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
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
VENTANA MEDICAL SYSTEMS, INC.
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee.
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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:
(4) Proposed maximum aggregate value of transaction:
Set forth the amount on which the filing fee is calculated and state how it
was determined.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
VENTANA MEDICAL SYSTEMS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held on April 30, 1998
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of VENTANA
MEDICAL SYSTEMS, INC., a Delaware corporation (the "Company"), will be held on
Thursday, April 30, 1998, at 10:00 a.m., local time, at the Arizona Inn, Tucson
Room, 2200 East Elm Street, Tucson, Arizona 85719 for the following purposes (as
more fully described in the Proxy Statement accompanying this Notice):
1. To elect two Class II directors of the Company to serve for terms of
three years expiring upon the date of the Annual Meeting of
Stockholders held in the year 2001 or until their successors are
elected.
2. To approve an amendment to the Company's 1996 Stock Option Plan to
increase the number of shares of Common Stock reserved for issuance
thereunder by 750,000 shares to a new total of 1,750,000 shares.
3. To ratify the appointment of Ernst & Young LLP as the independent
auditors of the Company for the fiscal year ending December 31, 1998.
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on March 13, 1998 are
entitled to notice of and to vote at the Annual Meeting.
All stockholders are cordially invited to attend the meeting. However, to
ensure your representation at the meeting, you are urged to mark, sign, date and
return the enclosed proxy as promptly as possible in the postage-prepaid
envelope enclosed for that purpose. If you attend the meeting, you may vote in
person even if you return a proxy.
FOR THE BOARD OF DIRECTORS
/s/ Jack W. Schuler
---------------------------------
Jack W. Schuler
Chairman of the Board of Directors
Tucson, Arizona
March 31, 1998
- --------------------------------------------------------------------------------
IMPORTANT
=========
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE AND PROMPTLY
RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED. IF YOU ATTEND THE
MEETING, YOU MAY VOTE IN PERSON, EVEN IF YOU RETURN A PROXY.
- --------------------------------------------------------------------------------
<PAGE>
VENTANA MEDICAL SYSTEMS, INC.
PROXY STATEMENT FOR
1998 ANNUAL MEETING OF STOCKHOLDERS
April 30, 1998
INFORMATION CONCERNING VOTING AND PROXY SOLICITATION
General
The enclosed proxy is solicited on behalf of the Board of Directors of
Ventana Medical Systems, Inc. ("Ventana" or the "Company") for use at the Annual
Meeting of Stockholders to be held on April 30, 1998 at 10:00 a.m., local time,
or at any adjournment thereof. The Annual Meeting will be held at the Arizona
Inn, Tucson Room, 2200 East Elm Street, Tucson, Arizona 85719. The telephone
number at the meeting location is (520) 325-1541.
These proxy solicitation materials and the Annual Report to stockholders
for the fiscal year ended December 31, 1997 (the "Last Fiscal Year"), including
financial statements, were first mailed on or about March 31, 1998, to all
stockholders entitled to vote at the Annual Meeting.
Record Date and Voting Securities
Stockholders of record at the close of business on March 13, 1998 (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting. At
the Record Date, 13,387,410 shares of the Company's Common Stock, $.001 par
value (the "Common Stock"), were issued and outstanding and held of record by
approximately 340 stockholders.
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a later
date or by attending the meeting and voting in person. Attending the Annual
Meeting in and of itself may not constitute a revocation of a proxy.
Voting and Solicitation
Each stockholder is entitled to one vote for each share held as of the
Record Date. Stockholders will not be entitled to cumulate their votes in the
election of directors.
The cost of soliciting proxies will be borne by the Company. The Company
expects to reimburse brokerage firms and other persons representing beneficial
owners of shares for their expense in forwarding solicitation material to such
beneficial owners. Proxies may be solicited by certain of the Company's
directors, officers and regular employees, without additional compensation, in
person or by telephone or facsimile.
Quorum; Abstentions; Broker Non-Votes
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the Inspector of Elections (the "Inspector") with the assistance of the
Company's Transfer Agent. The Inspector will also determine whether or not a
quorum is present. Except in certain specific circumstances, the affirmative
vote of a majority of shares present in person or represented by proxy at a duly
held meeting at which a quorum is present is required under Delaware law for
approval of proposals presented to stockholders. In general, Delaware law also
provides that a quorum consists of a majority of shares entitled to vote and
present or represented by proxy at the meeting.
2
<PAGE>
The Inspector will treat shares that are voted "WITHHELD" or "ABSTAIN" as
being present and entitled to vote for purposes of determining the presence of a
quorum but will not be treated as votes in favor of approving any matter
submitted to the stockholders for a vote. Any proxy which is returned using the
form of proxy enclosed and which is not marked as to a particular item will be
voted for the election of the two Class II directors and for the confirmation of
the appointment of the designated independent auditors and, as the proxy holders
deem advisable, on other matters that may come before the meeting, as the case
may be with respect to the items not marked.
If a broker indicates on the enclosed proxy or its substitute that it does
not have discretionary authority as to certain shares to vote on a particular
matter ("Broker Non-Votes"), those shares will not be considered as present with
respect to that matter. The Company believes that the tabulation procedures to
be followed by the Inspector are consistent with the general statutory
requirements in Delaware concerning voting of shares and determination of a
quorum.
Deadline for Receipt of Stockholder Proposals To Be Presented At 1999 Annual
Meeting
Proposals that are intended to be presented by stockholders of the Company
at the 1999 Annual Meeting must be received by the Company no later than October
31, 1998 in order to be considered for inclusion in the proxy statement and form
of proxy relating to that meeting.
Compliance with Section 16(a) of the Securities Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's executive officers and directors and
persons who own more than ten percent of a registered class of the Company's
equity securities to file an initial report of ownership on Form 3 and changes
in ownership on Form 4 or 5 with the Securities and Exchange Commission (the
"SEC") and the National Association of Securities Dealers, Inc. Executive
officers, directors and greater than ten percent stockholders are also required
by SEC rules to furnish the Company with copies of all Section 16(a) forms they
file. Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons, the Company believes
that, with respect to fiscal year 1997, all filing requirements applicable to
its officers, directors and ten percent stockholders were complied with.
Share Ownership of Directors, Officers and Certain Beneficial Owners
The following table sets forth information known to the Company with
respect to the beneficial ownership of its Common Stock as of December 31, 1997
for (i) each person who is known by the Company to own beneficially more than 5%
of the Company's Common Stock, (ii) each of the Company's directors and nominees
for director, (iii) each officer named in the Summary Compensation Table below
and (iv) all directors, nominees for election and executive officers as a group.
Unless otherwise indicated, officers and directors can be reached at the
Company's principal executive offices. A total of 13,247,226 shares of the
Company's Common Stock were issued and outstanding as of December 31, 1997.
3
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially
Certain Executive Officers, Owned as of
Directors and 5% Stockholders December 31, 1997(1)(2)
---------------------------------
Number Percent
------ -------
<S> <C> <C>
J. P. Morgan & Co. Inc.
60 Wall Street
New York, NY 10015 ...................................... 1,790,300 13.5%
Entities affiliated with Marquette
Venture Partners (3)
520 Lake Cook Rd., Suite 450 1,251,903 9.5%
Deerfield, IL 60015 .......................................
MBW Venture Partners, L.P. (4)
James R. Weersing
365 South Street
Morristown, NJ 07960 ...................................... 1,442,349 10.8%
State Farm Mutual Automobile
Insurance Company (5)
One State Farm Plaza
Bloomington, IL 61701 ..................................... 887,173 6.6%
Jack W. Schuler (6) ........................................ 972,440 7.3%
Henry T. Pietraszek ......................................... 71,500 *
Michael K. Cusack (7) ...................................... 28,810 *
Johnny D. Powers, Ph.D. (8) ................................... 11,667 *
Bernard O.C. Questier (9) .................................. 23,153 *
Pierre Sice .................................................. 0 *
Rex J. Bates (10) .......................................... 36,735 *
R. James Danehy ............................................. 151,224 1.1%
Edward M. Giles (11) ....................................... 260,014 2.0%
Thomas M. Grogan, M.D. (12) ................................ 170,063 1.3%
John Patience (13) .......................................... 297,589 2.2%
James R. Weersing (4)(14) ..................................... 1,458,439 10.9%
All directors and executive officers as
a group (17 persons) ....................................... 3,527,531 25.6%
</TABLE>
- -----------------
* Less than 1%.
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock.
(2) Applicable percentage of ownership is based on 13,247,226 shares of Common
Stock outstanding as of December 31, 1997 together with shares issuable
pursuant to applicable options and warrants of such stockholder which may
be exercised within 60 days after December 31, 1997. Shares of Common Stock
subject to options and/or warrants currently exercisable or exercisable
within 60 days after December 31, 1997 are deemed outstanding for computing
the percentage ownership of the person holding such options and/or
warrants, but are not deemed outstanding for computing the percentage of
any other person.
(3) Includes 872,795 shares beneficially owned by Marquette Venture Partners,
L.P.; 247,218 shares beneficially owned by Marquette Venture Partners II,
L.P.; and 131,890 shares beneficially owned by MVP II Affiliate Fund, L.P.
(4) Includes 162,059 shares issuable upon the exercise of warrants held by MBW
Venture Partners, L.P. Mr. Weersing, a director of the Company, is Managing
Director of MBW Venture Partners Limited. Mr.
4
<PAGE>
Weersing disclaims beneficial ownership of the shares beneficially owned by
MBW Venture Partners, L.P. except to the extent of his proportional
partnership interest therein.
(5) Includes 108,893 shares issuable upon the exercise of warrants held by
State Farm Mutual Automobile Insurance Company.
(6) Includes 118,917 shares issuable upon the exercise of warrants and 5,583
shares issuable upon the exercise of options exercisable within 60 days of
December 31, 1997 held by Mr. Schuler; 73,512 shares beneficially owned by
Mr. Schuler, as custodian for Tanya Eva Schuler; 73,513 shares beneficially
owned by Mr. Schuler, as custodian for Therese Heidi Schuler; and 73,512
shares beneficially owned by Mr. Schuler, as custodian for Tino Hans
Schuler; and 10,000 shares beneficially owned by The Schuler Family
Foundation, and 1,250 shares owned by Mrs. Schuler.
(7) Includes 11,703 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1997 held by Mr. Cusack.
(8) Includes 11,667 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1997 held by Dr. Powers.
(9) Includes 21,559 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1997 held by Mr. Questier.
(10) Includes 11,173 shares issuable upon the exercise of warrants and 5,583
shares issuable upon the exercise of options exercisable within 60 days of
December 31, 1997 held by Mr. Bates.
(11) Includes 230,903 shares beneficially owned by Vertical Fund Associates,
L.P. Also includes 5,583 shares issuable upon the exercise of options
exercisable within 60 days of December 31, 1997, held by Edward M. Giles.
Also includes 18,372 shares beneficially owned by Edward M. Giles IRA plus
5,156 shares issuable upon the exercise of warrants held by Edward M. Giles
IRA. Mr. Giles, a director of the Company, is Chairman of The Vertical
Group, Inc. Mr. Giles disclaims beneficial ownership of the shares
beneficially owned by such entities affiliated with The Vertical Group,
Inc., except to the extent of his partnership interest therein.
(12) Includes 9,612 shares beneficially owned by Andrew Grogan and 10,612 shares
beneficially owned by Emily Grogan including 7,710 shares beneficially
owned by C. Ovens, Inc. (of which 459 shares are issuable upon the exercise
of warrants held by C. Ovens, Inc.); and 26,008 shares issuable upon
exercise of options exercisable within 60 days of December 31, 1997 held by
Dr. Grogan.
(13) Includes 96,689 shares issuable upon the exercise of warrants and 5,583
shares issuable upon the exercise of options exercisable within 60 days of
December 31, 1997, held by Mr. Patience as well as 4,800 shares held in the
name of Mrs. Patience.
(14) Includes 6,209 shares beneficially owned by James R. Weersing and Mary H.
Weersing, Trustees of the Weersing Family Trust U/D/T dated April 24, 1991.
Also includes 4,298 shares issuable upon the exercise of warrants and 5,583
shares issuable upon the exercise of options exercisable within 60 days of
December 31, 1997, held by Mr. Weersing.
5
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Directors and Nominees for Director
Pursuant to the Company's Certificate of Incorporation, as amended, the
Company's Board of Directors currently consists of seven persons, divided into
three classes serving staggered terms of three years. Currently there are two
directors in Class I, two directors in Class II and three directors in Class
III. Two Class II directors are to be elected at the Annual Meeting. The Class
III and Class I directors will be elected at the Company's 1999 and 2000 Annual
Meetings of Stockholders, respectively. Each of the two Class II directors
elected at the Annual Meeting will hold office until the year 2001 Annual
Meeting of Stockholders or until his successor has been duly elected and
qualified.
In the event that any of such persons becomes unavailable or declines to
serve as a director at the time of the Annual Meeting, the proxy holders will
vote the proxies in their discretion for any nominee who is designated by the
current Board of Directors to fill the vacancy. It is not expected that any of
the nominees will be unavailable to serve.
The names of the two Class II nominees for election to the Board of
Directors at the Annual Meeting, their ages as of the Record Date and certain
information about them are set forth below. The names of the current Class I and
Class III directors with unexpired terms, their ages as of the Record Date and
certain information about them are also set forth below.
<TABLE>
<CAPTION>
Director
Name Age Principal Occupation Since
- -------------------------------------------- --------- ------------------------- --------
Nominees for Class II Directors
<S> <C> <C>
Edward M. Giles ............................ 62 Chairman of The Vertical 1992
Group, Inc.
Rex Bates .................................. 74 Private Investor 1996
Continuing Class I Directors-
Henry T. Pietraszek ........................ 51 President and Chief Executive Officer of -
Ventana Medical Systems, Inc.
James R. Weersing .......................... 58 Managing Director of MBW Venture Partners 1994
Continuing Class III Directors
Thomas M. Grogan, M.D ...................... 52 Professor, University of Arizona, College 1985
of Medicine
John Patience............................... 50 General Partner, Crabtree Partners 1989
Jack W. Schuler............................. 57 General Partner, Crabtree Partners 1991
</TABLE>
There are no family relationships among directors or executive officers of
the Company.
Mr. Giles has served as a director of Ventana since September 1992. Mr.
Giles has served as Chairman of The Vertical Group, Inc., a venture capital
investment firm, since January 1989. Mr. Giles was previously President of F.
Eberstadt & Co., Inc., a securities firm, and Vice Chairman of Peter B. Cannell
& Co., Inc., an investment management firm. He is currently a director of
McWhorter Technologies, Inc. and Synthetech, Inc. Mr. Giles received a B.S.Ch.E.
6
<PAGE>
in Chemical Engineering from Princeton University and an M.S. in Industrial
Management from the Massachusetts Institute of Technology.
Mr. Bates has served as a director of Ventana since April of 1996. From
August 1991 to May 1995, Mr. Bates served on the Board of Directors of Twentieth
Century Industries and was a member of its compensation committee. Prior to
Twentieth Century Industries, Mr. Bates served as the Vice-Chairman of the Board
of Directors of the State Farm Mutual Automobile Insurance Company. Mr. Bates
also served as State Farm's Chief Investment Officer. In March of 1991, Mr.
Bates retired from State Farm. Prior to Mr. Bates' employment with State Farm,
he was a partner in the investment firm of Stein, Roe & Farnham in Chicago. Mr.
Bates received a B.S. and an M.S. from the University of Chicago.
Mr. Pietraszek became President, Chief Executive Officer and a director in
March 1997. Prior to joining the Company, Mr. Pietraszek served as President and
Chief Executive Officer of Biostar, Inc., a medical diagnostic company. From
19975 to 1994, Mr. Pietraszek held a variety of executive positions at Abbott
Laboratories and Takeda Chemical Industries. From 1982 to 1986, he served as
President of Dainabot K.K., a joint venture between Abbott and Dainippon
Pharmaceutical Company of Japan and from 1980 to 1982 he was Vice President of
Field Service Operations for Abbott's Diagnostic Division. He is a director of
Specialty Laboratories. Mr. Pietraszek received a B.S. in Marketing from Gannon
University.
Mr. Weersing has served as a director of Ventana since October 1994. Since
1984, Mr. Weersing has been a Managing Director of MBW Venture Partners, a
venture capital investment firm. Mr. Weersing has also served as President of
JRW Technology, Inc., a consulting firm. Mr. Weersing served as a director of
Circadian, Inc., an asthma dosage management company, from December 1993 until
January 1996. Circadian filed a petition under Chapter 7 of the federal
bankruptcy laws in January 1996. Mr. Weersing received an B.S.M.E. and an M.B.A.
from Stanford University.
Mr. Schuler has served as a director of Ventana since April 1991 and as
Chairman of the Board of Directors since November 1995. Mr. Schuler has been
Chairman of the Board of Directors of Stericycle, Inc., a specialized medical
waste management company, since March 1990. Mr. Schuler is also a partner in
Crabtree Partners, a Chicago based venture capital firm. Prior to joining
Stericycle, Mr. Schuler held various executive positions at Abbott from December
1972 through August 1989, serving most recently as President and Chief Operating
Officer. He is currently a director of Medtronic, Inc., Somatogen, Inc. and
Chiron Corporation. Mr. Schuler received a B.S. in Mechanical Engineering from
Tufts University and an M.B.A. from Stanford University.
Dr. Grogan is a founder, a director and Chairman Emeritus of Ventana. He
has served as a director since the founding of the Company in June 1985 and as
Chairman of the Board of Ventana from June 1985 to November 1995. He is
currently a professor of pathology at the University of Arizona, College of
Medicine, where he has taught since 1979. He received a B.A. in Biology from the
University of Virginia and an M.D. from George Washington School of Medicine.
Dr. Grogan completed a post-doctorate fellowship at Stanford University.
Mr. Patience has served as a director of Ventana since July 1989. Mr.
Patience was a co-founder and served as a General Partner of Marquette Venture
Partners, a venture capital investment firm, from January 1988 until March 1995.
Since April 1995, Mr. Patience has been a partner in Crabtree Partners, a
Chicago-based venture capital firm. Mr. Patience was previously a partner in the
consulting firm of McKinsey & Co., specializing in health care. He is currently
a director of TRO Learning, Inc. and Stericycle, Inc. Mr. Patience received a
B.A. in Liberal Arts and an L.L.B. from the University of Sydney, Australia and
an M.B.A. from the University of Pennsylvania Wharton School of Business.
7
<PAGE>
Board Meetings, Committees and Director Compensation
The Board of Directors of the Company held six meetings during the
fiscal year ended December 31, 1997.
The Board of Directors has an Audit Committee and a Compensation Committee.
It does not have a nominating committee or a committee performing the functions
of a nominating committee. From time to time, the Board has created various ad
hoc committees for special purposes. No such committee is currently functioning.
The Audit Committee consists of directors James Weersing, John Patience and
Rex Bates. The Audit Committee is responsible for reviewing the results and
scope of the audit and other services provided by the Company's independent
auditors. The Audit Committee held two meetings in the last fiscal year.
The Compensation Committee consists of directors Jack Schuler, James
Weersing and Edward Giles. The Compensation Committee reviews and makes
recommendations to the Board concerning salaries and incentive compensation for
executive officers and certain employees of the Company. The Compensation
Committee held six meeting during the last fiscal year. The President and Chief
Executive Officer of the Company participates fully with all other committee
members in recommending salaries and incentive compensation to the board of
directors, except that he does not participate in committee proceedings relating
to his salary and compensation.
Compensation of Directors
Directors of the Company do not receive cash for services they provide as
directors. From time to time, certain directors who are not employees of the
Company have received grants of options to purchase shares of the Company's
Common Stock. Under the 1996 Director Option Plan, each nonemployee director
will be granted a nonstatutory option to purchase an amount of shares of Common
Stock of the Company equal to 5,000 shares multiplied by a fraction, the
numerator of which shall be $15.00 and the denominator of which shall be the
fair market value of one share of the Company's Common Stock on the date of
grant. The Company does not provide additional compensation for committee
participation or special assignments of the Board of Directors.
Vote Required
The two nominees receiving the highest number of affirmative votes of the
shares entitled to vote on this matter shall be elected as the Class II
directors.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
NOMINEES SET FORTH HEREIN.
8
<PAGE>
PROPOSAL NO. 2
APPROVAL OF AMENDMENT OF 1996 STOCK OPTION PLAN
The Company's Board of Directors and stockholders have previously adopted
and approved the Company's 1996 Stock Option Plan (the "Option Plan"). A total
of 1,000,000 shares of Common Stock are presently reserved for issuance under
the Option Plan. In January 1998, the Board of Directors approved an amendment
to the Option Plan, subject to stockholder approval, to increase the shares
reserved for issuance thereunder by 750,000 shares, bringing the total number of
shares issuable under the Option Plan to 1,750,000.
As of January 29, 1998, less than 1,000 shares were available for future
issuance under the Option Plan.
At the Annual Meeting, the stockholders are being requested to consider and
approve the proposed amendment to the Option Plan to increase the number of
shares of Common Stock reserved for issuance thereunder by 750,000 shares,
bringing the total number of shares issuable under the Option Plan to 1,750,000.
The Board believes that the amendment will enable the Company to continue its
policy of widespread employee stock ownership as a means to motivate high levels
of performance and to recognize key employee accomplishments.
The Plan authorizes the Board of Directors to grant stock options to
eligible employees, directors and consultants of the Company. The Plan is
structured to allow the Board of Directors broad discretion in creating equity
incentives in order to assist the Company in attracting, retaining and
motivating the best available personnel for the successful conduct of the
Company's business. The Company has had a longstanding practice of linking key
employee compensation to corporate performance because it believes that this
increases employee motivation to improve shareholder value. The Company has,
therefore, consistently included equity incentives as a significant component of
compensation for a broad range of the Company's employees. This practice has
enabled the Company to attract and retain the talent that it continues to
require.
The Board of Directors believes that the remaining shares available for
grant under the Plan are insufficient to accomplish the purposes of the Plan
described above. The Company anticipates there will be a need to hire additional
technical or management employees, and it will be necessary to offer equity
incentives to attract and motivate these individuals, particularly in the
current extremely competitive job market. In addition, in order to retain the
services of valuable employees as the Company matures and its employee base grow
larger, it will be necessary to grant additional options to current employees as
older options become fully vested.
For a description of the principal features of the Option Plan, see
"Exhibit A"- Description of 1996 Stock Option Plan."
Vote Required
The approval of the amendment to the Option Plan requires the affirmative
vote of a majority of the votes cast on the proposal at the Annual Meeting.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
AMENDMENT OF THE OPTION PLAN TO INCREASE THE NUMBER OF SHARES RESERVED FOR
ISSUANCE THEREUNDER.
9
<PAGE>
PROPOSAL NO. 3
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP, independent
auditors, to audit the financial statements of the Company for the fiscal year
ending December 31, 1998 and recommends that the stockholders vote FOR
confirmation of such selection. In the event of a negative vote on such
ratification, the Board of Directors will reconsider its selection.
Representatives of Ernst & Young LLP are expected to be present at the Annual
Meeting with the opportunity to make a statement if they desire to do so, and
are expected to be available to respond to appropriate questions.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1998.
10
<PAGE>
EXECUTIVE COMPENSATION
Compensation Tables
Summary Compensation Table. The following table sets forth certain
compensation paid by the Company to the Chief Executive Officer and the four
other most highly compensated executive officers of the Company for services
rendered during each of the fiscal years ended December 31, 1995, 1996 and 1997:
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
-----------------------------
Restricted Securities All Other
Annual Compensation Stock Underlying Annual
Name and Principal Position Year Salary($) Bonus($) Awards($) Options Compensation($)
- --------------------------- ---- --------- -------- --------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Henry T. Pietraszek 1997 167,942 -- -- 350,000 707 (1)
President and Chief Executive 1996 -- -- -- -- --
Officer 1995 -- -- -- -- --
Bernard O. C. Questier (3) 1997 150,000 -- -- 10,000 8,800 (2)
Vice President, European 1996 137,500 7,500 (4) -- -- 8,067 (2)
Operations 1995 -- -- 36,956 57,200 (5)
Pierre H. Sice 1997 122,963 -- 55,000 8,264 (1)
Vice President, Finance and Chief 1996 -- -- -- -- --
Financial Officer and Secretary 1995 -- -- -- -- --
Johnny D. Powers, Ph.D. 1997 118,375 -- -- 15,000 --
Vice President, Operations 1996 16,154 15,000 (6) -- 35,000 23,872 (1)
1995 -- -- -- -- --
Michael K. Cusack 1997 102,268 -- -- 7,000 --
Vice President, International 1996 100,130 -- -- -- --
1995 100,054
- -----------------
</TABLE>
(1) Relocation Expense
(2) Automobile allowance
(3) Mr. Questier signed an employment contract with the Company in October of
1995 and began working at the Company in February 1996. His annual
compensation is set at $150,000 and his salary is fixed to the French Franc
to protect against currency fluctuations should the United States Dollar
depreciate relative to the French Franc; however, if the United States
Dollar appreciates relative to the French Franc, Mr. Questier's salary
shall remain unchanged.
(4) Mr. Questier received a one-time nonrecurring $7,500 bonus in 1996 for
signing his employment contract in October of 1995 and meeting certain
other conditions.
(5) Consists of relocation expenses of $55,000 associated with Mr. Questier's
move from Germany to France, and a $2,200 automobile allowance.
(6) Mr. Powers was offered a sign-on bonus of $15,000 in connection with his
joining the company.
11
<PAGE>
Option Grants in Last Fiscal Year. The following table sets forth
information with respect to each grant of stock options made during the fiscal
year ended December 31, 1997 to each executive officer named in the Summary
Compensation Table above:
<TABLE>
<CAPTION>
Option Grants in Fiscal 1997
Individual Grants
------------------------------------------------ Potential Realizable
Number of Value at Assumed
Securities % of Total Exercise Annual Rates of Stock
Underlying Options or Base Price Appreciation
Options Granted Price Expiration for Option Term(4)
-------------------------
Name Granted(1) In 1997(2) ($/Sh)(3) Date 5%($) 10%($)
---- ---------- ---------- --------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Henry T. Pietraszek 350,000 24.4% $12.25 4/18/07 $2,696,386 $6,833,171
Bernard O. C.Questier 10,000 0.7% $12.25 4/18/07 $ 77,040 $ 195,233
Pierre H. Sice 55,000 3.8% $12.25 4/18/07 $ 423,718 $1,073,784
Johnny D.Powers,Ph.D. 15,000 1.0% $12.25 4/18/07 $ 115,559 $ 292,850
Michael K. Cusack 7,000 0.5% $12.25 4/18/07 $ 53,928 $ 136,663
</TABLE>
- -----------------------
(1) Options were granted under the Company's 1988 Stock Option Plan or under
the 1996 Stock Option Plan. These generally vest over four years from the
date of grant, except for Mr. Pietraszek's options which vest over seven
years from the date of grant.
(2) Based on an aggregate of 1,436,460 options granted by the Company in the
year ended December 31, 1997 under the Company's stock option plans to all
employees of and consultants to the Company, including the Chief Executive
Officer and four other most highly compensated officers.
(3) The exercise price per share of each option was equal to the fair market
value of the Common Stock on the date of grant.
(4) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission. There can
be no assurance provided to any executive officer or any other holder of
the Company's securities that the actual stock price appreciation over the
10-year option term will be at the assumed 5% and 10% levels or at any
other defined level. Unless the market price of the Common Stock
appreciates over the option term, no value will be realized from the option
grants made to the executive officers.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Values.
The following table sets forth, for each of the executive officers named in the
Summary Compensation Table above, information with respect to each exercise of
stock options during the fiscal year ended December 31, 1997 and the value of
unexercised options at December 31, 1997.
12
<PAGE>
Aggregate Option Exercises in Fiscal 1997 and Year-End Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Shares Unexercised Options In-the-Money Options
Acquired Value at December 31, 1997 at December 31, 1997(1)
on
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Henry T. Pietraszek -- -- -- 350,000 -- 1,050,000
Bernard O.C. Questier -- -- 20,019 26,938 288,498 274,097
Pierre H. Sice -- -- -- 55,000 -- 165,000
Johnny D. Powers, -- -- 10,209 39,791 -- 45,000
Ph.D.
Michael K. Cusack -- -- 10,471 13,159 150,900 109,759
</TABLE>
(1) The value of "in-the-money" stock options represents the positive spread
between the exercise price of stock options, which ranges from $0.84 per
share to $17.00 per share, and the fair market value for the Company's
Common Stock of $15.25 per share as of December 31, 1997, which was the
closing price of the Company's Common Stock on December 31, 1997.
Employment Agreements
The Company has an employment agreement with Bernard O.C. Questier, its
Vice President of European Operations. The agreement provides for annual
compensation of $150,000, which is fixed to the French Franc to protect against
currency fluctuations should the United States Dollar depreciate relative to the
French Franc; however, if the United States Dollar appreciates relative to the
French Franc, Mr. Questier's salary shall remain unchanged. The agreement also
provides for, in the event of Mr. Questier's termination, continued compensation
through the quarter in which notice of termination is given plus one additional
full quarter. The agreement does not provide for any specified term of
employment. The Company currently has no employment contracts or agreements with
any of the other officers named in the Summary Compensation Table or with any
other person.
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
The Compensation Committee of the Board of Directors consists of Jack W.
Schuler, James Weersing and Edward M. Giles. The Compensation Committee makes
recommendations to the Board of Directors concerning salaries and incentive
compensation for employees of and consultants to the Company, except that the
Compensation Committee has full power and authority to grant stock options to
the Company's executive officers under the Company's 1996 Stock Option Plan and
the Company's 1998 Stock Option Plan.
13
<PAGE>
BOARD COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The following is provided to stockholders by the members of the
Compensation Committee of the Board of Directors:
The Compensation Committee of the Board of Directors (the "Committee"),
comprised of three outside directors, is responsible for the administration of
the Company's compensation programs. These programs include base salary for
executive officers and both annual and long-term incentive compensation
programs. The Company's compensation programs are designed to provide a
competitive level of total compensation and include incentive and equity
ownership opportunities linked to the Company's performance and stockholder
return.
Compensation Philosophy
The design and implementation of the Company's executive compensation
programs are based on a series of guiding principles derived from the Company's
values, business strategy and management requirements. These principles may be
summarized as follows:
o Align the financial interests of the management team with the Company
and its stockholders;
o Attract, motivate and retain high-caliber individuals necessary to
increase total return to stockholders;
o Provide a total compensation program where a significant portion of
pay is linked to individual achievement and short- and long-term
Company performance; and
o Emphasize reward for performance at the individual, team and Company
levels.
Compliance with Internal Revenue Code Section 162(m)
The Committee has considered the potential impact of Section 162(m) of the
Internal Revenue Code adopted under the Federal Revenue Reconciliation Act of
1993. Section 162(m) disallows a tax deduction for any publicly held corporation
for individual compensation exceeding $1 million in any taxable year for any of
the named executive officers, unless compensation is performance based. Since
the targeted cash compensation of each of the named executive officers is well
below the $1 million threshold and the Committee believes that any options
granted under the Company's stock option plan will meet the requirement of being
performance based under the transition provisions provided in the regulations
under Section 162(m), the Committee believes that Section 162(m) will not reduce
the tax deduction available to the Company. The Company's policy is to qualify
to the extent reasonable its executive officers' compensation for deductibility
under applicable tax laws.
Compensation Program
The Company's executive compensation program has three major components,
all of which are intended to attract, retain and motivate executive officers
consistent with the principles set forth above. The Committee considers these
components of compensation individually as well as collectively in determining
total compensation for executive officers.
1. Base salary. Each fiscal year the Committee establishes base salaries
for individual executive officers based upon (i) industry and peer group
surveys, (ii) responsibilities, scope and complexity of each position and (iii)
performance judgments as to each individual's past and expected future
contributions. The Committee reviews with the Chief Executive Officer and
approves, with appropriate modifications, an annual base salary plan for the
Company's executive officers other than the Chief Executive Officer. The
Committee reviews and fixes the base salary of the Chief Executive Officer based
on similar competitive compensation data and the Committee's assessment of his
past performance and its expectations as to his future contributions in leading
the Company.
2. Annual cash (short-term) incentives. Annual cash incentives will be
established to provide a direct linkage between individual pay and annual
corporate performance. Target annual bonus awards will be established for
executive officer positions based upon industry and peer group surveys and range
from 5% to 25% of base salary, with
14
<PAGE>
25% for the chief executive officer position. Each officer who served in an
executive capacity during the last fiscal year, including the Chief Executive
Officer, received a bonus for such service in the form of stock options, except
one officer who also received a cash bonus. In establishing bonus amounts in the
future, the Committee will primarily consider the financial performance of the
Company measured in terms of revenue growth and growth in earnings, and
secondarily consider the performance of each officer in his or her respective
area of accountability. Each officer will establish operating objectives for the
functional area of the business for which they take responsibility at the
beginning of the Company's fiscal year. At the end of the year, they will be
rated on the attainment of those objectives. Each officer may receive a portion
or the full amount of their targeted annual performance based bonus.
3. Equity based incentive compensation. Long-term incentives for the
Company's employees are provided under the Company's stock option plans. Each
fiscal year, the Committee considers the desirability of granting to executive
officers long-term incentives in the form of stock options. These option grants
are intended to motivate the executive officers to manage the business to
improve long-term Company performance and align the financial interests of the
management team with the Company and its stockholders. The Committee established
the grants of stock options to executive officers (other than the Chief
Executive Officer) in the Last Fiscal Year, based upon a review with the Chief
Executive Officer of proposed individual awards, taking into account each
officer's scope of responsibility and specific assignments, strategic and
operational goals applicable to the officer, anticipated performance
requirements and contributions of the officer and competitive data for similar
positions. The Committee independently reviewed these same factors in
determining the option grant to Mr. Pietraszek as Chief Executive Officer.
During the Last Fiscal Year, an option award of 350,000 shares of Common Stock
was granted to Mr. Pietraszek, which vests over a seven-year period. Stock
options granted to executive officers typically provide for vesting over a
four-year period.
Respectfully submitted,
Jack W. Schuler
James R. Weersing
Edward M. Giles
The foregoing Compensation Committee Report shall not be deemed to be
"soliciting material" or to be "filed" with the SEC, nor shall such information
be incorporated by reference into any future filing under the Securities Act of
1933, as amended (the "Securities Act"), or the Exchange Act, except to the
extent the Company specifically incorporates it by reference into such filing.
15
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total return to stockholders of
the Company's Common Stock at December 31, 1997 since July 26, 1996 (the date
the Company first became subject to the reporting requirements of the Exchange
Act) to the cumulative total return over such period of (i) the Nasdaq Stock
Market Composite Index, (ii) the Russell 2000 Index and (iii) the Dillon, Read &
Co. Medical Diagnostic Index. The graph assumes the investment of $100 on July
26, 1996 in the Company's Common Stock and each of such indices (from July 28,
1996) and reflect the change in the market price of the company's Common Stock
relative to the noted indices at December 31, 1997 and not for any interim
period. The performance shown is not necessarily indicative of future price
performance.
COMPARISON OF CUMULATIVE TOTAL RETURN*
[THE FOLLOWING WAS REPRESENTED AS A LINE GRAPH IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
7/96 9/96 12/96 3/97 6/97 9/97 12/97
---- ---- ----- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
VENTANA $1000.00 $185.00 $145.00 $140.00 $123.75 $161.25 $152.50
NASDAQ US ($) $1000.00 $113.68 $119.27 $112.80 $133.48 $156.06 $146.36
RUSSELL 2000 ($) $1000.00 $109.62 $114.75 $108.41 $125.43 $143.61 $138.30
DILLON, READ & CO.MED. ($) $1000.00 $110.87 $113.77 $115.94 $127.54 $152.17 $143.48
</TABLE>
The information contained in the Stock Performance Graph shall not be
deemed to be "soliciting material" or to be filed with the SEC, nor shall such
information be incorporated by reference into any future filing under the
Securities Act or the Exchange Act, except to the extent the Company
specifically incorporates it by reference into such filing.
16
<PAGE>
CERTAIN TRANSACTIONS
In April and May 1996, the Company sold an aggregate of 646,664 shares of
Common Stock to Jack Schuler, the Company's Chairman, John Patience, a director
of the Company, and venture capital funds affiliated with Marquette Venture
Partners ("Marquette"), a principal stockholder of the Company, at a purchase
price of $1.62 per share. Messrs. Schuler and Patience paid the purchase price
for their shares 10% in cash and 90% through a full recourse promissory note
secured by the underlying shares of Common Stock. Marquette paid the purchase
price for their shares in cash. These stock purchases were approved by the
Company's Board of Directors in principle in January 1996 and the specific terms
of the stock purchases were approved by the Board of Directors on February 23,
1996. The purchase price of $1.62 per share was determined by the Board of
Directors of the Company in January 1996 and equals the fair market value of
Company's Common Stock as of such date, as determined by the board. Messrs.
Schuler and Patience were provided with the opportunity to purchase these shares
in connection with (i) their efforts and assistance in completing the
acquisition of BioTek Solutions, Inc. and assisting management with the
integration of the companies, (ii) Mr. Schuler's decision to serve as Chairman
of the Board of Directors and (iii) Mr. Schuler's and Mr. Patience's devotion of
a significant portion of their work time to the Company's business. In February
1998, Messrs. Schuler and Patience each fully paid the promissory notes issued
in connection with their purchase of the shares.
On November 13, 1997, the Company's Board of Directors unanimously
approved, with Messrs. Patience and Schuler abstaining, a renewal of the
foregoing arrangement. Under this arrangement, Messrs. Schuler and Patience each
received options for 150,000 shares of Company Common Stock. These options were
issued on the basis that Messrs. Patience and Schuler would devote a significant
percentage of their work time to the Company's business and that Mr. Schuler
would serve as Chairman of the Company's Board of Directors. The options vest on
a cumulative monthly basis over 24 months commencing February 26, 1998 and have
an exercise price of $12.625 per share, which is equal to the fair market value
of the Company's Common Stock on the date of grant.
In February 1997, the Company repaid certain outstanding notes issued in
connection with the acquisition of BioTek Solutions, Inc. and a related
financing transaction. These notes were originally issued between February and
May 1996. Under the terms of the notes, no interest would be payable if the
principal of the notes was repaid in full on or prior to February 26, 1997. The
notes were repaid prior to such date, and, accordingly, no interest was paid on
the notes. Holders of the notes included the following 5% stockholders,
directors and entities affiliated with directors: MBW Venture Partners, L.P.,
Jack W. Schuler, certain entities with whom Edward M. Giles was affiliated,
State Farm Mutual Automobile Insurance Company, John Patience, Rex Bates, James
R. Weersing, and Thomas M. Grogan, M.D.
17
<PAGE>
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If
any other matters properly come before the meeting, it is the intention of the
persons named in the accompanying form of proxy to vote the shares they
represent as the Board of Directors may recommend.
THE COMPANY WILL MAIL WITHOUT CHARGE TO ANY STOCKHOLDER UPON WRITTEN
REQUEST A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K, INCLUDING THE
FINANCIAL STATEMENTS, SCHEDULES AND A LIST OF EXHIBITS. REQUESTS SHOULD BE SENT
TO INVESTOR RELATIONS, VENTANA MEDICAL SYSTEMS, INC., 3865 NORTH BUSINESS CENTER
DRIVE, TUCSON, ARIZONA 85705.
THE BOARD OF DIRECTORS
Dated: March 31, 1998
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
VENTANA MEDICAL SYSTEMS, INC.
1998 ANNUAL MEETING OF STOCKHOLDERS
April 30, 1998
The undersigned stockholder of VENTANA MEDICAL SYSTEMS, INC. a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement, each dated March 31, 1998, and hereby appoints
Henry T. Pietraszek, Pierre H. Sice, or either of them, proxies and
attorneys-in-fact, with full power to each of substitution, on behalf and in the
name of the undersigned, to represent the undersigned at the 1998 Annual Meeting
of Stockholders of VENTANA MEDICAL SYSTEMS, INC. to be held on April 30, 1998 at
10:00 a.m. local time, at the Arizona Inn, Tucson Room, 2200 East Elm Street,
Tucson, Arizona 85719, and at any adjournment or adjournments thereof, and to
vote all shares of Common Stock which the undersigned would be entitled to vote
if then and there personally present, on the matters set forth below.
1. ELECTION OF CLASS II DIRECTORS
[_] FOR all nominees listed below [_] WITHHOLD
(except as indicated)
IF YOU WISH TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THAT NOMINEE'S NAME IN THE LIST BELOW:
Edward M. Giles; Rex Bates.
2. Proposal to approve the amendment to the 1996 Stock Option Plan to increase
the number of shares reserved for issuance thereunder from 1,000,000 shares
to 1,750,000 shares
[_] FOR [_] AGAINST [_] ABSTAIN
3. Proposal to ratify the appointment of Ernst & Young LLP as the independent
public accountants of the Company for the year ending December 31, 1998:
[_] FOR [_] AGAINST [_] ABSTAIN
(continued, and to be signed on the reverse side)
<PAGE>
(continued from the other side)
This Proxy will be voted as directed or, if no contrary direction is
indicated, will be voted for the election of the two nominated Class II
directors, for the amendment of the Amended 1996 Stock Option Plan to increase
the number of shares reserved for issuance thereunder, for the ratification of
the appiontment of Ernst & Young LLP as independent public accountants, and as
said proxies deem advisable on such other matters as may properly come before
the meeting.
Dated ___________________, 1998
-------------------------------
Signature
-------------------------------
Signature
(This Proxy should be marked, dated and
signed by the stockholder(s)) exactly as
his, her or its name appears hereon, and
returned promptly in the enclosed
envelope. Persons signing in a fiduciary
capacity should so indicate. If shares
are held by joint tenants or as com-
munity property, both should sign.)
