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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
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 (S) 240.14a-11(c) or (S) 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:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
<PAGE>
AKSYS, LTD.
Two Marriott Drive
Lincolnshire, Illinois 60069
(847) 229-2020
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
April 20, 2000
The Annual Meeting of Stockholders of Aksys, Ltd., a Delaware corporation
(the "Company"), will be held on Thursday, April 20, 2000, at 2:00 p.m. local
time (the "Annual Meeting") at the Marriott Lincolnshire Resort located at Ten
Marriott Drive, Lincolnshire, Illinois, for the purpose of:
(1) Electing one Class I Director to serve until the annual meeting of
stockholders in 2003 or until his successor is duly elected and qualified
or until his earlier removal or resignation; and
(2) 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 2, 2000, as
the record date for the determination of stockholders entitled to notice of,
and to vote at, the Annual Meeting or any adjournment or postponement thereof.
Our 1999 Annual Report to stockholders, which includes audited financial
statements, is enclosed.
By Order of the Board of Directors
/s/ Steven A. Bourne
Steven A. Bourne
Assistant Secretary
March 23, 2000
Your vote is important. 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
March 23, 2000
Dear Aksys stockholder:
You are cordially invited to attend the 2000 Annual Meeting of Stockholders
of Aksys, Ltd. The meeting will be held on Thursday, April 20, 2000, at 2:00
p.m. local time at the Marriott Lincolnshire Resort located at Ten Marriott
Drive, Lincolnshire, Illinois.
The Notice of Annual Meeting and Proxy Statement accompanying this letter
describe the business to be dealt with at the meeting. At the conclusion of
the formal part of 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 independent
auditors, will be present to discuss the affairs of Aksys and answer any
questions you may have.
Enclosed is our Annual Report for the year ended December 31, 1999, and a
2000 Proxy Statement and 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 your continuing support and I look forward to seeing you on
April 20.
Sincerely,
/s/ William C. Dow
William C. Dow
President and Chief Executive
Officer
<PAGE>
AKSYS, LTD.
Two Marriott Drive
Lincolnshire, Illinois 60069
(847) 229-2020
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON
APRIL 20, 2000
This Proxy Statement contains information related to the annual meeting of
stockholders of Aksys, Ltd., a Delaware corporation (the "Company"), that will
be held on Thursday, April 20, 2000 at 2:00 p.m. local time, at the Marriott
Lincolnshire Resort (the "Annual Meeting"). The enclosed proxy is solicited by
the Company's Board of Directors. The proxy materials relating to the Annual
Meeting are first being mailed to stockholders entitled to vote at the meeting
on or about March 23, 2000.
All outstanding shares of the Company's common stock (the "Common Stock")
represented by properly executed and unrevoked proxies received in time for
the meeting will be voted as instructed in the accompanying proxy card 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 nominee indicated below. 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 of revocation 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 2, 2000 (the "Record Date") will be entitled to vote at the Annual
Meeting. On such date, the Company had 15,236,587 issued and outstanding
shares of Common Stock held by approximately 4,800 record holders. A list of
our stockholders will be available for examination by stockholders of the
Company, for any purpose germane to the Annual Meeting, at our 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 will determine
the presence of a quorum and 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 are elected by a majority vote, and as a result 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 the Class I director nominee.
Stockholders have no right to cumulative voting as to any matter, including
the election of Directors. A properly executed proxy marked "WITHHOLD," a
"broker non-vote," or an abstention will have the effect of a vote against the
nominee listed below. For any other matters, except as required by law, the
affirmative vote of the holders of a majority of the shares of Common Stock
represented in person or by proxy and entitled to vote on the matter will be
required for approval. Abstentions 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 presently consists of six directors divided into
three classes, with each class serving a three-year term. The stockholders
elect approximately one-third of the Board of Directors each year. Mr. K. Shan
Padda has served as a director of the Company since February 1998, but has
decided not to stand for
1
<PAGE>
re-election at the Annual Meeting. The Board would like to thank Mr. Padda for
his services. Effective after the Annual Meeting, the Board of Directors will
be comprised of five directors. The Board of Directors has nominated and
recommends the election of the director named below to serve a three-year term
as a Class I Director or until his successor is elected and qualified or until
his earlier removal or resignation. If the nominee becomes unavailable to
serve for any reason or should a vacancy occur before the Annual Meeting
(which events are not anticipated), the Board may substitute another person as
a nominee or may increase or decrease the number of nominees to such extent as
they shall deem advisable. In that case, the persons named as proxies will
vote for the substitute nominee designated by the Board.
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 and Board committee meetings. However, under our 1996 Stock
Awards Plan, each newly elected non-employee director receives an option to
purchase 5,000 shares of Common Stock. Also, on the later of June 30 of each
year and the day next following each annual meeting of stockholders of the
Company, each non-employee director receives an option to purchase a number of
shares of Common Stock equal to (i) 1,250 multiplied by (ii) the number of
calendar quarters in the preceding twelve months in which such director served
the Company. These option grants vest and become exercisable immediately upon
grant, permitting the holder to purchase shares at their fair market value on
the date of grant, which was $5.8125 in the case of annual options granted in
1999. Unless earlier terminated, forfeited or surrendered pursuant to the
plan, each option granted will expire on the tenth anniversary date of the
grant.
Election of Directors
For Term Expiring at 2003 Annual Meeting
Class I
Richard B. Egen, 61 Director since November 1997
Richard B. Egen has been Chairman of the Board of Directors since May 1999.
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 was 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.
Continuing Directors
For Term Expiring at 2001 Annual Meeting
Class II
William C. Dow, 53 Director since September 1999
William C. Dow was appointed President and Chief Executive Officer and a
director of the Company in September 1999. From August 1997 until joining the
Company in September 1999, he served as President and Chief Executive Officer
of PLC Systems Inc., a manufacturer of lasers used in cardiac surgery. From
1993 to 1997, he served as President and Chief Executive Officer of Deknatel
Snowden Pencer Worldwide, Inc., a $100 million medical device manufacturer
that became a manufacturing and marketing subsidiary of Genzyme Corporation in
1996. Mr. Dow has over 25 years of experience in the medical device and
service industry having held various positions in sales, marketing,
distribution and general management with Griffith Micro Science, Kendall,
Terumo and American Hospital Supply. Mr. Dow is a graduate of the United
States Naval Academy with a Bachelor of Science in Engineering and served as
both a pilot and a Supply Corps officer in the U.S. Navy. Mr. Dow serves as a
director of PLC Systems Inc.
2
<PAGE>
W. Dekle Rountree, Jr., 58 Director since April 1993
From April 1993 until his retirement in July 1998, W. Dekle Rountree, Jr.
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.
Continuing Directors
For Term Expiring at 2002 Annual Meeting
Class III
Peter H. McNerney, 49 Director since April 1993
Since July 1992, Mr. Peter H. 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
Biomira, Inc. and Cerus Corporation.
Bernard R. Tresnowski, 67 Director since April 1996
Bernard R. Tresnowski served from December 1981 until his retirement in
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 is a director of Alexian Brothers
Medical Center and the Medic Alert Foundation.
Committees and Directors' Meetings
The Board of Directors has two standing committees: the Audit Committee and
the Compensation Committee. The Company does not have a standing nominating
committee or other committee performing similar functions. 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 Company's Bylaws, however, provide a procedure
for stockholders to recommend candidates for director at an annual meeting.
For more information see "Stockholder Proposals and Nominations" (Page 11).
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 administering the stock option
and benefit plans.
The Audit Committee, which currently consists of Messrs. McNerney, Padda
and Tresnowski, is responsible for selecting (or at the election of the Audit
Committee, recommending to the Board) the independent auditors of the Company,
overseeing the audit and non-audit activities of both the independent auditors
and the Company's internal audit staff, evaluating the independent auditors,
and reviewing the scope of the annual audit with management and the
independent auditors.
The Board of Directors held 8 meetings during 1999. The Audit Committee
held 1 meeting and the Compensation Committee held 8 meetings during 1999.
Each of the directors attended at least 75% of the meetings of the Board and
the committees on which they served, except Mr. Padda attended four Board
meetings.
3
<PAGE>
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 (the
"Agreement") with one of its non-employee directors, Richard B. Egen. Mr. Egen
performed certain strategic planning work for the Company, and during 1999
devoted approximately four days per month to the consulting arrangement. As
compensation for his services, Mr. Egen received $1,000 per day for work
performed, plus stock options related to the number of workdays devoted to the
Company. Options are immediately vested and exercisable, and range from 500 to
1,000 options per day of consulting. For the year ended December 31, 1999, Mr.
Egen received from the Company $44,500 and fully vested options for 29,750
shares. The Agreement expired on December 31, 1999.
4
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
Except as otherwise noted, the following table sets forth certain
information as of March 2, 2000, 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 nominee, (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 vest within 60 days of March 2, 2000) has been determined for
this purpose in accordance with the applicable rules and regulations
promulgated under the Securities Exchange Act of 1934 (the "Exchange Act").
Except as indicated below, the address for each such person is c/o Aksys,
Ltd., Two Marriott Drive, Lincolnshire, Illinois, 60069.
<TABLE>
<CAPTION>
Name of Beneficial Owner Beneficially Owned Percentage Owned(/1/)
- ------------------------ ------------------ ----------------
<S> <C> <C>
Coral Partners(/2/)................... 4,352,894 28.6%
Suite 3510
60 South Sixth Street
Minneapolis, MN 55402
Sutter Hill Ventures(/3/)............. 1,064,833 7.0%
Suite A-200
755 Page Mill Road
Palo Alto, CA 94304
William C. Dow(/4/)................... 56,250 *
Lawrence H.N. Kinet(/5/).............. 520,716 3.3%
Bruce E. Dobsch(/6/).................. 82,292 *
Richard B. Egen(/7/).................. 54,500 *
Peter H. McNerney(/2/)................ 4,428,351 29.0%
K. Shan Padda(/8/).................... 12,500 *
W. Dekle Rountree, Jr.(/9/)........... 57,500 *
Bernard R. Tresnowski(/10/)........... 22,250 *
All directors and executive officers
as a group (8 persons)(/11/)......... 5,234,359 32.8%
</TABLE>
- --------
*Less than one percent of the Issued and Outstanding Shares of Common Stock of
the Company.
(1) Based upon the number of shares of Common Stock outstanding and entitled
to be voted at the Annual Meeting as of the Record Date.
(2) Based on a Schedule 13G filed with the Securities and Exchange Commission
on February 10, 2000. 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 75,457 shares of Common Stock which are not
owned by Coral Partners II or Coral Partners IV, including 20,000 shares
of Common Stock subject to options exercisable within 60 days.
5
<PAGE>
(3) As reported on a Schedule 13G filed with the Securities and Exchange
Commission on February 14, 2000.
(4) Represents 56,250 shares of Common Stock subject to options exercisable
within 60 days.
(5) Includes 448,800 shares of Common Stock subject to options exercisable
within 60 days.
(6) Includes 75,000 shares of Common Stock subject to options exercisable
within 60 days.
(7) Includes 47,500 shares of Common Stock subject to options exercisable
within 60 days.
(8) Represents 12,500 shares of Common Stock subject to options exercisable
within 60 days.
(9) Includes 20,000 shares of Common Stock subject to options exercisable
within 60 days.
(10) Includes 21,250 shares of Common Stock subject to options exercisable
within 60 days.
(11) Includes 701,300 shares of Common Stock subject to options exercisable
within 60 days.
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
---------------------------------- ------------
Securities
Name and Principal Salary Bonus Other Annual Underlying All Other
Position Year ($) ($) Compensation ($) Options (#) Compensation ($)
- ------------------ ---- ------ -------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
William C. Dow(/1/)..... 1999 $ 73,864 $110,000 -0- 450,000 $ 14,130
President and Chief
Executive Officer
Bruce E. Dobsch(/2/).... 1999 $199,387 $ 80,000 -0- 175,000 $ 52,711
Executive Vice
President, 1998 $ 39,109 -0- -0- 100,000 $ 3,104
Chief Technical Officer
Lawrence H.N.
Kinet(/3/)............. 1999 $175,000 -0- -0- -0- $140,033
Former President and 1998 $275,000 $ 13,125 -0- -0- $ 835
Chief Executive Officer 1997 $262,500 $ 6,250 -0- -0- $ 402
</TABLE>
- --------
(1) Mr. Dow joined Aksys in September 1999 at an annual salary of $300,000.
Effective January 1, 2000, his base salary was increased to $310,000.
During 1999, Mr. Dow received a signing bonus of $50,000 and an additional
guaranteed bonus of $60,000. Other compensation of $14,130 represents
reimbursement of relocation costs.
(2) Mr. Dobsch joined the Company on October 12, 1998, at an annual salary of
$175,000. Effective February 1, 1999, his base salary was increased to
$200,000. Other compensation represents temporary living costs paid by the
Company on Mr. Dobsch's behalf. In January 1999, Mr. Dobsch's previously
awarded options to purchase 100,000 shares of Common Stock were replaced
with options to purchase 175,000 shares. All options awarded to Mr. Dobsch
had a term of ten years and were granted at fair market value at the time
of grants ($4.50 for options awarded in October 1998 and $4.75 for options
awarded in January 1999). Certain of these options vest over a four-year
period and others, subject to accelerated vesting upon achievement of
development milestones, vest over a nine-year period. The 1999 option
grants to Mr. Dobsch, including the replacement options, were intended to
further incentivize him as a key executive and to align his interests with
those of the stockholders.
(3) Mr. Kinet served as President and Chief Executive Officer until September
1999, at an annual base salary of $275,000. At the time of his separation
from the Company, Mr. Kinet received a lump-sum severance payment of
$137,500 and health insurance premiums that the Company paid on his behalf
($2,120), which is included in Other Compensation for 1999. Also included
in Other Compensation is the amount
6
<PAGE>
contributed by the Company to the 401(k) account of Mr. Kinet. In addition,
Mr. Kinet will continue to serve as a consultant to the Company under a
consulting agreement that expires in September 2001. Mr. Kinet's remaining
stock options will expire if not exercised prior to September 2001.
Stock Option Grants
The following table sets forth certain information with respect to stock
options granted to the Named Executive Officers during the fiscal year ended
December 31, 1999.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------
Percent of
Total
Options
Number of Granted to
Securities Employees
Underlying in
Options Fiscal Exercise Price Expiration Grant Date
Name Granted (#) 1999 (Per Share) (1) Date (2) Value (3)
- ---- ----------- ---------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
William C. Dow.......... 450,000 47.6% $5.313 10/4/09 $1,223,633
Bruce E. Dobsch......... 175,000(4) 18.5% $ 4.75 1/13/09 $ 425,432
Lawrence H.N. Kinet..... -0- -0- -- -- --
</TABLE>
- --------
(1) Options were granted at an exercise price equal to the closing sales price
of the Company's Common Stock on the date of grant on the Nasdaq National
Market.
(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) The estimated present value at grant date of options granted during fiscal
1999 has been calculated using the Black-Scholes options pricing model,
based upon the following assumptions: estimated time until exercise of
five years; a risk-free interest rate of 6.2%; a volatility rate of 50%;
and an expected dividend yield of 0%. The approach used in developing the
assumptions upon which the Black-Scholes valuation was done is consistent
with the requirements of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation."
(4) See Note 2 to the Summary Compensation Table above.
Stock Option Holdings
The following table sets forth information with respect to the Named
Executive Officers concerning stock options held as of December 31, 1999.
Aggregated Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at at Fiscal Year-
Fiscal Year-End (#) End ($)(1)
---------------------- --------------------
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
- ---- ---------------------- --------------------
<S> <C> <C>
William C. Dow...................... -0-/ 450,000 -0-/-0-
Bruce E. Dobsch..................... 50,000/125,000 $6,250/$15,625
Lawrence H.N. Kinet................. 448,800/-0- $2,113,085/-0-
</TABLE>
- --------
(1) Options are considered "in the money" if the fair market value of the
underlying securities exceeds the exercise price of the options. The year-
end values represent the difference between the fair market value of the
common stock subject to the options (the stock's closing price as reported
on the Nasdaq National Market was $4.875 on December 31, 1999), and the
exercise price of the options. Option exercise prices for Messrs. Dow,
Dobsch and Kinet are $5.313, $4.75 and $0.1667, respectively.
7
<PAGE>
Severance Agreements
The Company has entered into a severance, confidentiality and
noncompetition agreement with Messrs. Dow and Dobsch. The agreements provide
for a non-competition period of two years following 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 aggregate base salary for the prior six
months before termination in the case of Mr. Dobsch and the aggregate base
salary for the prior twelve months before termination in the case of Mr. Dow.
Customary ownership of intellectual property and confidentiality provisions
are also contained in these agreements.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The following Compensation Committee Report on Executive Compensation does
not constitute soliciting material and should not be deemed filed or
incorporated by reference into any other Company filing under Securities Act
of 1933 or the Securities Exchange Act of 1934, except to the extent
specifically incorporated. The material set forth below is a report submitted
by the Compensation Committee regarding compensation policies and programs for
executive officers for fiscal year 1999.
Compensation Philosophy and Executive Compensation Objectives
The management compensation program is designed to reward outstanding
performance and results. The 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 executives and stockholders such that a significant portion of
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 short-term and
long-term success. As such, the Company attempts to 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 overall
compensation philosophy.
Base Salary Program
The 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
provided 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 are based on the achievement of the specific development
and Company milestones established by the Compensation Committee at the
beginning of fiscal 1999.
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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. Mr. Dow was awarded 450,000
options upon joining the Company in 1999.
Fiscal 1999 Actions
The compensation for Messrs. Dobsch and Kinet for fiscal 1999 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 1999, Mr. Dobsch was awarded an incremental 75,000 incentive
stock options and Mr. Kinet was not granted any additional stock option
awards. Mr. Dobsch's base salary in 1999 was raised from $175,000 to $200,000,
Mr. Kinet's 1999 base salary remained at the same level established in 1998,
or $275,000 per annum. Also in 1999, Mr. Dobsch received bonuses totaling
$80,000 for achieving agreed-upon objectives.
Compensation of Mr. Dow
In an effort to attract Mr. Dow as the Company's new Chief Executive
Officer, the Committee offered him a $300,000 starting base salary and
guaranteed 1999 bonus of $60,000, awarded him incentive stock options to
purchase 450,000 shares of Common Stock, and paid him a $50,000 signing bonus.
The compensation for Mr. Dow, who became the Chief Executive Officer in
September 1999, was primarily established through negotiation and the
Committee's consideration of various factors, including the Committee's
understanding of competitive compensation for similarly situated executives in
the Company's industry.
Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code generally disallows deductions
to public companies for executive compensation in excess of $1 million to the
chief executive officer and other named executive officers. The Company's
policy is to comply with the requirements of Section 162(m) and maintain
deductibility for all executive compensation, except in circumstances where
the Committee concludes on an informed basis, in good faith, and with the
honest belief that it is in the best interest of the Company and the
stockholders to take actions with regard to the payment of executive
compensation which do not qualify for tax deductibility. In fiscal 1999, the
Company did not pay compensation to any executive that was subject to Section
162(m).
Compensation Committee
Richard B. Egen
Peter H. McNerney
W. Dekle Rountree, Jr.
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PERFORMANCE GRAPH
The following graph compares our 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 Common Stock and each index was $100.00 on May 17, 1996.
Comparison of Our Common Stock,
The Nasdaq Total Return Index and a Peer Group Index (1)
<TABLE>
<CAPTION>
5/17/96 12/31/96 12/31/97 12/31/98 12/31/99
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Aksys, Ltd....................... 100 54 36 27 30
Nasdaq Total Return Index........ 100 104 128 179 324
Peer Group Index................. 100 85 104 74 38
</TABLE>
- --------
(1) The companies selected to form the Company's industry peer group index are
Conceptus, Minntech, Novoste, Optical Sensors, Sabratek and Urologix. The
Company previously included Cardiac Pathways, CardioGenesis, 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
1999, 1998 and 1997. Total returns are based on weighted market
capitalization at May 17, 1996.
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
officers, and persons who own more than 10% of the Common Stock, to file
reports of ownership and changes in ownership of shares of the Common Stock
with the Securities and Exchange Commission (the "SEC"). Directors, officers
and greater than 10% stockholders are required by SEC regulations to furnish
the Company with copies of all Section 16(a) reports they file. Based solely
upon a review of the copies of such reports received by it, or written
representations that no Forms 5 were required, the Company believes that, from
January 1, 1999 through December 31, 1999, its directors, officers and greater
than 10% beneficial owners complied with all applicable Section 16(a) filing
requirements.
INDEPENDENT AUDITORS
The Board of Directors, upon the recommendation of its Audit Committee, has
selected KPMG LLP to audit the books and accounts of the Company for the
fiscal year ending December 31, 2000. Representatives of KPMG are expected to
be present at the Annual Meeting for the purpose of making a statement, should
they so desire, and responding to stockholder questions.
STOCKHOLDER PROPOSALS AND NOMINATIONS
Proposals of stockholders intended to be eligible for inclusion in the
Company's proxy statement and proxy card relating to the 2001 annual meeting
of stockholders must be received by the Company on or before the close of
business on November 21, 2000. Such proposals should be submitted by certified
mail, return receipt requested.
The Company's Bylaws provide that a stockholder wishing to nominate
directors for election 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. 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 of a person for the election
to the Board 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. Any stockholder interested in making such a nomination or
proposal may request a copy of the Bylaws from the Assistant Secretary of the
Company. A nomination or other proposal will be disregarded if it
11
<PAGE>
does not comply with the above procedures and any additional requirements set
forth in the Bylaws. Please note these requirements relate only to the matters
you wish to bring before your fellow stockholders at an annual meeting. They
are separate from the SEC's requirements to have your proposal included in the
Company's proxy statement.
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,
1999, 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.
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, facsimile or other electronic means. 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.
As of the date of this Proxy Statement, the Board and management do not
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. If any other matter is properly brought before the meeting for action
by stockholders, proxies in the enclosed form returned to the Company will be
voted by the person or persons entitled to vote the shares represented by such
proxies on any such other matter in accordance with their best judgment.
By Order of the Board of Directors
/s/ Steven A. Bourne
Steven A. Bourne
Assistant Secretary
March 23, 2000
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.
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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 nominee for Class I Director.
I Will Attend the Annual Meeting ____
Change of Address/Comments on Reverse Side _____
1: Election of Director (see reverse)
FOR _____
WITHHELD ____
2. 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 20, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints William C. Dow 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, Ten Marriott Drive, Lincolnshire, Illinois, on Thursday, April 20, 2000,
at 2:00 p.m. local time, or at any adjournment or postponement thereof,with all
the powers the undersigned would possess if present.
Election of Nominee for Class I Director (change of address/comments)
Listed Hereon ______________________________
Nominee: Richard B. Egen ______________________________
______________________________
______________________________
(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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