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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 Section 240.14a-11(c) or Section 240.14a-12
Aksys, Ltd.
- --------------------------------------------------------------------------------
(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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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AKSYS, LTD.
Two Marriott Drive
Lincolnshire, Illinois 60069
(847) 229-2020
March 15, 1999
Dear Aksys Stockholder:
You are cordially invited to attend the 1999 Annual Meeting of Stockholders
of Aksys, Ltd. The meeting will be held on Thursday, April 22, 1999, at 2:00
p.m. at the Marriott Lincolnshire Resort located at Ten Marriott Drive,
Lincolnshire, Illinois.
At the meeting, we will report on current industry conditions and recent
developments at Aksys. Members of the Board of Directors and our senior
management team, as well as representatives from our auditors, will be present
to discuss the affairs of Aksys and answer any questions you may have. After
the conclusion of the meeting, you are cordially invited to attend an Open
House at the Aksys, Ltd. facilities located near the Marriott Lincolnshire
Resort.
Enclosed is the Company's Annual Report for the year ended December 31,
1998, a proxy statement and a proxy card. It is important that your shares be
represented and voted at the meeting, regardless of the size of your holdings.
Accordingly, please complete, sign and date the enclosed proxy card and return
it promptly in the enclosed envelope to ensure your shares will be
represented. If you do attend the meeting, you may withdraw your proxy if you
wish to vote in person.
On behalf of the Board of Directors and management of Aksys, I would like to
thank you for choosing to invest in our Company.
Sincerely,
Lawrence H.N. Kinet
Chairman and Chief Executive Officer
<PAGE>
AKSYS, LTD.
Two Marriott Drive
Lincolnshire, Illinois 60069
(847) 229-2020
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
April 22, 1999
The Annual Meeting of Stockholders of Aksys, Ltd., a Delaware corporation
(the "Company"), will be held on Thursday, April 22, 1999, at 2:00 p.m. (the
"Annual Meeting") at the Marriott Lincolnshire Resort located at Ten Marriott
Drive, Lincolnshire, Illinois, for the purpose of:
(1) Electing two Class III Directors to serve until the annual meeting of
stockholders in 2002 and until their successors are duly elected and
qualified or until their earlier removal or resignation; and
(2) Approving an increase in the shares of Aksys, Ltd. Common Stock
authorized for issuance under the Aksys, Ltd. 1996 Stock Awards Plan to
1,775,000 from 900,000 shares; and
(3) Transacting such other business as may properly come before the
Annual Meeting or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on March 4, 1999, as
the record date for the determination of stockholders entitled to notice of,
and to vote at, the meeting or any adjournment or postponement thereof.
By Order of the Board of Directors
Steven A. Bourne
Assistant Secretary
March 15, 1999
The Company's Annual Report for the year ended December 31, 1998 is
enclosed. The Annual Report contains financial and other information about the
Company, but is not incorporated into the attached Proxy Statement and is not
deemed to be a part of the Company's proxy soliciting material.
EVEN IF YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE PROMPTLY COMPLETE,
SIGN AND RETURN THE ENCLOSED PROXY CARD. A SELF-ADDRESSED ENVELOPE IS ENCLOSED
FOR YOUR CONVENIENCE, AND NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED
STATES. STOCKHOLDERS WHO ATTEND THE ANNUAL MEETING MAY REVOKE THEIR PROXIES
AND VOTE IN PERSON IF THEY SO DESIRE.
<PAGE>
AKSYS, LTD.
Two Marriott Drive
Lincolnshire, Illinois 60069
(847) 229-2020
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON
APRIL 22, 1999
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of Aksys, Ltd., a Delaware corporation (the "Company"), of
proxies to be used at the annual meeting of stockholders of the Company that
will be held on Thursday, April 22, 1999 (the "Annual Meeting"). This Proxy
Statement and the related proxy card are being mailed to holders of the
Company's common stock, par value $.01 per share (the "Common Stock"), on or
about March 15, 1999.
All outstanding shares of Common Stock represented by properly executed and
unrevoked proxies received in time for the meeting will be voted as instructed
in the accompanying proxy on each matter to be submitted to stockholders. If
no instructions are given, the shares will be voted for the election to the
Board of Directors of the Company of the nominees indicated in the proxy and
for approval of the proposal to amend the Aksys, Ltd. 1996 Stock Awards Plan
(the "1996 Plan") to increase the number of shares issuable thereunder by
875,000. Returning a completed proxy card will not prevent you from voting in
person at the Annual Meeting should you be present and desire to vote. In
addition, a proxy may be revoked at any time prior to its exercise either by
giving written notice to the Company or by submission of a later-dated proxy.
Stockholders of record of the Common Stock at the close of business on March
4, 1999 will be entitled to vote at the Annual Meeting. On such date, the
Company had 14,809,252 issued and outstanding shares of Common Stock held by
approximately 4,600 record holders. A list of the Company's stockholders will
be available for examination by stockholders of the Company, for any purpose
germane to the Annual Meeting, at the Company's headquarters for a period of
ten days prior to the meeting. Each share of Common Stock entitles the holder
thereof to one vote on all matters submitted to stockholders. At the Annual
Meeting, an inspector of election shall determine the presence of a quorum and
shall tabulate the voting results. The holders of a majority of the total
number of outstanding shares of Common Stock entitled to vote must be present
in person or by proxy to constitute the necessary quorum for any business to
be transacted at the Annual Meeting. In accordance with the General
Corporation Law of the State of Delaware (the "DGCL"), properly executed
proxies marked "abstain" as well as proxies held in street name by brokers
that are not voted on all proposals to come before the Annual Meeting ("broker
non-votes") will be considered present for the purposes of determining whether
a quorum is in attendance at the Annual Meeting.
Directors will be elected by a majority vote, and so the holders of a
majority of the shares of Common Stock represented in person or by proxy at
the Annual Meeting will be able to elect all Class III directors. Approval of
the proposal to amend the 1996 Plan will require the favorable vote of a
majority of the shares of Common Stock represented in person or by proxy at
the Annual Meeting. Stockholders have no right to cumulative voting as to any
matter, including the election of Directors. With respect to any proposal at
the Annual Meeting that must receive a specific percentage of favorable votes
for approval, abstentions in respect of such proposal are treated as present
and entitled to vote under the DGCL and therefore have the effect of a vote
against such proposal. Broker non-votes in respect of any proposal are not
counted for purposes of determining whether such proposal has received the
requisite approval under the DGCL.
ELECTION OF DIRECTORS
The Board of Directors is currently comprised of seven directors divided
into three classes, with each class serving a three-year term. The term of
each class expires in different years. The Board of Directors has nominated
and recommends the election for the class of directors up for election at the
Annual Meeting (the Class III
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Directors) the two nominees set forth below. Each nominee is currently serving
as a director of the Company. If any nominee becomes unavailable for any reason
or should a vacancy occur before the Annual Meeting (which events are not
anticipated), the persons named as proxies on the enclosed proxy card may
substitute another person as a nominee or may increase or decrease the number
of nominees to such extent as they shall deem advisable. At the Annual Meeting,
two directors are to be elected as members of Class III to serve until the
annual meeting in 2002 and until their successors are elected and qualified or
until their earlier removal or resignation. At present, no cash compensation or
fees are payable to directors of the Company, other than reimbursement for
reasonable travel expenses incurred in attending Board meetings. However, non-
employee directors are entitled to receive annual stock option awards under the
1996 Plan.
Information regarding the nominees for Class III Director of the Company is
set forth below:
<TABLE>
<CAPTION>
Name Age Position
---- --- ----------
<S> <C> <C>
Peter H. McNerney......................................... 48 Director(1)
Bernard R. Tresnowski..................................... 66 Director(2)
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Information regarding directors of the Company not standing for election at
the Annual Meeting is set forth below:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Richard B. Egen................... 60 Director(1)
Rodney S. Kenley.................. 49 Founder, Vice President of Business
Development and Director
Lawrence H.N. Kinet............... 51 Chairman, CEO and Director
K. Shan Padda..................... 37 Director(2)
W. Dekle Rountree, Jr............. 57 Director(1)
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
There are no family relationships between or among any directors or executive
officers of the Company.
Director Nominees (Class III Directors)
Peter H. McNerney has been a director of the Company since April 1993. Since
July 1992, Mr. McNerney has been a general partner of the general partner of
Coral Partners II (a venture capital fund) and a general partner of the general
partner of Coral Partners IV (also a venture capital fund). Mr. McNerney is
also the Executive Vice President of Coral Group, Inc., a manager of venture
capital partnerships. From 1989 through June 1992, Mr. McNerney was a Managing
Partner of The Kensington Group, a provider of management services to health
care companies. From 1975 through 1986, Mr. McNerney held various management
positions with Baxter Travenol Laboratories in the United States, Europe and
the Far East. Mr. McNerney is a director of Cerus, Inc.
Bernard R. Tresnowski has been a director of the Company since April 1996.
Mr. Tresnowski served from December 1981 to December 1994 as the President and
Chief Executive Officer of the Blue Cross and Blue Shield Association, the
national coordinating body for all Blue Cross and Blue Shield Plans. He has
also held various other leadership positions in the healthcare industry,
including President of the International Federation of Health Service Funds,
Member of the Jackson Hole Group, Principal of the Dunlop Group of Six, Member
of the Secretary of Health and Human Services Private/Public Sector Advisory
Committee on Catastrophic Illness, Co-Chairman of the Secretary of Health and
Human Services Work Group on Electronic Data Interchange and Member of the
American Medical Association National Health Policy Steering Committee. Mr.
Tresnowski retired from the Blue Cross and Blue Shield Association in December
1994.
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Class I Directors (term expiring at the 2000 annual meeting)
Rodney S. Kenley founded the Company in January 1991 and has served as a
director since such date. Mr. Kenley has served as Vice President of Business
Development since November 1997. Mr. Kenley served as the Company's Executive
Vice President and Chief Technical Officer from June 1997 until November 1997,
as its President and Chief Operating Officer from October 1994 to June 1997,
and as its President and Chief Executive Officer from January 1991 to October
1994. Prior to founding the Company, Mr. Kenley worked for over 12 years at
Baxter International Inc., where he was involved principally in the development
and product management of dialysis therapies and products, including from
January 1990 until January 1991, when he served as Vice President of Electronic
Drug Infusion.
Richard B. Egen has been a director of the Company since November 1997. Since
January 1997, Mr. Egen has served as President and Chief Executive Officer of
NephRx Corporation, a biotechnology company that is developing technology for
kidney growth factors. From January through December 1996, Mr. Egen was an
independent business consultant. From 1989 to 1995, Mr. Egen was President and
Chief Executive Officer of Clintec International, a joint venture owned by
Baxter International Inc. and Nestle S.A. Clintec International is engaged in
the development of clinical nutrition products. Prior to working at Clintec
International, Mr. Egen held various senior management positions during his
fifteen year career with Baxter International Inc., including corporate Senior
Vice President. Mr. Egen serves as a director of Optical Sensors Incorporated.
K. Shan Padda has been a director of the Company since February 1998. In
1989, Mr. Padda co-founded Sabratek Corporation, a bio-medical company that
produces and markets therapeutic and diagnostic medical devices, and has served
as its Chairman and Chief Executive Officer since 1991 and as its Co-Chairman
of the Board of Directors and Vice President of Finance from 1989 to 1991. From
1984 to 1988, Mr. Padda served as Chief Executive Officer of Andens of
Illinois, Inc., a medical supplies company which assembled and marketed
hospital operating room supply kits. Mr. Padda is a director of Sabratek
Corporation.
Class II Directors (term expiring at the 2001 annual meeting)
Lawrence H.N. Kinet was appointed Chairman of the Board and Chief Executive
Officer of the Company in December 1994, and has served as a director of the
Company since April 1993. From July 1991 through December 1994, he served as
Chairman of the Board of Directors and Chief Executive Officer of Oculon
Corporation, a pharmaceutical development company engaged in the field of anti-
cataract drugs. He was a Managing Partner of The Kensington Group, a provider
of management services to health care companies, from 1989 to 1992. From 1985
through 1988, he was President of Baxter World Trade Corporation, the
international division of Baxter International Inc. and corporate Group Vice
President of Baxter International Inc.
W. Dekle Rountree, Jr. has been a director of the Company since April 1993.
From April 1993 through July 1998, he served as President and Chief Executive
Officer of AcroMed Corporation, a company that designs and manufactures
orthopedic spinal devices. Prior to this position, Mr. Rountree was Executive
Vice President and Chief Operating Officer of BOC Health Care, a company that
provides products and services for critical care in the hospital and home. Mr.
Rountree has headed OHMEDA, a division of BOC Health Care, and has held
multiple management positions with Baxter Travenol Laboratories, including
President of the Artificial Organs (Renal) Division. Mr. Rountree retired from
AcroMed Corporation in July 1998.
Committees and Directors' Meetings
The Board of Directors has two standing committees: the Audit Committee and
the Compensation Committee. The Compensation Committee, which currently
consists of Messrs. Egen, McNerney and Rountree, is responsible for approving
(or at the election of the Compensation Committee, recommending to the Board)
compensation arrangements for officers and directors of the Company and
reviewing benefit plans.
The Audit Committee, which currently consists of Messrs. Padda and
Tresnowski, is responsible for selecting (or at the election of the Audit
Committee, recommending to the Board) the independent auditors of
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the Company, evaluating the independent auditors, reviewing the scope of the
annual audit with management and the independent auditors, consulting with
management, internal auditors and the independent auditors as to the systems of
internal accounting controls and reviewing the non-audit services performed by
the independent auditors.
The Board of Directors held 9 meetings during 1998. Each of the directors
attended each such meeting, with the exceptions of Messrs. Padda (who attended
6 of 9 meetings) and Tresnowski (who attended 8 of 9 meetings). The Audit
Committee held 2 meetings and the Compensation Committee held 8 meetings during
1998.
The Company does not have a nominating committee. The entire Board of
Directors currently is responsible for filling vacancies on the Board as they
occur and recommending candidates for election as directors at the annual
meetings of stockholders.
The Board will consider individuals recommended for nomination by
stockholders of the Company. Such recommendations should be submitted in
writing to the Chairman of the Board, who will submit them to the entire Board
for its consideration. The recommendation must be accompanied by the consent of
the individual nominated to be elected and to serve. In addition, the Bylaws of
the Company require that advance notice of a stockholder's nomination for the
election of directors (as distinguished from a stockholder's recommendation to
the Board) be given to the Secretary of the Company no later than 60 days and
no more than 90 days before an annual meeting of stockholders; however, if the
date of the annual meeting is changed from 30 days from the first anniversary
date of the preceding year's annual meeting, notice by stockholders must be
received no later than the close of business on the tenth day following the
earlier of the date on which notice was mailed or public announcement of the
meeting was made. Such notice must include (i) as to each person whom the
stockholder proposes to nominate for election as a director at such meeting,
all information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required,
in each case pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (the "Exchange Act") (including such person's written consent
to being named in the proxy statement as a nominee and to serving as a director
if elected); (ii) as to the stockholder giving the notice, (A) the name and
address of such stockholder as they appear on the Company's books and (B) the
number of shares of Common Stock which are beneficially owned by such
stockholder and which are owned of record by such stockholder; and (iii) as to
the beneficial owner, if any, on whose behalf the nomination is made, (A) the
name and address of such person and (B) the number of shares of Common Stock
which are beneficially owned by such person.
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee are Messrs. Egen, McNerney and
Rountree. No officers or employees of the Company currently serve, or during
the last completed fiscal year did serve, on the Compensation Committee.
Certain Relationships and Related Transactions
The Company entered into a consulting agreement in December 1998 with one of
its non-employee directors, Richard B. Egen. Mr. Egen was engaged to perform
certain strategic planning work for the Company, and currently devotes
approximately four days per month to the Company under the arrangement. For
each full day of work performed for the Company, Mr. Egen receives as
compensation (i) $1,000 and (ii) between 500 and 1,000 options. Options earned
are immediately vested and are exercisable at the fair market value of Aksys
Common Stock on the date the consulting agreement was entered into. For the
year ended December 31, 1998, Mr. Egen earned $4,000 and received fully vested
options for 4,000 shares pursuant to this consulting agreement.
PROPOSAL TO AMEND THE 1996 STOCK AWARDS PLAN
The 1996 Plan was originally adopted by the Board of Directors and approved
by the stockholders of the Company in 1996. After reviewing the Company's
current compensation programs and incentives for directors and key employees
and consideration of, among other things, incentive programs established by
comparable
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companies, the Board adopted an amendment to the 1996 Plan (the "1996 Plan
Proposal") on March 9, 1999. The 1996 Plan Proposal will increase the aggregate
number of shares of Common Stock with respect to which awards may be granted
under the 1996 Plan to 1,775,000 from 900,000 shares of Common Stock. The Board
adopted the 1996 Plan Proposal subject to approval and adoption by the
stockholders of the Company and provided that if not so approved, such
amendment will terminate and be of no force or effect.
The Board of Directors believes that the 1996 Plan Proposal is necessary for
the Company to be able to continue to provide appropriate incentives to recruit
and retain key employees and to encourage greater teamwork through rewards
linked to increases in the price of Common Stock. As of March 9, 1999, of the
900,000 shares of Common Stock available for issuance upon the exercise of
awards granted under the 1996 Plan, 20,097 remained available to be granted as
awards. The proposed additional 875,000 shares and the currently available
shares under the 1996 Plan will be used for new hires and other incentives in
line with past practices. 850,000 of such proposed additional shares will be
available for grants to officers, employees, consultants and advisors and
25,000 of such proposed additional shares will be available for grants to non-
employee directors of the Company as set forth in the 1996 Plan.
For purposes of the following discussion, the 1996 Plan as it exists prior to
the effectiveness of the 1996 Plan Proposal is referred to as the "Existing
Plan" and as proposed to be amended is referred to as the "Amended Awards
Plan."
In the event that the 1996 Plan Proposal is not approved by the Company's
stockholders, the Existing Plan will continue in effect but the Company's
ability to grant new awards under the Existing Plan will be constrained due to
the limited number of shares of Common Stock that currently remain available
for awards under the Existing Plan.
The complete text of the Amended Awards Plan reflecting the 1996 Plan
Proposal is set forth in Exhibit A attached hereto and should be read in its
entirety by stockholders. The following description of the Amended Awards Plan
is qualified in its entirety by Exhibit A.
Persons Eligible. Any officer, employee, consultant or advisor of the Company
or its subsidiaries, regardless of whether such person is also a director of
the Company or its subsidiaries, is eligible to be considered for the grant of
awards under the 1996 Plan. In addition, any director of the Company who is not
an officer or an employee of the Company or any of its subsidiaries is eligible
to receive an option award.
Administration. The Compensation Committee of the Board of Directors
administers the 1996 Plan. The Compensation Committee may, to the extent that
any such action will not prevent the Amended Awards Plan from complying with
Rule 16b-3 ("Rule 16b-3") of the securities Exchange Act of 1934, delegate any
of its authority thereunder to such persons as it deems appropriate. As of
March 9, 1999, there were approximately 100 persons (including all officers of
the Company) eligible for participation under the 1996 Plan.
Limitations on Shares to be Issued. After giving effect to the 1996 Plan
Proposal, a maximum of 1,775,000 shares of Common Stock will be authorized to
be issued under awards granted under the Amended Awards Plan. Of the total of
1,775,000 shares of Common Stock authorized to be issued under awards granted
under the Amended Awards Plan, 125,000 shares are reserved for awards to non-
employee directors, and 1,650,000 shares are reserved for awards to officers,
employees, consultants and advisors. Shares covered by any award granted under
the 1996 Plan which subsequently expire unexercised or unpaid or are canceled,
terminated or forfeited in any manner without the issuance of shares of Common
Stock will again be available under the 1996 Plan. Based on the closing price
of Common Stock on March 8, 1999, the aggregate market value of the total of
1,775,000 shares of Common Stock issuable under the Amended Awards Plan is
approximately $9,800,000. The calculation of such aggregate market value with
respect to shares of Common Stock underlying options granted under the Amended
Awards Plan is not reduced for prices paid or payable to the Company for such
Common Stock upon exercise.
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Awards. Awards to outside directors will be in the form of non-qualified
stock options. Awards to officers, employees, consultants and advisors may be
in the form of restricted stock, stock options, reload stock options, stock
purchase warrants, other rights to acquire stock, securities convertible into
or redeemable for stock, stock appreciation rights, limited stock appreciation
rights, phantom stock, dividend equivalents, performance units or performance
shares.
Non-Employee Director Awards. Any person who first becomes a non-employee
director is automatically granted an option entitling such director to purchase
5,000 shares of Common Stock on the date on which such person first becomes a
non-employee director. The exercise price for each such share shall be the last
reported sale price of the Common stock on the principal securities exchange or
other trading market on which shares of the Common Stock are then listed on the
date of grant. On the later of (i) June 30 of each year and (ii) the day next
following each annual meeting of stockholders of the Company, each person who
is a non-employee director shall automatically be granted an option entitling
such director to purchase a number of shares of Common Stock equal to (x) 1,250
multiplied by (y) the number of calendar quarters in the preceding twelve
months (rounded up to the nearest whole number of calendar quarters) in which
such person served as a non-employee director of the Company, up to a maximum
of four quarters. The exercise price for each such share shall be the last
reported sale price of the Common Stock on the principal securities exchange or
other trading market on which shares of the Common Stock are then listed. Each
such option shall vest and become exercisable immediately upon grant. Each such
option granted to a non-employee director shall expire and not be exercisable
after the first to occur of (i) the tenth anniversary of the date of grant of
such option and (ii) three months after the optionee ceases to be a director of
the Company.
Adjustments. If the outstanding shares of Common Stock are increased,
decreased or exchanged for or converted into cash, property or a different
number or kind of securities, or if cash, property or securities are
distributed in respect of such outstanding shares, in either case as a result
of a reorganization, merger, consolidation, recapitalization, restructuring,
reclassification, divided (other than regular quarterly or annual cash
dividend) or other distribution, stock split, reverse stock split or the like,
or if substantially all of the property and assets of the Company are sold,
then, unless the terms of such transaction shall provide otherwise, the
Compensation Committee shall make appropriate and proportionate adjustment in
(a) the price and number and type of shares or other securities or cash or
other property that may be acquired pursuant to awards granted under the 1996
Plan, (b) the maximum number and type of shares or other securities that may be
issued pursuant to awards granted under the 1996 Plan, (c) the maximum number
of shares of Common Stock with respect to which awards may be granted to any
officer, employee, consultant or advisor during any calendar year and (d) the
number of shares of Common Stock to be awarded to non-employee directors.
Amendment. The Board of Directors may amend or terminate the 1996 Plan at any
time and in any manner; provided however, that no such amendment or termination
shall deprive a participant of an award previously granted under the 1996 Plan
of any of his or her rights thereunder, without the consent of such
participant.
Federal Income Tax Consequences. The following discussion is a brief summary
of the current federal income tax rules (including proposed regulations)
relevant to stock options granted to individuals who are U.S. citizens or
residents. The rules governing the tax aspects of these items are highly
technical and subject to change.
Non-Qualified Options. The grant of a non-qualified option with an exercise
price per share not less than the fair market value of a share of Common Stock
on the date of grant does not result in any taxable income to the recipient or
deduction for the Company. However, when any such option is exercised (assuming
the Common Stock acquired is not restricted stock for purposes of Section 83 of
the Code) the excess of the fair market value on the exercise date of the
shares acquired over the aggregate exercise ("spread") will be taxable to the
holder as ordinary compensation income. The Company will generally be entitled
to a tax deduction in an amount equal to the income taxable to the holder.
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The optionee's tax basis in shares acquired upon exercise of a non-qualified
option will equal the optionee's fair market value on the exercise date and the
optionee's holding period for such shares will begin on the day after the
exercise date.
ISOs. An optionee will not be required to report taxable income on the grant
or exercise of an ISO. The spread at exercise will, however, constitute an item
includible in alternative minimum taxable income and may thereby subject the
optionee to the alternative minimum tax.
Upon the disposition of shares acquired pursuant to the exercise of an ISO
("ISO Shares") after the later of (a) two years from the date of the grant of
such ISO and (b) one year from the date such ISO was exercised (the "ISO
Holding Period"), the optionee will have a long-term capital gain or loss, as
the case may be, measured by the difference between the selling price and the
exercise price. In such case, the Company is not entitled to any tax deduction.
In general, if an optionee disposes of ISO Shares before the expiration of
the ISO Holding Period (i.e., makes a "disqualifying disposition"), an amount
equal to the spread at exercise will be taxable as ordinary income to the
optionee at the time of the disposition. If the selling price is greater than
the fair market value of the shares on the date of exercise, the excess will be
taxable to the optionee as capital gain (long-term or short-term, depending
upon whether the optionee held the ISO Shares for more than 12 months). Except
in certain limited circumstances (such as disposition by gift or by sale to a
related person), if the selling price is less than the fair market value of the
shares on the date of exercise, the difference will ordinarily reduce the
amount of ordinary income taxable to the optionee.
In the case of a disqualifying disposition, the Company generally is entitled
to a tax deduction in the same amount as the optionee's ordinary income. The
Company is not entitled to any deduction with respect to an optionee's capital
gain.
Use of Stock to Pay Exercise Price. If an optionee delivers shares of
previously-acquired Common Stock ("old shares"), however acquired, in payment
of all or part of the exercise price of a non-qualified option, any
appreciation or depreciation in the value of the old shares after their
acquisition dates is not taxable as a result of such delivery. The optionee's
tax basis in, and holding period for, the old shares will carry over to the
same number of shares received at exercise on a share-for-share basis. Assuming
any additional shares received ("new shares") are not subject to restrictions,
their fair market value at the exercise date will be taxable to the optionee as
ordinary compensation income. The tax basis for the new shares will equal their
fair market value on the exercise date and the holding period for such shares
will begin on the day after the exercise date. The Company will generally be
entitled to a tax deduction equal to the optionee's ordinary income.
If an optionee delivers old shares (other than old shares acquired upon
exercise of an ISO and not held for the ISO Holding Period) in payment of all
or part of the exercise price of an ISO, any appreciation or depreciation in
the value of the old shares after their acquisition dates is not taxable as a
result of such delivery. The optionee's tax basis in, and holding period for,
the old shares will carry over to the same number of shares received (the
"replacement shares") on a share-for-share basis. However, under proposed
regulations, if there is a later disposition of the replacement shares,
satisfaction of the ISO Holding Period will be measured from the date those
shares were actually received (and not their holding period for other
purposes), and, if the result is a disqualifying disposition of the replacement
shares, the consequences will be computed as if the optionee had paid fair
value for the replacement shares at the time they were actually received (even
though that may be different than their tax basis for other purposes). With
respect to any new shares received, the optionee will have a tax basis equal to
the amount of the exercise price paid in cash (if any), and the holding period
will begin on the day after the exercise date. If there is a later disposition
of the new shares, satisfaction of the ISO Holding Period will be measured from
the date those shares were actually received, and the federal tax consequences
will be based on the amount actually paid for the new shares (which should be
the same as their tax basis for other
7
<PAGE>
purposes). Proposed regulations provide than when an ISO is exercised using old
shares, a later disqualifying disposition of the shares received will be deemed
to be a disposition of the shares having the lowest tax basis first.
If an optionee pays the exercise price of an ISO in whole or in part with old
shares that were acquired upon exercise of an ISO and that have not been held
for the ISO Holding Period, the optionee incurs ordinary compensation income
(but not capital gain) under the rules applicable to disqualifying
dispositions, and the Company will generally be entitled to a corresponding
compensation expense deduction. An optionee's basis in the replacement shares
received is increased by the amount of the ordinary income recognized. Other
than this recognition of ordinary income and the corresponding increase in
basis, the rules described in the previous paragraph apply.
Tax Withholding. The Company will withhold applicable federal and state
income taxes and will require, when applicable, that participants pay to the
Company, in addition to any exercise price, amounts required for any such
withholding. The Compensation Committee has other rights and powers that it may
exercise to satisfy any withholding or tax due with respect to any amount
payable or shares issuable under the Amended Awards Plan. If the Compensation
Committee consent and other required conditions are met, participants may
satisfy all or part of such tax obligation by having the Company withhold
shares of Common Stock otherwise issuable under awards or by delivering
previously owned shares to the Company.
Vote Required
The 1996 Plan Proposal requires approval by the affirmative vote of the
holders of a majority of the shares of Common Stock represented at the meeting,
in person or by proxy. If vote is made by proxy and if no contrary
specification is indicated on the proxy card, the shares represented thereby
will be voted for approval of the 1996 Plan Proposal. Abstentions and non-voted
shares with respect to the 1996 Plan Proposal will not be counted in
determining whether the 1996 Plan Proposal receives the affirmative vote of a
majority of the shares present and entitled to vote at the meeting. If the 1996
Plan Proposal is not approved and adopted by the stockholders of the Company at
the Annual Meeting, the 1996 Plan Proposal will terminate and be of no force or
effect. In this event, the Existing Plan will continue in effect but the
Company's ability to grant new awards under the Existing Plan will be
constrained due to the limited number of shares of Common Stock that currently
remain available for awards under the Existing Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE
1996 PLAN PROPOSAL TO THE 1996 STOCK AWARDS PLAN
8
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
Except as otherwise noted, the following table sets forth certain information
as of February 28, 1999 as to the security ownership of those persons owning of
record or known to the Company to be the beneficial owner of more than five
percent of the voting securities of the Company and the security ownership of
equity securities of the Company by (i) each of the directors of the Company,
(ii) the director nominees, (iii) each of the executive officers named in the
Summary Compensation Table and (iv) all directors and executive officers as a
group. All information with respect to beneficial ownership has been furnished
by the respective director, director nominee, executive officer or five percent
beneficial owner, as the case may be. Unless otherwise indicated, the persons
named below have sole voting and investment power with respect to the number of
shares set forth opposite their names. Beneficial ownership of the Common Stock
referenced in the following table (including those shares of Common Stock which
were issuable pursuant to the exercise of options which vested within 60 days
of February 28, 1999) has been determined for this purpose in accordance with
the applicable rules and regulations promulgated under the Exchange Act. Except
as indicated below, the address for each such person is c/o Aksys, Ltd., Two
Marriott Drive, Lincolnshire, Illinois, 60069.
Directors, Executive Officers and 5% Stockholders
<TABLE>
<CAPTION>
Number of Percent of
Shares Class
--------- ----------
<S> <C> <C>
Coral Partners(1)......................................... 4,352,894 29.4
Suite 3510
60 South Sixth Street
Minneapolis, MN 55402
Sutter Hill Ventures(2)................................... 1,064,833 7.2
Suite A-200
755 Page Mill Road
Palo Alto, CA 94304
Lawrence H.N. Kinet(3).................................... 609,324 4.0
Rodney S. Kenley.......................................... 708,575 4.8
Bruce E. Dobsch........................................... 1,495 *
Richard B. Egen(4)........................................ 19,750 *
Peter H. McNerney(1)...................................... 4,423,351 29.8
K. Shan Padda(5).......................................... 7,500 *
W. Dekle Rountree, Jr.(6)................................. 52,500 *
Bernard R. Tresnowski(7).................................. 17,250 *
All directors and executive officers as a group (7
persons)(8).............................................. 5,839,745 37.7
</TABLE>
- --------
* Less than one percent.
(1) As reported on Schedule 13G filed with the Securities and Exchange
Commission. Amounts shown represent the aggregate number of shares held by
Coral Partners II, L.P. ("Coral Partners II") and Coral Partners IV, L.P.
("Coral Partners IV"). Peter H. McNerney, a director of the Company, Yuval
Almog and Linda L. Watchmaker are general partners of Coral Management
Partners II (which is the general partner of Coral Partners II) and thus
may be deemed to have beneficial ownership of the Common Stock held by
Coral Partners II. Messrs. McNerney and Almog are general partners of Coral
Management Partners IV (which is the general partner of Coral Partners IV)
and thus may be deemed to have beneficial ownership of the Common Stock
held by Coral Partners IV. Messrs. McNerney and Almog and Ms. Watchmaker
disclaim beneficial ownership of such shares of Common Stock held by Coral
Partners II and Coral Partners IV except to the extent of their pecuniary
interest in such shares. In addition, Mr. McNerney beneficially owns 70,457
shares of Common Stock which are not owned by Coral Partners II or Coral
Partners IV, including 15,000 shares of Common Stock issuable upon the
exercise of options.
(2) Amounts shown represent the number of shares held by Sutter Hill Ventures
of which it has sole voting and dispositive power, as reported on Schedule
13G filed with the Securities and Exchange Commission.
9
<PAGE>
(3) Includes 562,500 shares of Common Stock issuable upon the exercise of
options.
(4) Includes 12,750 shares of Common Stock issuable upon the exercise of
options.
(5) Represents 7,500 shares of Common Stock issuable upon the exercise of
options.
(6) Represents 52,500 shares of Common Stock issuable upon the exercise of
options.
(7) Includes 16,250 shares of Common Stock issuable upon the exercise of
options.
(8) Includes 666,500 shares of Common Stock issuable upon the exercise of
options.
COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation Table
The table below provides information relating to compensation for the Chief
Executive Officer and the other executive officers of the Company described
below (collectively, the "Named Executive Officers") for the indicated periods.
The amounts shown include compensation for services in all capacities that were
provided to the Company.
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
-------------------------------------- ------------
Other Annual Securities
Name and Principal Compensa- Underlying All Other
Position Year Salary($) Bonus($) tion($) Options(#) Compensation ($)
- ------------------ ---- --------- -------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Lawrence H.N. Kinet.... 1998 275,000 13,125 -0- -0- 835(1)
Chairman and Chief 1997 262,500 6,250 -0- -0- 402(1)
Executive Officer 1996 250,000 -0- -0- -0- 387(1)
Bruce E. Dobsch(2)..... 1998 39,109 -0- -0- 100,000 3,104(2)
Senior Vice President,
Research and
Development
Rodney S. Kenley....... 1998 175,000(3) -0- -0- -0- 875(1)
Vice President of
Business 1997 175,000 15,000 -0- -0- 875(1)
Development 1996 166,250 -0- -0- -0- 792(1)
</TABLE>
- --------
(1) Represents amount contributed by the Company to its 401(k) plan on behalf
of the Named Executive Officer.
(2) Mr. Dobsch joined the Company on October 12, 1998, at an annual salary of
$175,000. Other Compensation represents temporary living costs paid by the
Company on Mr. Dobsch's behalf.
(3) Mr. Kenley's annual base salary has remained at $175,000 since May 1996.
Stock Option Grants
The following table sets forth certain information with respect to options
granted to the Named Executive Officers during 1998.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Percent of Total
Number of Securities Options Granted
Underlying Options to Employees in Exercise Price Expiration Grant Date
Name Granted (#) fiscal 1998 (Per Share)(1) Date(2) Value(3)
- ---- -------------------- ---------------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Bruce E. Dobsch......... 100,000 36.3% $4.50 10/12/08 $226,000
Lawrence H.N. Kinet..... -0- -0- N/A N/A N/A
Rodney S. Kenley........ -0- -0- N/A N/A N/A
</TABLE>
- --------
(1) Options were granted at an exercise price equal to the fair market value of
the Company's Common Stock on the date of grant, as determined by the
Compensation Committee of the Board of Directors.
(2) Options granted to the Named Executive Officers are subject to vesting and,
accordingly, may expire before the dates indicated. Options generally vest
over a four year period.
(3) Calculation based on the Black-Scholes model.
10
<PAGE>
Stock Option Holdings
The following table sets forth information with respect to the Named
Executive Officers concerning the stock options held as of December 31, 1998.
Aggregated Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal In-the-Money Options at
Year-End (#) Fiscal Year-End ($)
------------------------- ----------------------------
Name Exercisable/Unexercisable Exercisable(1)/Unexercisable
- ---- ------------------------- ----------------------------
<S> <C> <C>
Lawrence H.N. Kinet...... 562,500 /-0- 2,334,544/-0-
Bruce E. Dobsch.......... -0-/100,000 -0-/-0-
Rodney S. Kenley(2)...... -0-/-0- -0-/-0-
</TABLE>
- --------
(1) The closing sale price of the Common Stock on the Nasdaq National Market on
December 31, 1998 was $4.313 per share. The value of such options at the
fiscal year end is calculated on the basis of the difference between the
respective option exercise price and $4.313 multiplied by the number of
shares of Common Stock underlying the option.
(2) In 1997, Mr. Kenley exercised all of his options, which were awarded prior
to 1997.
Severance Agreement
The Company has entered into severance, confidentiality and noncompetition
agreements with Messrs. Kinet, Dobsch and Kenley. The agreements provide for a
non-competition period of two years following the employee's resignation or
termination by the Company for cause or for one year following termination by
the Company without cause or due to disability. Severance payments are provided
for in the event of termination without cause or due to a disability. Such
severance payments equal the greater of $55,000 and the aggregate base salary
for the prior six months before termination in the case of Mr. Kenley and the
aggregate base salary for the prior six months before termination in the case
of Messrs. Kinet and Dobsch. Customary ownership of intellectual property and
confidentiality provisions are also contained in these agreements.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is responsible for establishing and administering
compensation plans for the Company's executive officers, reviewing executive
officer compensation levels and evaluating management performance. The members
of the Compensation Committee are Messrs. Egen, McNerney and Rountree. The
material set forth below is a report submitted by the Compensation Committee
regarding the Company's compensation policies and programs for executive
officers for fiscal year 1998.
Compensation Philosophy and Executive Compensation Objectives
The Company's management compensation program is designed to reward
outstanding performance and results. The Company's compensation philosophy and
program objectives are directed by two primary guiding principles. First, the
program is intended to provide fully competitive levels of compensation--at
expected levels of performance--in order to attract, motivate and retain
talented executives. Second, the program is intended to create an alignment of
interests between the Company's executives and stockholders such that a
significant portion of each executive's compensation is directly linked to
maximizing stockholder value.
In support of this philosophy, the executive compensation program is designed
to reward performance that is directly relevant to the Company's short-term and
long-term success. As such, the Company attempts to
11
<PAGE>
provide both short-term and long-term incentive compensation that varies based
on corporate and individual performance. To accomplish these objectives, the
Compensation Committee has structured the executive compensation program with
three primary underlying components: base salary, annual incentives and long-
term incentives (such as stock options). The following sections describe these
elements of compensation and discuss how each component relates to the
Company's overall compensation philosophy.
Base Salary Program
The Company's base salary program is based on a philosophy of providing base
pay levels that are competitive with other development stage companies in the
medical device industry. The Company periodically reviews its executive pay
levels to ensure consistency with similarly positioned companies in such
industry.
Annual salary adjustments are based on several factors: the general level of
market salary increases, individual performance and long-term value to the
Company, competitive base salary levels and the Company's overall results.
Annual Bonus
Annual bonuses are intended to (1) reward key employees based on Company and
individual performance, (2) motivate key employees and (3) provide pay-for-
performance cash compensation opportunities to participants. The criteria for
bonus payments to Messrs. Kinet, Dobsch and Kenley were based on the
achievement of the specific development and Company milestones established by
the Compensation Committee at the beginning of 1998.
Long-Term Incentives
Long-term incentives are designed to focus the efforts of key employees on
the long-term goals of the Company and to maximize total return to the
stockholders of the Company. The Committee has relied solely on stock option
awards to provide long-term incentive opportunities. Stock options align the
interests of key employees and stockholders by providing value to the key
employee through stock price appreciation only. Stock options issued to
employees generally have a ten-year term before expiration and are fully
exercisable within four years of the grant date. No additional stock options
were granted to Messrs. Kinet and Kenley in fiscal year 1998, while Mr. Dobsch
was granted 100,000 incentive stock options when he joined the Company on
October 12, 1998.
Fiscal 1998 Actions
The compensation for Messrs. Kinet, Dobsch and Kenley for fiscal 1998 was
determined in the manner described above and no particular quantitative
measures were used by the Compensation Committee in determining their
compensation except as so described.
In fiscal 1998 neither Mr. Kinet nor Mr. Kenley were granted any additional
stock option awards. Mr. Kenley's base salary in 1998 remained at the level set
in May 1996, and Mr. Kinet's base salary increased in 1998 from $262,500 to
$275,000 per annum. Also in 1998, Mr. Kinet was awarded a bonus of $13,125 for
successfully completing a joint development agreement and stock purchase
agreement with Teijin Limited of Osaka, Japan, which milestones were specified
by the Compensation Committee in 1997.
Compensation Committee
Richard B. Egen
Peter H. McNerney
W. Dekle Rountree, Jr.
12
<PAGE>
PERFORMANCE GRAPH
The following graph compares the Company's cumulative total stockholder
return since the Common Stock became publicly traded on May 17, 1996 with the
Nasdaq Total Return Index and an index of certain companies selected by the
Company as comparative to the Company in that each is or recently has been a
development stage manufacturer of medical devices. The graph assumes that the
value of the investment in the Company's Common Stock and each index was
$100.00 on May 17, 1996.
Comparison of the Company's Common Stock,
The Nasdaq Total Return Index and a Peer Group Index(/1/)
<TABLE>
<CAPTION>
May 17, December 31, December 31, December 31,
1996 1996 1997 1998
------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Aksys, Ltd....................... 100 54 36 27
Nasdaq Total Return Index........ 100 104 128 179
Peer Group Index................. 100 77 86 60
</TABLE>
- --------
(1) The companies selected to form the Company's industry peer group index are
Cardiac Pathways, CardioGenesis, Conceptus, Minntech, Novoste, Optical
Sensors, Sabratek and Urologix. The Company previously included
Endovascular Technologies, FemRx and Heartstream in its peer group index
but no longer does so due to the acquisition of those companies during
fiscal years 1998 and 1997. Total returns are based on weighted market
capitalization at May 17, 1996.
13
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
officers to file reports of ownership and changes in ownership of shares of the
Company's Common Stock with the Securities and Exchange Commission (the "SEC").
Directors and officers are required by SEC regulations to furnish the Company
with copies of all Section 16(a) reports they file. Based on its review of the
copies of such reports received by it, or written representations from certain
reporting persons that no Forms 5 were required for those persons, the Company
believes that, from January 1, 1998 through December 31, 1998, its directors
and officers complied with all applicable filing requirements.
INDEPENDENT AUDITORS
The Board of Directors has designated KPMG Peat Marwick LLP ("KPMG") to audit
the books and accounts of the Company for the year ending December 31, 1999. It
is anticipated that representatives of KPMG will be present at the Annual
Meeting for the purpose of making a statement, should they so desire, and
responding to stockholder questions.
SUBMISSION OF STOCKHOLDERS' PROPOSALS AND ADDITIONAL INFORMATION
Proposals of stockholders intended to be eligible for inclusion in the
Company's proxy statement and proxy card relating to the 2000 annual meeting of
stockholders of the Company must be received by the Company on or before the
close of business December 25, 1999. Such proposals should be submitted by
certified mail, return receipt requested.
The Company's Bylaws provide that a stockholder wishing to present a
nomination for election of a director or to bring any other matter before an
annual meeting of stockholders must give written notice to the Company's
Secretary not less than 60 days nor more than 90 days prior to the meeting and
that such notice must meet certain other requirements. Any stockholder
interested in making such a nomination or proposal should request a copy of the
Bylaws provisions from the Assistant Secretary of the Company.
The Company will furnish without charge to each person whose proxy is being
solicited, upon written request of any such person, a copy of the Annual Report
on Form 10-K of the Company for the fiscal year ended December 31, 1998, as
filed with the SEC, including the financial statements and schedules thereto.
Requests for copies of such Annual Report on Form 10-K should be directed to
the Assistant Secretary, Aksys, Ltd., Two Marriott Drive, Lincolnshire,
Illinois 60069.
14
<PAGE>
OTHER MATTERS
The Company will bear the costs of soliciting proxies from its stockholders.
In addition to the use of the mail, proxies may be solicited by the directors,
officers and employees of the Company by personal interview, telephone or
telegram. Such directors, officers and employees will not be additionally
compensated for such solicitation, but may be reimbursed for out-of-pocket
expenses incurred in connection therewith. Arrangements will also be made with
brokerage houses and other custodians, nominees and fiduciaries for the
forwarding of solicitation materials to the beneficial owners of Common Stock
held of record by such persons, and the Company will reimburse such brokerage
houses, custodians, nominees and fiduciaries for reasonable out-of-pocket
expenses incurred in connection therewith.
Discretionary Voting on Other Matters
The Board and management do not now intend to present, nor do they know of
any others who intend to present, any matters at the Annual Meeting other than
those disclosed in the notice of the meeting. Should any other matter requiring
a vote of the stockholders arise, however, the proxies in the enclosed form
confer upon the person or persons entitled to vote the shares represented by
such proxies discretionary authority to vote such shares on any such other
matter in accordance with their best judgment.
By Order of the Board of Directors
Steven A. Bourne
Assistant Secretary
March 15, 1999
IT IS IMPORTANT THAT THE PROXIES BE RETURNED PROMPTLY. EVEN IF YOU EXPECT TO
ATTEND THE ANNUAL MEETING, PLEASE PROMPTLY COMPLETE, SIGN, DATE AND RETURN THE
ENCLOSED PROXY CARD IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES.
15
<PAGE>
Exhibit A
AKSYS, LTD.
1996 STOCK AWARDS PLAN
SECTION 1. Purpose
The purpose of the Aksys, Ltd. 1996 Stock Awards Plan (the "Plan") is to
enable Aksys, Ltd., a Delaware corporation (the "Company"), and its
subsidiaries to attract, retain and motivate its directors and employees by
providing for or increasing the proprietary interests of such persons in the
Company. The Company believes the Plan will further identify the interests of
directors and employees with those of the Company's stockholders.
SECTION 2. Persons Eligible
Any officer, employee, consultant or advisor of the Company or its
subsidiaries, regardless of whether such person is also a director of the
Company or its subsidiaries (an "Employee"), shall be eligible to be
considered for the grant of Employee Awards (as defined below) under the Plan.
In addition, any director of the Company who is not an officer or employee of
the Company or any of its subsidiaries (a "Non-Employee Director") shall be
eligible to receive a Director Option (as defined below) as set forth in this
Plan.
SECTION 3. Employee Awards
(a) The Committee (as defined below) on behalf of the Company is authorized
under the Plan to enter into any type of arrangement with an Employee that is
consistent with the provisions of the Plan and that by its terms involves the
issuance or potential issuance of (i) shares of Common Stock, par value $0.01
per share, of the Company (the "Common Stock") or (ii) a "Derivative Security"
as such term is defined in Rule 16a-1 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") with an exercise or
conversion right at a price related to Common Stock or with a value derived
from the value of the shares of Common Stock. The entering into of any such
arrangement is referred to herein as the grant of an "Employee Award."
(b) Employee Awards are not restricted to any specified form or structure
and may include, without limitation, sales or bonuses of stock, restricted
stock, stock options, reload stock options, stock purchase warrants, other
rights to acquire stock, securities convertible into or redeemable for stock,
stock appreciation rights, limited stock appreciation rights, phantom stock,
dividend equivalents, performance units or performance shares, and an Employee
Award may consist of one or more such security or benefit.
(c) Subject to the provisions of the Plan, the Committee, in its sole and
absolute discretion, shall determine all of the terms and conditions of each
Employee Award granted under the Plan, which terms and conditions may include
without limitation:
(i) a provision permitting the recipient of such Employee Award to pay
the purchase price of the Common Stock or other property issuable pursuant
to such Employee Award, or the tax withholding obligation of such Employee
with respect to the Employee Award, in whole or in part, by any one or more
of the following:
(A) the delivery of previously owned shares of Common Stock or other
property,
(B) a reduction in the amount of Common Stock or other property
otherwise issuable pursuant to such Employee Award, or
(C) the delivery of a promissory note, the terms and conditions of
which shall be determined by the Committee;
(ii) a provision conditioning or accelerating the receipt of benefits
pursuant to such Employee Award either automatically or in the discretion
of the Committee upon the occurrence of specified events, including
A-1
<PAGE>
a change of control of the Company, an acquisition of a specified
percentage of the voting power of the Company, the dissolution or
liquidation of the Company, a sale of substantially all of the property and
assets of the Company or an event of the type described in Section 7
hereof;
(iii) provisions with respect to vesting and exercisability; or
(iv) provisions required in order for such Employee Award to qualify as
an incentive stock option under Section 422 of the Internal Revenue Code
(an "Incentive Stock Option").
(d) Notwithstanding any other provision of the Plan, no one Employee shall be
granted options or other Employee Awards with respect to more than 100,000
shares of Common Stock in any one calendar year; provided, however, that this
limitation shall not apply if it is not required in order for the compensation
attributable to Employee Awards hereunder to qualify as performance-based
compensation as described in Section 162(m) of the Internal Revenue Code
("Performance-Based Compensation"). The limitation set forth in this Section
3(d) shall be subject to adjustment as provided in Section 7 hereof, but only
to the extent such adjustment would not affect the status of compensation
attributable to Employee Awards hereunder as Performance-Based Compensation.
SECTION 4. Non-Employee Director Awards
Options granted pursuant to this Section 4 shall be referred to as "Director
Options."
(a) Any person who first becomes a Non-Employee Director on or after the
Effective Date shall automatically be granted an option entitling such director
to purchase 5,000 shares of Common Stock on the date on which such person first
becomes a Non-Employee Director, which number of shares gives effect to (and
shall not be adjusted for) the 3-for-2 stock split of the Common Stock that
occurred on the Effective Date, but shall be subject to adjustment pursuant to
Section 7 hereof after the Effective Date. The exercise price for each such
share shall be the last reported sale price of the Common Stock on the
principal securities exchange or other trading market on which shares of the
Common Stock are then listed on the date of grant or, if the Common Stock is at
such time not traded on an exchange or market, the fair market value of a share
of Common Stock on such date as determined by the Committee.
(b) On the later of (i) June 30 of each year and (ii) the day next following
each annual meeting of stockholders of the Company (such date, the
"Determination Date"), commencing in 1996, each person who is a Non-Employee
Director on such Determination Date shall automatically be granted an option
entitling such director to purchase a number of shares of Common Stock equal to
(x) 1,250 multiplied by (y) the number of calendar quarters in the preceding
twelve months (rounded up to the nearest whole number of calendar quarters) in
which such person served as a Non-Employee Director, up to a maximum of four
quarters (as such number of shares may be adjusted pursuant to Section 7 hereof
after the Effective Date). The exercise price for each such share shall be the
last reported sale price of the Common Stock on the principal securities
exchange or other trading market on which shares of the Common Stock are then
listed on such Determination Date (or, if the Determination Date is not a
trading day on such exchange or other trading market, the last trading day
immediately preceding such date) or, if the Common Stock is not listed or
quoted on a securities exchange or other trading market, the fair market value
of a share of Common Stock on such date as determined by the Committee.
(c) Each Director Option shall vest and become exercisable immediately upon
grant.
(d) Each Director Option shall expire and not be exercisable after the first
to occur of (i) the tenth anniversary of the date of grant of such option and
(ii) three months after the optionee ceases to be a director of the Company (12
months if the optionee ceases to be a director of the Company due to death or
to total and permanent disability as determined by the Board of Directors of
the Company (the "Board") in good faith).
A-2
<PAGE>
(e) The provisions of this Section 4 that relate to the amount, price and
timing of Director Options shall not be amended more than once every six
months, except as permitted by Rule 16b-3(c)(2)(ii)(B) under the Exchange Act.
SECTION 5. Stock Subject to Plan
(a) At any time, the aggregate number of shares of Common Stock issued and
issuable pursuant to all Employee Awards granted under the Plan shall not
exceed 1,650,000, subject to adjustment as provided in Section 7 hereof. For
purposes of this Section 5(a), the aggregate number of shares of Common Stock
issued and issuable pursuant to Employee Awards granted under the Plan shall at
any time be deemed to be equal to the sum of the number of shares of Common
Stock which have been issued pursuant to Employee Awards and which have not
been repurchased by the Company and the number of shares which are or may be
issuable at or after such time pursuant to Employee Awards.
(b) At any time, the aggregate number of shares of Common Stock issued and
issuable pursuant to all Director Options granted under the Plan shall not
exceed 125,000, subject to adjustment as provided in Section 7 hereof. For
purposes of this Section 5(b), the aggregate number of shares of Common Stock
issued and issuable pursuant to Director Options granted under the Plan shall
at any time be deemed to be equal to the sum of the number of shares of Common
Stock which have been issued pursuant to Director Options and which have not
been repurchased by the Company and the number of shares which are or may be
issuable at or after such time pursuant to Director Options.
(c) Shares of Common Stock issued pursuant to the Plan may be authorized but
unissued shares, treasury shares, reacquired shares or any combination thereof.
SECTION 6. Administration
(a) The Plan shall be administered by a committee (the "Committee") of the
Board consisting of two or more directors, each of whom is a "disinterested
person" (as such term is defined in Rule 16b-3 under the Exchange Act);
provided that to the extent permitted at any time under Rule 16b-3 or any
successor rule and under Section 162(m) of the Internal Revenue Code or any
successor statutory provision, and any implementing regulations, without
adversely affecting the ability of the Plan to comply with the conditions for
exemption from Section 16 of the Exchange Act provided by Rule 16b-3 and the
exemption from the limitations on the deductibility of certain executive
compensation provided by Section 162(m), the Committee may delegate the
administration of the Plan in whole or in part, on such terms and conditions,
to such other person or persons as it may determine in its discretion, which
persons may be officers or employees of the Company or third parties (each such
person, an "Authorized Delegate").
(b) Subject to the provisions of the Plan, the Committee (or its Authorized
Delegate) shall be authorized and empowered to do all things necessary or
desirable in connection with the administration of the Plan, including the
following:
(i) adopt, amend and rescind rules and regulations relating to the Plan;
(ii) determine which persons meet the requirements of Section 2 hereof
for eligibility under the Plan (and, with respect to employees, which of
such persons, if any, shall be granted Employee Awards);
(iii) determine whether, and the extent to which adjustments are required
pursuant to Section 7 hereof;
(iv) interpret and construe the Plan and the terms and conditions of any
Employee Award or Director Option granted hereunder; and
(v) correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any Employee Award or Director Option in
the manner and to the extent the Committee deems necessary or desirable to
carry it into effect.
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<PAGE>
(c) Any decision of the Committee (or any Authorized Delegate) in the
interpretation and administration of the Plan shall lie within its sole and
absolute discretion and shall be final, conclusive and binding on all parties
concerned. The Committee may act only by a majority of its members in office,
except that the members thereof may authorize any one or more of their members
or any Authorized Delegate to execute and deliver documents or to take any
other ministerial action on behalf of the Committee with respect to Employee
Awards and Director Options made or to be made to Plan participants. No member
of the Committee or any Authorized Delegate shall be liable for anything done
or omitted to be done by such member or Authorized Delegate, by any other
member of the Committee or by any other Authorized Delegate in connection with
the performance of duties under the Plan, except for his or her own willful
misconduct or as expressly provided by statute. Determinations to be made by
the Committee under the Plan may be made by Authorized Delegates.
SECTION 7. Adjustments
If the outstanding securities of the class then subject to the Plan
(initially, the Common Stock) are increased, decreased or exchanged for or
converted into cash, property or a different number or kind of securities, or
if cash, property or securities are distributed in respect of such outstanding
securities, in either case as a result of a reorganization, merger,
consolidation, recapitalization, restructuring, reclassification, dividend
(other than a regular quarterly or annual cash dividend) or other distribution,
stock split, reverse stock split or the like, or if substantially all of the
property and assets of the Company are sold, then, unless the terms of such
transaction shall provide otherwise, the Committee shall make appropriate and
proportionate adjustments in (a) the price and number and type of shares or
other securities or cash or other property that may be acquired pursuant to
Employee Awards and Director Options theretofore granted under the Plan, (b)
the maximum number and type of shares or other securities that may be issued
pursuant to Employee Awards and Director Options thereafter granted under the
Plan, (c) to the extent permitted under Section 3(d) hereof, the maximum number
of shares of Common Stock with respect to which Employee Awards may be granted
to any Employee during any calendar year and (d) the number of shares of Common
Stock to be awarded to Non-Employee Directors pursuant to Director Options
under Section 4 hereof; provided, however, that no adjustment shall be made to
the number of shares of Common Stock that may be acquired pursuant to
outstanding Incentive Stock Options or the maximum number of shares of Common
Stock with respect to which Incentive Stock Options may be granted under the
Plan to the extent such adjustment would result in such options being treated
as other than Incentive Stock Options; and provided further that no such
adjustment shall be made to the extent the Committee determines that such
adjustment would result in the disallowance of a federal income tax deduction
for compensation attributable to awards hereunder by causing such compensation
to be other than Performance-Based Compensation.
SECTION 8. Amendment and Termination
The Board may amend (subject to Section 4(d) hereof) or terminate the Plan at
any time and in any manner; provided however, that no such amendment or
termination shall deprive a participant of an Employee Award or Director Option
previously granted under the Plan of any of his or her rights thereunder,
without the consent of such participant.
SECTION 9. Effectiveness
The Plan shall be submitted to the stockholders of the Company for their
approval and adoption in accordance with applicable law and Rule 16b-3(b) under
the Exchange Act and Section 162(m) under the Internal Revenue Code. The Plan
shall become effective on April 23, 1996 (the "Effective Date"); provided, that
the Plan shall cease to be effective and any Employee Awards and Director
Options granted hereunder shall become null and void if the Plan is not
approved by the Company's stockholders prior to or within 12 months after April
23, 1996.
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<PAGE>
SECTION 10. Miscellaneous Provisions
(a) Neither the Plan nor any action taken hereunder shall be construed as
giving any Employee or other person any right to continue to be employed by the
Company or any of its subsidiaries or a director the right to continue in such
capacity.
(b) Except as may be approved by the Committee where such approval shall not
adversely affect compliance of the Plan with Rule 16b-3 under the Exchange Act,
no rights and interests under the Plan may be assigned or transferred,
hypothecated or encumbered in whole or in part either directly or by operation
of law or otherwise including, but not by way of limitation, execution, levy,
garnishment, attachment, pledge, bankruptcy or in any other manner, other than
by will or the laws of descent and distribution.
(c) It is the intent of the Company that the Plan comply in all respects with
Rule 16b-3 under the Exchange Act and Section 162(m) of the Internal Revenue
Code, that any ambiguities or inconsistencies in construction of the Plan be
interpreted to give effect to such intention and that if any provision of the
Plan is found not to be in compliance with Rule 16b-3 or Section 162(m), such
provision shall be deemed null and void to the extent required to permit the
Plan to comply with Rule 16b-3 or Section 162(m), as the case may be.
(d) The Company shall have the right to deduct from any payment made under
the Plan any federal, state, local or foreign income or other taxes required by
law to be withheld with respect to such payment. It shall be a condition to the
obligation of the Company to issue shares of Common Stock, other securities or
property or any combination thereof, upon exercise, settlement or payment of
any award under the Plan, that the recipient of an award (or any beneficiary or
person entitled to act) pay to the Company, upon its demand, such amount as may
be required by the Company for the purpose of satisfying any liability to
withhold such taxes.
(e) By accepting any award or other benefit under the Plan, each recipient of
an award and each person claiming under or through him or her shall be
conclusively deemed to have indicated his or her acceptance and ratification
of, and consent to, any action taken under the Plan by the Company, the Board
or the Committee or its delegates.
(f) The validity, construction, interpretation, administration and effect of
the Plan, and of its rules and regulations, and rights relating to the Plan and
to awards granted under the Plan, shall be governed by the substantive laws,
but not the choice of law rules, of the State of Delaware.
* * * * *
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<PAGE>
[X] Please mark your votes as in this example.
This proxy will be voted as specified. If a choice is not specified, this
proxy will be voted FOR the nominees for Class III Directors and FOR
proposal number 2.
I Will Attend the Annual Meeting ____
Change of Address/Comments on Reverse Side ____
1. Election of Directors (see reverse)
FOR ____
WITHHELD ____
For all nominees listed hereon, except vote withheld for the following
nominee(s):
---------------------------------
2. Approval of an increase of 875,000 in the shares of Aksys Common Stock
authorized for issuance under the Aksys, Ltd. 1996 Stock Awards Plan
FOR ____
AGAINST ____
ABSTAIN ____
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting or any adjournment
or postponement thereof.
This proxy should be dated, signed by the stockholder exactly as the
stockholder's name appears hereon and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity should so indicate.
Please sign exactly as name(s) appear hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
-------------------------------------
-------------------------------------
Signature(s) Date
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<PAGE>
AKSYS, LTD.
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 22, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Lawrence H.N. Kinet and
Steven A. Bourne, and each or either of them, proxies of the undersigned, with
full power of substitution, to vote all of the shares of Aksys, Ltd., a Delaware
Company (the "Company") which the undersigned may be entitled to vote at the
Annual Meeting of Stockholders of the Company to be held at the Marriott
Lincolnshire Resort located at Ten Marriott Drive, Lincolnshire, Illinois on
Thursday, April 22, 1999 at 2:00 p.m. or at any adjournment or postponement
thereof, as shown on the voting side of this card.
Election of All Nominees for Class III Directors (change of address/comments)
Listed Hereon
----------------------------
Nominees: Peter H. McNerney ----------------------------
Bernard R. Tresnowski
----------------------------
----------------------------
(If you have written in the
above space, please mark the
corresponding box on the
reverse side of this card)
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 above described proxies cannot
vote your shares unless you sign and return this card.
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