Quantitative Methods, The George L. Graziadio School of
Business and Management, Pepperdine University, since 1968. Dr. Dudley has also
owned and operated Thomas J. Dudley & Associates, a company that provides
management consulting services for strategic planning and implementation to
small and medium-sized companies, since 1968. Dr. Dudley holds a doctorate in
business administration from the University of Southern California. He also has
a master's degree in business administration and a bachelor's degree in liberal
arts and sciences from the University of Michigan. Dr. Dudley is a member of
INFORMS, the World's Futures Society, and the Accreditation Committee of the
Association of Independent Colleges and Schools. He is also an advisor to the
American-China Association for Science and Technology Exchange. He is a member
of the Board of Directors of the Los Angeles branch of Recording for the Blind
and Dyslexic, a nonprofit organization. Dr. Dudley is a recipient of the
Harriett and Charles Luckman Distinguished Teaching Fellow Award. Dr. Dudley is
listed in Who's Who among America's teachers for 1998 -- The best teachers in
America selected by the best students in America.
Principal Occupation: Professor of Quantitative Methods, The
George L. Graziadio School of Business and Management, Pepperdine University
HARVEY FEIGENBAUM, M.D. Dr. Feigenbaum (age 65) has served as a director
and member of the Audit Committee of Spacelabs Medical since June 26, 1992. Dr.
Feigenbaum has been a Distinguished Professor of Medicine at the Indiana
University Medical Center since 1980 and joined its faculty in 1962. He was
elected Phi Beta Kappa and received a bachelor of arts degree summa cum laude
from Indiana University in 1955, an M.D. degree from the Indiana School of
Medicine in 1958 and his cardiovascular subspecialty, American Board of Internal
Medicine, in 1969. Dr. Feigenbaum is a fellow of the American College of
Physicians, the American College of Cardiology and the Council on Clinical
Cardiology of the American Heart Association, as well as a member of the
Editorial Boards of the American Heart Journal, the American Journal of
Cardiology, and CIRCULATION. He is editor of the Journal of the American Society
of Echocardiography.
Principal Occupation: Distinguished Professor of Medicine,
Indiana University Medical Center
CARL A. LOMBARDI. Mr. Lombardi (age 55) has served as a director, Chairman
of the Board, and Chief Executive Officer of Spacelabs Medical since June 26,
1992. Mr. Lombardi joined Spacelabs Medical in 1967 in the research and
development group. He served in various executive positions with Spacelabs
Medical before being appointed President in 1981. Mr. Lombardi was named Group
Vice President of Squibb Medical Systems in 1982 with responsibility for the
patient monitoring group of companies. Mr. Lombardi holds a master of business
administration degree from Pepperdine University. He also has a master of
science degree in systems engineering from West Coast University and a
bachelor's degree in electrical engineering from
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Pacific States University. He also serves on the Regional Council of the
Scribner Kidney Research Center and the Board of Trustees of the Northwest
Kidney Center.
Principal Occupation: Chairman of the Board, Chief Executive Officer
and President of Spacelabs Medical, Inc.
ANDREW R. NARA, M.D., PH.D. Dr. Nara (age 52) has served as a member of the
Board since 1998. Dr. Nara has been an Associate Professor of Medicine at Case
Western Reserve University School of Medicine since 1990 and joined its faculty
in 1979. He received a bachelor of science degree in 1969 from the University of
Toledo, and a combined M.D., Ph.D. degree in biomedical engineering in 1976 from
Case Western Reserve University. He has been certified by the American Board of
Internal Medicine since 1981 and received a subspecialty in adult cardiovascular
disease in 1983. Dr. Nara is a Fellow of the American College of Cardiology,
American Heart Association and American College of Chest Physicians.
Principal Occupation: Associate Professor of Medicine
Case Western Reserve University School of Medicine
PHILLIP M. NUDELMAN, PH.D. Dr. Nudelman (age 63) has served as a director
since June 26, 1992. He is also the Chairman of the Compensation Committee. Dr.
Nudelman has served as Chief Executive Officer and President of Group Health
Cooperative of Puget Sound ("Group Health") since February 1991 and now serves
as Chairman of Kaiser/Group Health. Dr. Nudelman joined Group Health in 1973 as
Director of Professional Services and has held positions of increasing
responsibility since then. Dr. Nudelman received his bachelor of science degree
in microbiology, zoology and pharmacy from the University of Washington, and
holds a master of business administration and doctor of philosophy degrees in
health systems management from Pacific Western University. He serves as a member
of the Board and is Chair of the American Association of Health Plans. He
currently serves on the Boards of Directors of Pacific Science Center, United
Way, Association for Washington Business, Cell Therapeutics, Inc. and Premier,
Inc. Dr. Nudelman also serves on the Board and is Chair of the Woodland Park
Zoological Society.
Principal Occupation: Chairman, Kaiser/Group Health
PETER H. VAN OPPEN. Mr. van Oppen (age 46) has served as Chairman of the
Board and Chief Executive Officer of Advanced Digital Information Corporation
("ADIC") since its acquisition by Interpoint in 1994, and served as President
from 1994 to 1997. He has served as a Director of ADIC since 1986. He served as
Chairman of the Board of Interpoint from 1995 until its acquisition by Crane Co.
in October 1996. He also served as President and Chief Executive Officer of
Interpoint from 1987 to 1989, and as Executive Vice President for Finance and
Operations of Interpoint from 1985 to 1987. Prior to 1985, Mr. van Oppen worked
as a Consulting Manager at Price Waterhouse LLP and at Bain & Company in Boston
and London. He has additional experience in medical electronics and venture
capital. Mr. van Oppen also serves as a Director of Seattle FilmWorks, Inc. and
Key Technology, Inc. He holds a bachelor of arts degree from Whitman College and
a master of business administration degree from Harvard Business School, where
he was a Baker Scholar.
Principal Occupation: Chairman of the Board and
Chief Executive Officer of Advanced Digital Information Corporation
The Board of Directors met six times in 1998. All directors attended at
least 75% of the meetings of the Board of Directors and its Committees on which
they serve.
COMMITTEES OF THE BOARD OF DIRECTORS
Spacelabs Medical has established standing committees of its Board of
Directors, including an Audit, a Compensation and an Executive Committee. Each
of these Committees is responsible to the full Board of Directors, and its
activities are therefore subject to Board approval. The functions performed by
these Committees are summarized below:
Audit Committee. The Audit Committee reviews the accounting principles,
internal accounting controls, audit plan and financial results of Spacelabs
Medical to safeguard Spacelabs Medical's assets and to provide
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for the reliability of its financial records. The members of this Committee are
Dr. Dudley (Chairman), Dr. Feigenbaum and Mr. Anderson. The Audit Committee met
four times in 1998.
Compensation Committee. The Compensation Committee establishes salaries,
incentives and other forms of compensation for directors, officers and other
executives of Spacelabs Medical. This Committee also administers Spacelabs
Medical's various incentive compensation and benefit plans and recommends the
establishment of policies relating to such plans. The members of this Committee
are Dr. Nudelman (Chairman) and Drs. Dudley and Nara. In connection with the
establishment of the Company's compensation program for its Directors, Officers
and other executives, the Company is regularly assisted by its independent
compensation consultant, Frederic W. Cook & Co., Inc. The Compensation Committee
met five times in 1998.
Executive Committee. The Executive Committee has authority, subject to
limitations prescribed by the Board of Directors, to exercise, during the
intervals between meetings of the Board of Directors, the powers of the full
Board and is also available, on a standby basis, for use in an emergency or when
scheduling makes it impractical to bring the full Board together for a meeting.
The members of this Committee are Mr. Lombardi (Chairman) and Dr. Dudley. The
Executive Committee did not meet in 1998.
DIRECTOR COMPENSATION
Directors who are employees of Spacelabs Medical do not receive any fees
for their services as directors. Directors who are not employees of Spacelabs
Medical are paid an annual retainer of $15,000 for serving on the Board of
Directors. They also receive an additional $1,000 for attending each meeting of
the Board of Directors plus $1,000 for attending each meeting of a committee of
the Board of which they are a member, except in the case of telephonic meetings
in which case a nonemployee director receives $500. A nonemployee director
serving as a committee chairman receives an additional $1,000 per annum.
Under the Spacelabs Medical, Inc. Stock Option and Deferral Plan for
Nonemployee Directors (the "Director Plan"), each director who is neither an
officer nor an employee of Spacelabs Medical is eligible to receive an annual
automatic grant of an option to purchase 4,000 shares of Common Stock. Each new
nonemployee director is also eligible to receive an initial automatic grant of
an option to purchase up to 5,000 shares of Common Stock upon the director's
initial election or appointment to the Board. The options have an exercise price
equal to the fair market value of the Common Stock on the date of grant and
expire on the earlier of 10 years from the date of grant and one year after a
director's termination of service as a director or three years after a
director's mandatory retirement. Each option is immediately fully vested. The
Director Plan also permits nonemployee directors to defer payment of all or a
part of their cash retainers and/or Board Committee chairmanship fees into
"Stock Units."
The Company also has a Cash Deferred Compensation Plan for Nonemployee
Directors. Participating directors may elect to defer all or a portion of their
cash compensation for service as directors into an interest-bearing cash
account.
DIRECTOR STOCK OWNERSHIP GUIDELINES
In October 1998, the Company established guidelines for all nonemployee
directors with respect to the real ownership of Spacelabs Medical securities by
such directors. Under these guidelines, directors are expected to own shares of
the Company's Common Stock in an amount equal to at least four (4) times the
annual retainer paid to any such director. This ownership threshold commences on
the later of five (5) years from (i) the date on which the guidelines shall have
been adopted by the Company and (ii) a director's election to the Board.
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STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Common Stock
as of February 4, 1999, by (i) each stockholder known by the Company to be the
beneficial owner of more than 5% of the outstanding Common Stock, (ii) each
director, (iii) the named executive officers and (iv) all directors and
executive officers as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP OUTSTANDING
---------------------- -------------------- -----------
<S> <C> <C>
Dimensional Fund Advisors................................... 652,200(2) 6.93%
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401
Mellon Bank Corporation..................................... 618,923(3) 6.57%
One Mellon Bank Center
500 Grant Street
Pittsburgh, PA 15258-0001
Tweedy, Browne Company LLC.................................. 592,275(4) 6.29%
and TBK Partners, L.P.
52 Vanderbilt Avenue
New York, NY 10017
Wellington Management Company............................... 571,900(5) 6.07%
75 State Street
Boston, MA 02109
The TCW Group, Inc.......................................... 564,000(6) 5.99%
200 Park Avenue, Suite 2200
New York, NY 10166
Gilbert W. Anderson......................................... 7,500(7) *
Thomas J. Dudley............................................ 10,000(8) *
Harvey Feigenbaum........................................... 8,463(9) *
Carl A. Lombardi............................................ 641,452(10)(11) 6.45%
Andrew R. Nara.............................................. 8,500(12) *
Phillip M. Nudelman......................................... 8,100(13) *
Peter H. van Oppen.......................................... 5,500(14) *
James A. Richman............................................ 64,894(11)(15) *
Timothy R. Miskimon......................................... 87,720(11)(16) *
Michael Stringer............................................ 10,428(11)(17) *
Eugene V. DeFelice.......................................... 24,128(11)(18) *
All directors and executive officers as a group (12
persons).................................................. 929,368(19) 9.12%
</TABLE>
- ---------------
* Represents holdings of less than 1%.
(1) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission and includes shares over which the
indicated beneficial owner exercises voting and/or investment power. Shares
of Common Stock subject to options currently exercisable or exercisable
within 60 days are deemed outstanding for computing the percentage
ownership of the person holding the options but are not deemed outstanding
for computing the percentage ownership of any other person. Except as
indicated, and subject to community property laws where applicable, the
persons named in the table above have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them.
(2) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 652,200 shares, all of
which are held in portfolios of DFA Investment Dimensions Group Inc., a
registered open-end investment company (the "Fund"), or in series of the
DFA Investment Trust Company, a Delaware business trust (the "Trust"), or
the DFA Group Trust and DFA Participation Group Trust, investment vehicles
for qualified employee benefit plans, for all of
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which Dimensional serves as investment manager. Dimensional disclaims
beneficial ownership of all such shares. Dimensional has sole power to vote
652,200.
(3) Mellon Bank Corporation ("Mellon") has the sole power to vote 564,923
shares and to dispose of 569,623 shares. Mellon also has shared power to
dispose of 49,300 shares with Boston Group Holdings, Inc. and the Boston
Company, Inc., both of which are subsidiaries of Mellon.
(4) The members of each of Tweedy, Browne Company LLC ("TBC") and TBK Partners,
L.P. ("TBK") may, by reason of such membership, be deemed to be the
beneficial owner of 592,275 shares in the aggregate. TBC has sole power to
vote 511,775 of such shares and TBK has sole power to vote 65,000 shares.
TBC does not have sole dispositive power with respect to any of its shares.
TBC shares dispositive power over 527,275 of its shares, while TBK has sole
dispositive power with respect to all of its shares. Each of TBC and TBK
disclaims beneficial ownership of all such shares.
(5) Of the 571,900 shares owned by Wellington Management Company, it has shared
power to dispose or to direct the disposition of 245,700 shares.
(6) The TCW Group, Inc. ("TCW") and Robert Day (an individual who may be deemed
to control TCW) share voting and dispositive power over the aggregate
amount of the shares reported.
(7) Includes options to purchase 5,500 shares exercisable within 60 days of
February 4, 1999.
(8) Represents options to purchase 8,000 shares exercisable within 60 days of
February 4, 1999.
(9) Includes 163 shares that are owned by Dr. Feigenbaum's wife and options to
purchase 8,000 shares exercisable within 60 days of February 4, 1999.
(10) Includes options to purchase 526,500 shares exercisable within 60 days of
February 4, 1999.
(11) Includes 5,152, 1,613, 975, 176 and 378 shares held by the 401(k) trustee,
as of December 31, 1998, for Messrs. Lombardi, Richman, Miskimon, Stringer
and DeFelice respectively.
(12) Represents options to purchase 8,500 shares exercisable within 60 days of
February 4, 1999.
(13) Includes options to purchase 8,000 shares exercisable within 60 days of
February 4, 1999.
(14) Includes options to purchase 500 shares exercisable within 60 days of
February 4, 1999.
(15) Includes options to purchase 55,500 shares exercisable within 60 days of
February 4, 1999.
(16) Includes options to purchase 81,000 shares exercisable within 60 days of
February 4, 1999.
(17) Includes options to purchase 8,752 shares exercisable within 60 days of
February 4, 1999.
(18) Includes options to purchase 19,750 shares exercisable within 60 days of
February 4, 1999.
(19) Includes options to purchase 777,501 shares exercisable within 60 days of
February 4, 1999.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
During fiscal year 1998, George P. Messina, a former officer of the
Company, inadvertently failed to timely file a Form 4 as required by Section 16
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). A Form
5 was filed on Mr. Messina's behalf. Otherwise, based on the Company's review of
Forms 3, 4 and 5 and any amendments thereto furnished to the Company pursuant to
Section 16 of the Exchange Act, all such forms were filed on a timely basis.
REPORT OF COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Compensation Committee, which consists of three nonemployee directors,
implements and endorses the goals of the Company's executive compensation
program, which reflect three guiding principles: (i) to provide compensation and
benefits that allow the Company to maintain competitive compensation to attract
and retain executives with the skills critical to the Company's long-term
success, (ii) to reward performance in attaining business objectives and
maximizing stockholder value and (iii) to encourage Company stock ownership
through officer ownership guidelines that are monitored by the Committee on an
ongoing basis.
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An outside compensation consulting firm advises the Committee on all
elements of executive officer compensation. The Committee examines survey data
for positions with similar responsibilities in other medical equipment companies
of similar size. The surveyed companies overlap significantly with companies
included in the peer group index shown in the stock price performance graph.
Total compensation for executive officers is targeted by the Committee at the
median for comparable companies, as is the mix of pay elements, which include
base salaries, annual incentives and long-term incentives in the form of stock
options.
Base Salaries. Individual base salaries reflect historical practice,
internal position relationships, individual performance and relative external
market pay. No specific weight is assigned to these factors. Spacelabs Medical's
Chief Executive Officer is responsible for setting salaries up to $150,000;
salaries over $150,000 are established by the Committee, with strong
consideration given to the recommendation of the Chief Executive Officer. Base
salaries are targeted at the median competitive level. In the case of all
executive officers who were employed at the end of 1998, including the Chief
Executive Officer, salary levels were in the approximate competitive median
range but in no case exceeded the competitive median.
Annual Incentives. The Management Incentive Compensation Plan (the "MIC
Plan") is a shareholder approved plan under which annual cash or stock-based
awards may be made to executive officers and other key employees. The total
amount of the MIC Plan award pool is established based on the Company's net
income performance, emphasizing the quality of earnings based on the return on
capital employed. The amount of any individual award depends on performance by
the individual against assigned goals. These goals are both quantitative and
subjective, and vary reflecting areas of responsibility, with no specific weight
assigned to any particular goal.
In 1998, the Company did not attain the profitability threshold established
for incentive awards under the MIC Plan. However, the Committee made awards,
based on a recommendation of the Chief Executive Officer, to certain individuals
at less than target levels to recognize individual contributions related to
returning the Company to sustained profitability and growth. A portion of the
awards was paid in restricted stock for employment retention and stock
ownership.
Long-Term Incentives. The Spacelabs Medical, Inc. 1992 Option, Stock
Appreciation Right, Restricted Stock, Stock Grant and Performance Unit Plan (the
"1992 Plan") is the Company's primary long-term incentive plan. Annual grants of
stock options are made to executive officers and other key employees under the
plan.
Regular annual stock option grants based on median competitive grant
guidelines, and adjusted for individual performance and contributions, were made
to executive officers in February 1998. These grants had ten-year option terms,
and the adjustments for individual performance and contributions were determined
discretionarily by the Committee based on recommendations made by the Chief
Executive Officer for grants other than his own. In addition to these regular
grants, executive officers, other than Mr. Lombardi, received special option
grants of 10,000 shares each in July 1998. These options were to recognize
strategic initiatives and encourage employment retention, and had five-year
terms. They were in addition to the regular annual option grants.
Compensation of the Chief Executive Officer. Mr. Lombardi's base salary was
set at $440,000 during 1998. It is the Committee's intent to review Mr.
Lombardi's base salary again in 2000 on a regular two-year review schedule.
The Committee continued to emphasize pay for performance, which is
reflected in the annual incentive and stock option portions of his compensation
package. While Mr. Lombardi's base salary approximates the competitive median,
his total annual compensation continued to be below the median for comparable
companies. Mr. Lombardi received no annual incentive award for the profitability
component of his annual incentive plan because the profitability threshold
established by the Committee at the beginning of the year was not met. For the
strategic component of his annual incentive plan, he received 7,500 restricted
shares. These restricted shares were awarded for progress during the year toward
three primary objectives, which are as follows: (i) returning the Company to
sustained profitability, (ii) growing revenues while increasing
7
<PAGE> 11
backlog, and (iii) improving shareholder value during the year. Mr. Lombardi
also received a regular annual grant of 125,000 options, which approximates a
median competitive grant for comparable companies.
Policy with Respect to Section 162(m) Limitations. Section 162(m) of the
Internal Revenue Code of 1986, as amended, generally disallows a tax deduction
to public companies for compensation in excess of $1 million paid to each of a
company's four most highly compensated executive officers and its chief
executive officer. Qualifying performance-based compensation is not subject to
the deduction limit if certain requirements are met. The Compensation Committee
has decided not to qualify the MIC Plan, since to do so would limit the
Committee's flexibility in the administration of such plan. The Compensation
Committee does not believe that there will be any nondeductible compensation for
its executive officers in 1999.
Respectfully submitted,
Phillip M. Nudelman (Chairman)
Thomas J. Dudley
Andrew R. Nara
Compensation Committee Members
EXECUTIVE COMPENSATION
The following table provides information for the past three fiscal years
concerning the annual and long-term compensation received by those persons who
were, in 1998, the Company's Chief Executive Officer and the other most highly
compensated executive officers of the Company (the "named executive officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------- -------------------- -------
NAME AND OTHER ANNUAL RESTRICTED STOCK LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) STOCK(2) OPTIONS PAYOUTS COMPENSATION(3)
------------------ ---- -------- -------- --------------- ---------- ------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Carl A. Lombardi 1998 $440,000 -- -- $133,125 125,000 -- $ 20,785
Chief Executive
Officer 1997 $400,000 -- -- $ 87,000 185,000 -- $ 13,190
Chairman of the Board 1996 $400,000 -- -- $ 87,960 75,000 -- $ 13,362
and President
Eugene V. DeFelice 1998 $151,000 $30,000 -- $ 17,750 30,000 -- $ 13,903
Vice President,
General 1997 $137,000 $30,000 -- $ 21,750 25,000 -- $ 10,019
Counsel and Secretary 1996 $108,000 $20,000 -- $ 43,750 8,000 -- $ 5,611
Timothy R. Miskimon 1998 $197,000 $30,000 $ 1,846 $ 17,750 40,000 -- $ 10,336
Sr. Vice President, 1997 $150,000 $50,000 $11,636 $ 21,750 52,000 -- $ 4,055
International 1996 $150,000 $15,000 $14,148 $ 43,980 10,000 -- $ 7,172
James A. Richman 1998 $147,000 $20,000 -- $ 17,750 30,000 -- $ 10,770
Vice President and 1997 $144,000 $20,000 -- $ 21,750 34,000 -- $ 9,576
Corporate Controller 1996 $135,000 -- -- $ 54,975 10,000 -- $ 12,149
Acting Chief
Financial Officer
Michael Stringer 1998 $178,000 -- $24,988 $ 17,750 25,000 -- $ 12,284
Vice President and 1997 $ 27,000(4) $35,000 $ 2,082 -- 20,000 -- $ 249
General Manager of
Specialty Products
George P. Messina 1998 $275,000(5) -- -- -- 20,000 -- $334,831(5)
Sr. Vice President 1997 $304,200(5) -- -- -- 94,094 -- $ 2,995
Ronald Bromfield 1998 $204,000 -- -- -- 35,000 -- $ 887
Sr. Vice President
and 1997 $ 88,000(6) $30,000 -- $136,750 50,000 -- $ 402
General Manager of US
Monitoring
</TABLE>
8
<PAGE> 12
- ---------------
(1) Represents sales commissions earned in each of the years shown.
(2) Recipients of Restricted Stock are recorded as shareholders of the Company
and, subject to the provisions of the 1992 Option, Stock Appreciation Right,
Restricted Stock, Stock Grant and Performance Unit Plan as Amended and
Restated on May 10, 1995, have all the rights of a stockholder with respect
to such shares and receive all dividends or other distributions made or paid
with respect to such shares. Restricted stock is valued at the closing price
quoted on the Nasdaq National Market (the "Nasdaq/ NM") on the date of
grant. At December 31, 1998, Messrs. Lombardi, DeFelice, Miskimon, Richman,
Stringer, Messina and Bromfield held 7,500, 2,750, 3,000, 3,625, 0, 0 and
4,750 shares of restricted stock, respectively, with a value at that date of
$172,500, $63,250, $69,000, $83,375, $0, $0 and $109,250, respectively. The
Company's restricted stock vests at the rate of 25% per year, beginning on
the first anniversary of the date of grant.
(3) Includes Spacelabs Medical's contribution to Spacelabs Medical's ISSO 401(k)
Plan during 1998 for Messrs. Lombardi, DeFelice, Miskimon, Richman,
Stringer, Messina and Bromfield of $4,800, $4,457, $3,333, $4,351, $0, $0
and $0 respectively; group term life insurance premiums paid by Spacelabs
Medical for the same individuals of $2,284, $518, $887, $1,468, $2,284,
$1,673 and $887, respectively; and the Company's matching contribution on
salary deferrals pursuant to the provisions of the Spacelabs Medical, Inc.
Deferred Compensation Plan for Key Employees for the same individuals of
$13,701, $8,928, $6,116, $4,951, $10,000, $13,455 and $0, respectively.
(4) Mr. Stringer became an employee of the Company effective November 3, 1997
earning an initial salary of $175,000 per year.
(5) On August 21, 1997, Mr. Messina entered into an employment agreement with
the Company pursuant to which he was to be paid a base salary of $304,200
per year for a term of three years, subject to certain provisions relating
to termination. Prior to the acquisition of Burdick, Inc., Mr. Messina's
1997 salary totaled $304,200 of which $106,500 was paid by Spacelabs Medical
and $197,700 was paid by Burdick, Inc. Effective May 7, 1998, Mr. Messina no
longer served as an Executive Officer of the Company and his employment with
the Company terminated in November of 1998. All of Mr. Messina's stock
options and stock appreciation rights terminated thirty days following the
day on which he was no longer employed by the Company. Included in "All
Other Compensation" is $304,200 representing severance relating to the
termination of his employment agreement signed at the time of the
acquisition of Burdick, Inc. and $15,503 representing accrued vacation pay.
(6) Mr. Bromfield became an employee of the Company effective July 21, 1997
earning an initial salary of $200,000 per year. Effective November 1998, Mr.
Bromfield no longer served as an Executive Officer of the Company.
9
<PAGE> 13
1998 OPTION GRANTS AND EXERCISES
The following table provides information on options granted by the Company
in fiscal year 1998 to the named executive officers.
OPTION GRANTS IN FISCAL YEAR 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT
PERCENT OF ASSUMED ANNUAL RATES OF
TOTAL OPTIONS STOCK PRICE APPRECIATION
GRANTED TO EXERCISE OR FOR OPTION(3)
OPTIONS EMPLOYEES BASE PRICE EXPIRATION --------------------------
NAME GRANTED(1) IN FISCAL YEAR PER SHARE(2) DATE 5% 10%
---- ---------- -------------- ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Carl A. Lombardi................ 125,000 8.3% $21.47 2/27/08 $1,687,702 $4,276,967
Eugene V. DeFelice.............. 20,000 $21.47 2/27/08 $ 270,032 $ 684,315
10,000 $16.75 7/24/03 $ 46,277 $ 102,260
------- ---------- ----------
30,000 2.0% $ 316,309 $ 786,575
Timothy R. Miskimon............. 30,000 $21.47 2/27/08 $ 405,048 $1,026,472
10,000 $16.75 7/24/03 $ 46,277 $ 102,260
------- ---------- ----------
40,000 2.6% $ 451,325 $1,128,732
James A. Richman................ 20,000 $21.47 2/27/08 $ 270,032 $ 684,315
10,000 $16.75 7/24/03 $ 46,277 $ 102,260
------- ---------- ----------
30,000 2.0% $ 316,309 $ 786,575
Michael Stringer................ 15,000 $21.47 2/27/08 $ 202,524 $ 513,236
10,000 $16.75 7/24/03 $ 46,277 $ 102,260
------- ---------- ----------
25,000 1.7% $ 248,801 $ 615,496
George P. Messina(4)............ 20,000 1.3% $21.47 2/27/08 $ 270,032 $ 684,315
Ronald Bromfield................ 25,000 $21.47 2/27/08 $ 337,540 $ 855,394
10,000 $16.75 7/24/03 $ 46,277 $ 102,260
------- ---------- ----------
35,000 2.3% $ 383,817 $ 957,654
</TABLE>
- ---------------
(1) Options become exercisable in four equal annual installments beginning on
the first anniversary date of the grant. The Compensation Committee
administers the 1992 Plan and has the authority to accelerate exercisability
before the originally designated exercise date(s). In addition, a Change of
Control, as defined under "Compensation -- Change of Control Arrangements
with Messrs. Lombardi, Richman and DeFelice," will make each outstanding
option automatically exercisable in full for the total remaining number of
shares covered. The exercise price may be paid by delivering already-owned
shares, and tax withholding obligations relating to exercise may be paid by
offsetting the underlying shares, subject to certain conditions.
(2) The exercise or base price per share represents the average of the high and
low sales prices quoted on the Nasdaq/NM for the stock on the date of grant.
(3) The actual value, if any, that a named executive officer or any other
individual may realize will depend on the excess of the market price of the
stock over the exercise price on the date the option is exercised. With
respect to stock options, the realizable values presented above are based
upon assumed compounded growth rates of 5% and 10% over a 5 or 10-year term
of the option. For example, at an assumed 5% compounded growth rate over a
10-year period, a share of stock originally valued at $21.47 on the grant
date would grow to $34.97 per share, yielding a potential realizable value
of $13.50 per share; at an assumed 10% compounded growth rate, the same
share of stock would appreciate in value to $55.68 per share, yielding a
potential realizable value of $34.21 per share. These amounts are not
intended to forecast possible future appreciation, if any, in the market
price for the Common Stock; therefore, there can be no assurance that the
actual value realized by a named executive officer or all stockholders will
approximate the potential realizable values set forth in the table.
(4) Upon his departure from the Company in November 1998, Mr. Messina forfeited
all of his options granted during the fiscal year.
10
<PAGE> 14
No options were exercised in 1998. The following table provides information
on the value of the named executive officers' unexercised options at December
31, 1998.
AGGREGATED OPTION EXERCISES IN 1998 AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT FISCAL
AT FISCAL YEAR-END YEAR-END(1)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Carl A. Lombardi............ -- -- 438,998 317,502 $909,672 $264,135
Eugene V. DeFelice.......... 10,249 52,751 $ 2,812 $101,563
Timothy R. Miskimon......... -- -- 65,498 86,502 $ 66,242 $118,718
James A. Richman............ -- -- 42,498 62,502 $ 35,511 $105,063
Michael Stringer............ -- -- 5,001 39,999 $ 5,001 $100,467
George P. Messina........... -- -- -- -- -- --
Ronald Bromfield............ -- -- 12,500 72,500 $100,780
</TABLE>
- ---------------
(1) Stock options are valued based upon the closing price of a share of Common
Stock as reported on the NASDAQ/NM on December 31, 1998 ($23.00).
11
<PAGE> 15
PERFORMANCE GRAPH
Set forth below is a graph comparing the cumulative total return on the
Common Stock during the period beginning on December 31, 1993 and ending on
December 31, 1998 with the cumulative total return on the Total Return Index for
the Nasdaq Stock Market (U.S. Companies) (the "Nasdaq Index") and the Media
General Medical Instruments and Supply Index (the "Media General Index"). The
comparison assumes $100 was invested on December 31, 1993 in Common Stock and in
each of the foregoing indices and assumes reinvestment of dividends. The stock
price performance shown on the graph is not necessarily indicative of future
price performance.
COMPARISON OF CUMULATIVE SHAREHOLDER RETURN
FOR SPACELABS MEDICAL, INC.,
THE NASDAQ INDEX AND THE MEDIA GENERAL INDEX
<TABLE>
<CAPTION>
'SPACELABS MEDICAL, INC.' NASDAQ INDEX MEDIA GENERAL INDEX
------------------------- ------------ -------------------
<S> <C> <C> <C>
12/31/93 100.00 100.00 100.00
12/30/94 96.00 105.00 108.00
12/29/95 119.00 136.00 177.00
12/27/96 87.00 169.00 189.00
12/27/97 77.00 207.00 215.00
12/31/98 95.00 292.00 279.00
</TABLE>
RETIREMENT PLAN
Spacelabs Medical's Retirement Plan, a defined benefit plan, covers the
majority of employees on the active, regular payroll of Spacelabs Medical and
its US subsidiaries. Employees of Spacelabs Burdick do not participate in the
Retirement Plan. The Retirement Plan provides that, upon retirement, a
participant will receive a monthly benefit equal to 1% of the participant's
highest consecutive 60-month average earnings (as defined in the plan, including
base salary and, subject to certain limits, bonuses and commissions), multiplied
by the participant's years of credited service with Spacelabs Medical and its
subsidiaries, reduced as described below. A participant is vested upon
completing five years of service.
12
<PAGE> 16
The following table sets forth the estimated annual benefits payable upon
retirement to Retirement Plan participants.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$125,000 $ 18,750 $ 25,000 $ 31,250 $ 37,500 $ 43,750
150,000 22,500 30,000 37,500 45,000 52,500
175,000 26,250 35,000 43,750 52,500 61,250
200,000 30,000 40,000 50,000 60,000 70,000
225,000 33,750 45,000 56,250 67,500 78,750
250,000 37,500 50,000 62,500 75,000 87,500
300,000 45,000 60,000 75,000 90,000 105,000
400,000 60,000 80,000 100,000 120,000 140,000
450,000 67,500 90,000 112,500 135,000 157,500
500,000 75,000 100,000 125,000 150,000 175,000
600,000 90,000 120,000 150,000 180,000 210,000
700,000 105,000 140,000 175,000 210,000 245,000
</TABLE>
The compensation covered by the Retirement Plan corresponds to the salary
and bonus, not in excess of 50% of base salary, disclosed for the following
named executive officers. The credited years of service for Messrs. Lombardi,
DeFelice, Miskimon, Richman, Stringer and Bromfield as of December 31, 1998 are
31.71, 2.90, 16.46, 14.51, 1.16 and 1.45, respectively.
Certain federal legislation generally limits the amount of annual pension
that may be paid from a federal income tax qualified plan to varying amounts
($130,000 for 1999) and the amount of annual earnings that may be taken into
account for purposes of calculating benefits under a federal income tax
qualified plan ($160,000 for 1999). The actual amounts paid under the Retirement
Plan will be limited to comply with such legislation.
Spacelabs Medical also has established a Supplemental Benefit Plan, which
is not qualified for federal income tax purposes and which covers any employee
whose benefit under the Retirement Plan is limited by the federal legislation
described above. Mr. Messina is among the participants of this Plan and receives
credit toward retirement for years of service from October 5, 1987 until his
termination from the Company. The benefit under the Supplemental Benefit Plan
consists of the amount by which the benefit to which the participant is
otherwise entitled under the Retirement Plan is reduced to comply with the
limits on annual earnings or the amount of annual pension that may be paid.
CHANGE OF CONTROL ARRANGEMENTS WITH MESSRS. LOMBARDI, RICHMAN AND DEFELICE
The Corporation has entered into change of control severance agreements
with Carl A. Lombardi, Chief Executive Officer and President; James A. Richman,
Vice President and Corporate Controller and Eugene DeFelice, Vice President,
General Counsel and Secretary (each an "executive officer"). The agreement with
Mr. Lombardi supersedes a similar agreement entered into between Mr. Lombardi
and the Company in 1992. Each agreement provides that the executive officer will
remain employed by the Company for three years following a change in control of
the Corporation and that the Company will provide the executive officer with
similar salary and benefits during this period as were offered prior to the
change of control. If, however, during the three year post-change of control
period, the executive officer's employment is terminated by the Corporation
without cause or by the executive officer for good reason, the executive officer
will receive severance benefits, including (i) a lump sum payment of the
executive officer's accrued salary, bonus and deferred compensation through the
date of termination; (ii) a lump sum payment of two times (three times in the
case of Mr. Lombardi) the executive officer's annual base salary and bonus;
(iii) a lump sum payment equal to the amount the executive officer would have
received under any of the Company's retirement plans if
13
<PAGE> 17
his employment had continued for the remainder of the three year post-change of
control period; (iv) continued benefits for the executive officer and his family
under the Corporation's retirement and benefit plans for the remainder of the
three year post-change of control period or such longer period as any plan or
program may provide; and (v) a payment to reimburse the executive officer for
any excise taxes on severance benefits that are considered excess parachute
payments under the Internal Revenue Code. Each agreement requires the executive
officer not to use or disclose any of the Corporation's confidential business
information. Each agreement has an initial term of three years, and is
automatically renewed on each anniversary of its execution for an additional
year.
Under the 1992 Plan and the Spacelabs Medical 1992 Adjustment Plan, upon a
Change of Control each outstanding option and stock appreciation right ("SAR")
will automatically become exercisable in full for the total remaining number of
shares covered thereby. In addition, during the 90-day period following a Change
of Control an optionee may choose to receive cash equal to the difference
between the exercise price of the option and the fair market value of a share of
Common Stock determined as described below for a limited SAR, in lieu of
exercising the option and paying the option price. Also, all restrictions on
shares of restricted stock will lapse upon a Change of Control and all amounts
otherwise deferred by Spacelabs Medical and any employee in connection with
performance units will be distributed.
A limited SAR may be exercised only during the 90 days immediately
following a Change of Control. For the purpose of determining the amount payable
upon exercise of a limited SAR, the fair market value of a share of Common Stock
will be equal to the higher of (a) the highest fair market value of the Common
Stock during the 90-day period ending on the date the limited SAR is exercised,
determined as in the case of an option, and (b) whichever of the following
applies:
(i) the highest price per share paid in any tender or exchange offer
that is in effect at any time during the 90 days preceding the exercise of
the limited SAR;
(ii) the fixed or formula price for the acquisition of shares of
Common Stock in a merger or similar agreement approved by the Spacelabs
Medical stockholders or Board of Directors, if such price is determinable
on the date of exercise; or
(iii) the highest price per share paid to any Spacelabs Medical
stockholder in a transaction or group of transactions giving rise to the
exercisability of the limited SAR.
PROPOSAL 2: RATIFICATION OF APPOINTMENT OF AUDITORS
Unless instructed to the contrary, it is intended that votes be cast
pursuant to the accompanying proxy for the ratification of the appointment of
KPMG LLP as auditors for Spacelabs Medical for 1999. KPMG LLP has audited the
accounts of Spacelabs Medical for 1998. Representatives of KPMG LLP are expected
to attend the Meeting and will have an opportunity to make a statement and/or
respond to appropriate questions from stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF KPMG LLP AS AUDITORS FOR SPACELABS MEDICAL FOR 1999.
In the event that the ratification of the appointment of auditors is not
made by a majority of the shares entitled to vote thereon, the selection of
other auditors will be considered by the Board of Directors.
EXPENSES OF SOLICITATION
The accompanying proxy is solicited by and on behalf of the Board of
Directors, and the entire cost of such solicitation will be borne by Spacelabs
Medical. Corporate Investors Communications, Inc. will distribute proxy
materials to beneficial owners and may solicit proxies by personal interview,
mail, telephone and telegram, and will request brokerage houses and other
custodians, nominees and fiduciaries to forward soliciting material to the
beneficial owners of the Common Stock held on the record date by such persons.
The Company will pay Corporate Investors Communications, Inc. a fee of $4,500 to
cover its services and will
14
<PAGE> 18
reimburse Corporate Investors Communications, Inc. for payments made to brokers
and other nominees for their expenses in forwarding solicitation materials.
Solicitation may be by personal interview, telephone and telegram by directors,
officers and other employees of Spacelabs Medical without special compensation.
OTHER MATTERS
Spacelabs Medical knows of no other matters that are likely to be brought
before the Meeting. If, however, other matters that are not now known or
determined come before the Meeting, the persons named in the enclosed proxy or
their substitutes will vote such proxy in accordance with their judgment.
PROPOSALS OF STOCKHOLDERS
Proposals of stockholders to be considered for inclusion in the Proxy
Statement and proxy for the Company's 2000 Annual General Meeting of
Stockholders must be received by the Secretary of Spacelabs Medical by November
19, 1999.
ANNUAL REPORT AND ANNUAL REPORT ON FORM 10-K
A copy of the Spacelabs Medical 1998 Annual Report and of the Annual Report
on Form 10-K for the year ended December 31, 1998 as filed with the Securities
and Exchange Commission is being mailed with this Proxy Statement to each
stockholder of record. Stockholders not receiving a copy of such Annual Reports
may obtain one without charge by writing or calling Mr. Clark Thompson, Vice
President, Investor Relations, Spacelabs Medical, Inc., P.O. Box 97013, Redmond,
Washington, 98073-9713, (425) 867-7345.
By Order of the Board of Directors
/s/ Eugene V. DeFelice
Eugene V. DeFelice
Secretary
Redmond, Washington
March 24, 1999
15
<PAGE> 19
SPACELABS MEDICAL, INC.
Instructions for Annual General Meeting of Stockholders, May 7, 1999
Shares of Spacelabs Medical, Inc. Common Stock in which you have
P an interest as a participant in the Spacelabs Medical, Inc. Incentive
R Savings and Stock Ownership Plan are held by U.S. Bank of Washington,
O N.A., as Trustee of the Plan, and will be voted by the Trustee at the
X Annual Meeting of Stockholders on May 7, 1999, pursuant to
Y instructions received for Plan participants. You may participate in
the voting, in proportion to your interest in such shares, by using
this form to instruct the Trustee how to vote the shares allocated to
your account.
IN ORDER FOR YOUR INSTRUCTIONS TO BE VOTED BY THE TRUSTEE, THIS FORM
MUST BE RECEIVED BY FIRST CHICAGO TRUST COMPANY OF NEW YORK NO LATER
THAN CLOSE OF THE BUSINESS DAY ON MAY 1, 1999.
If you do not indicate otherwise, these instructions will
authorize the Trustee to vote for the election of Directors and for
the ratification of auditors for 1999, as described in the Spacelabs
Medical, Inc. Proxy Statement dated March 24, 1999. These instructions
will also authorize the Trustee to vote at its discretion on such
other matters as may come before the meeting.
- --------------------------------------------------------------------------------
U.S. Bank of Washington, N.A.
P.O. Box 720
Seattle, WA 98111
INSTRUCTIONS TO TRUSTEE
These Instructions Are Being Given in Conjunction With the
Board of Directors' Solicitation of Proxies From the Trustee
You are hereby authorized and instructed to vote at the Annual General Meeting
of Stockholders of Spacelabs Medical, Inc. on May 7, 1999, and at any
adjournments thereof, either in person or by proxy, all of the shares of Common
Stock of Spacelabs Medical, Inc., allocated to my account under the Spacelabs
Medical, Inc. Incentive Savings and Stock Ownership Plan.
THESE INSTRUCTIONS ARE CONTINUED ON THE REVERSE SIDE
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY
<PAGE> 20
[X] Please mark your 6018
votes as this
example.
The interest in shares subject to these instructions will be voted as directed
by the Plan participant. If no direction is given when the duly executed
instructions are returned, such interest will be voted "FOR" authority on Items
1 and 2.
The Board of Directors recommends a vote "FOR" authority on Items 1 and 2.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
WITH-
FOR HELD FOR AGAINST ABSTAIN
1.ELECTION OF Authority to vote "FOR" 2. RATIFICATION OF AUDITORS
DIRECTORS [ ] [ ] the following nominees: Authority to vote "FOR" ratification of [ ] [ ] [ ]
Gilbert W. Anderson, KPMG LLP, as auditors for the fiscal
Thomas J. Dudley, D.B.A., year ending December 31, 1999.
Harvey Feigenbaum, M.D.,
For all except vote withheld from Carl A. Lombardi,
the following nominee(s): Andrew R. Nara, M.D., Ph.D.,
Phillip M. Nudelman, Ph.D.,
_________________________________ Peter H. van Oppen
</TABLE>
PARTICIPANT _________________________________ DATE _____________
Please date and sign exactly as your name appears above, and return in the
enclosed envelope to First Chicago Trust Company of New York, who will tabulate
and report your instruction to the Plan's Trustee for voting.
<PAGE> 21
PROXY
SPACELABS MEDICAL, INC.
THIS PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING ON MAY 7, 1999
The undersigned hereby constitutes and appoints Carl A. Lombardi and Eugene V.
DeFelice, and each of them, his true and lawful agents and proxies with full
power of substitution in each, to represent the undersigned at the Annual
Meeting of Stockholders of SPACELABS MEDICAL, INC. to be held on May 7, 1999 at
10:00 a.m. local time, at the Bellevue Club, Bellevue, Washington, and at any
adjournments thereof, on all matters coming before such meeting.
You are encouraged to specify your choices by marking the appropriate boxes. SEE
REVERSE SIDE, but you need not mark any boxes if you wish to vote in accordance
with the Board of Directors' recommendations. The Proxy(ies) cannot vote your
shares unless you sign and return this card.
(Change of Address/Comments)
____________________________
____________________________
____________________________
____________________________
SEE REVERSE
SIDE
<PAGE> 22
5020
/ x / PLEASE MARK YOUR VOTES AS IN THIS
EXAMPLE.
THE PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF
NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ELECTION OF DIRECTORS AND FOR
PROPOSAL 2.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
1. ELECTION OF
DIRECTORS
FOR WITHHELD
/ / / /
For all except vote withheld from the following nominee(s):
__________________________________
Nominees for Director:
Gilbert W. Anderson,
Thomas J. Dudley, D.B.A.,
Harvey Feigenbaum, M.D.,
Carl A. Lombardi,
Andrew R. Nara, M.D., Ph.D.,
Phillip M. Nudelman, Ph.D.,
Peter H. van Oppen
2. RATIFICATION OF AUDITORS Approval of KPMG LLP, independent certified public
accountants to audit the accounts and records of Spacelabs Medical, Inc. for
the fiscal year ending December 31, 1999.
FOR AGAINST ABSTAIN
/ / / / / /
3. In their discretion, upon such other matters as may properly come before the
meeting.
CHANGE OF ADDRESS/COMMENTS ON REVERSE SIDE
SIGNATURE(S) _________________________________________________ DATE _______
Please sign name(s) exactly as printed hereon. Joint owners should each sign. If
signing as attorney, administrator, executor, guardian or trustee, give full
title as such.
