<PAGE>
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 ss. 240.14a-11(c) or ss. 240.14a-12
Vital Images, Inc.
- --------------------------------------------------------------------------------
Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(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:
--------------------------------------------------
<PAGE>
VITAL IMAGES, INC.
3100 West Lake Street, Suite 100
Minneapolis, Minnesota 55416
(612) 915-8000
-------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 12, 1999
-------------------------------------
To the Shareholders of Vital Images, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Vital
Images, Inc., a Minnesota corporation (the "Company"), will be held on
Wednesday, May 12, 1999, at 3:30 p.m. (Minneapolis time), at the Minneapolis
Club, 729 Second Avenue South, Minneapolis, Minnesota, for the following
purposes:
1. To elect six directors of the Company for the coming year.
2. To consider and act upon a proposal to amend the 1997 Stock
Option and Incentive Plan to increase the number of shares
reserved for issuance thereunder.
3. To consider and act upon a proposal to amend the 1997 Director
Stock Option Plan to increase the number of shares reserved
for issuance thereunder.
4. To ratify the appointment of PricewaterhouseCoopers LLP as
independent accountants for the year ending December 31, 1999.
5. To transact such other business as may properly come before
the meeting or any adjournment thereof.
Only holders of record of the Company's common stock at the close of
business on March 26, 1999 are entitled to notice of and to vote at the Annual
Meeting or any adjournment thereof. In the event there are not sufficient votes
for a quorum or to approve or ratify any of the foregoing proposals at the time
of the Annual Meeting, the Annual Meeting may be adjourned in order to permit
further solicitation of proxies by the Company.
Each of you is invited to attend the Annual Meeting in person if
possible. Whether or not you plan to attend in person, please mark, date and
sign the enclosed proxy, and mail it promptly. A return envelope is enclosed for
your convenience.
By Order of the Board of Directors
/s/ Gregory S. Furness
Gregory S. Furness, Secretary
April 13, 1999
- --------------------------------------------------------------------------------
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING,
PLEASE SIGN THE PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
<PAGE>
VITAL IMAGES, INC.
3100 West Lake Street, Suite 100
Minneapolis, Minnesota 55416
(612) 915-8000
-----------------------------------------
PROXY STATEMENT
-----------------------------------------
SOLICITATION OF PROXIES
The enclosed proxy is solicited by and on behalf of the Board of
Directors of Vital Images, Inc., a Minnesota corporation ("Vital Images" or the
"Company"), for use at the Annual Meeting of Shareholders (the "Annual Meeting")
to be held at the Minneapolis Club, 729 Second Avenue South, Minneapolis,
Minnesota, on Wednesday, May 12, 1999, at 3:30 p.m. (Minneapolis time), and any
adjournment thereof. This Proxy Statement and the accompanying form of proxy are
being mailed to shareholders on or about April 13, 1999.
The expense of the solicitation of proxies for the Annual Meeting,
including the cost of mailing, has been or will be borne by the Company.
Arrangements will be made with brokerage houses and other custodian nominees and
fiduciaries to send proxies and proxy materials to their principals, and the
Company will reimburse them for their expense in so doing. In addition to
solicitation by mail, proxies may be solicited by telephone, facsimile or
personally.
VOTING AND REVOCATION OF PROXY
Only holders of record of the Company's common stock at the close of
business on March 26, 1999, the record date for the Annual Meeting, are entitled
to notice of and to vote at the Annual Meeting. On the record date, 4,891,342
shares of the Company's common stock were outstanding. Each share of common
stock entitles the holder thereof to one vote upon each matter to be presented
at the Annual Meeting.
Each proxy returned to the Company will be voted in accordance with the
instructions indicated thereon. If no instructions are indicated, the shares
will be voted (i) FOR the election of the nominees for the Board of Directors
named in this Proxy Statement; (ii) FOR the approval of an amendment to the 1997
Stock Option and Incentive Plan to increase the number of shares reserved for
issuance thereunder; (iii) FOR the approval of an amendment to the 1997 Director
Stock Option Plan to increase the number of shares reserved for issuance
thereunder; and (iv) FOR the ratification of the appointment of
PricewaterhouseCoopers LLP as independent accountants for the year ending
December 31, 1999. While the Board of Directors knows of no other matters to be
presented at the Annual Meeting or any adjournment thereof, all proxies returned
to the Company will be voted on any such matter in accordance with the judgment
of the proxy holders.
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (a)
giving written notice of such revocation to the Secretary of the Company, (b)
giving another written proxy bearing a later date, or (c) attending the Annual
Meeting and voting in person (although attendance at the Annual Meeting will not
in and of itself constitute a revocation of a proxy).
1
<PAGE>
A quorum, consisting of a majority of the shares of common stock
entitled to vote at the Annual Meeting, must be present in person or by proxy
before action may be taken at the Annual Meeting. In general, the shareholders
of the Company may take action by the affirmative vote of the holders of the
greater of (i) a majority of the voting power of the shares present and entitled
to vote on a particular item of business, or (ii) a majority of the voting power
of the minimum number of shares entitled to vote that would constitute a quorum.
If an executed proxy is returned and the shareholder has abstained from voting
on any matter, the shares represented by such proxy will be considered present
at the meeting for purposes of determining a quorum and for purposes of
calculating the vote, but will not be considered to have been voted in favor of
such matter. If an executed proxy is returned by a broker holding shares in
"street name," which indicates that the broker does not have discretionary
authority as to certain shares to vote on one or more matters, such shares will
be considered present at the meeting for purposes of determining a quorum, but
will not be considered to be represented at the meeting for purposes of
calculating the vote with respect to such matter.
PROPOSALS OF SHAREHOLDERS
Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as
amended, any shareholder wishing to have a proposal considered for inclusion in
the Company's proxy solicitation material for the 2000 Annual Meeting of
Shareholders must set forth such proposal in writing and file it with the
Secretary of the Company no later than December 14, 1999. Further, if a
shareholder fails to notify the Company of a proposal before February 28, 2000,
such notice will be considered untimely and management proxies may use their
discretionary voting authority with respect to any such proposal.
OTHER BUSINESS
At the date of this Proxy Statement, management knows of no other
business that may properly come before the Annual Meeting. However, if any other
matters properly come before the meeting, the persons named in the enclosed form
of proxy will vote the proxies received in response to this solicitation in
accordance with their best judgment on such matters.
FINANCIAL INFORMATION
The Company's 1998 Annual Report to Shareholders, including, but not
limited to, the balance sheets as of December 31, 1998 and 1997 and the related
statements of operations and cash flows for the years ended December 31, 1998
and 1997, the two months ended December 31, 1996 and the year ended October 31,
1996, accompanies these materials. A copy of the 1998 Annual Report to
Shareholders may be obtained without charge upon request to the Company. In
addition, the Company will provide without charge to any shareholder solicited
hereby, upon written request of such shareholder, a copy of its 1998 Annual
Report on Form 10-K filed with the Securities and Exchange Commission. Requests
should be directed to Investor Relations, Vital Images, Inc., 3100 West Lake
Street, Suite 100, Minneapolis, Minnesota 55416.
2
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth, as of February 28, 1999, certain
information regarding the beneficial ownership of shares of common stock of the
Company by (i) each person or entity who is known by the Company to own more
than 5% of the Company's common stock, (ii) each director or nominee for
director of the Company, (iii) each person listed in the Summary Compensation
Table and (iv) all directors, nominees and executive officers of the Company as
a group.
Number of Shares Percent of
Name and Address of Beneficial Owner Beneficially Owned (1) Outstanding (2)
- ------------------------------------ ---------------------- ---------------
491,275(3) 10.05%
Perkins Capital Management, Inc.
730 East Lake Street
Wayzata, MN 55391
Officers and Directors:
Douglas M. Pihl 221,250(4) 4.34%
Vincent J. Argiro, Ph.D. 374,510(5) 7.59%
James B. Hickey, Jr. 5,000(6) *
Richard W. Perkins 117,875(7) 2.40%
Edward E. Strickland 131,500(8) 2.67%
Michael W. Vannier, M.D. 10,000(9) *
Sven A. Wehrwein 10,000(10) *
Steven P. Canakes 8,400(11) *
Gregory S. Furness 65,700(12) 1.33%
Jay D. Miller 31,400(13) *
Andrew M. Weiss 200,000(14) 3.93%
All directors and executive officers as a 975,635(15) 18.37%
group (11 persons, including those named above)
- --------------------
* Less than one percent.
(1) Each person has sole voting and sole dispositive power with respect to
all outstanding shares, except as noted.
(2) Based on 4,887,372 shares outstanding as of February 28, 1999. Such
number does not include 1,468,443 shares of common stock issuable upon
exercise of stock options and warrants outstanding as of February 28,
1998. Each figure showing the percentage of outstanding shares owned
beneficially has been calculated by treating as outstanding and owned
the shares which could be purchased by the indicated person(s) within
60 days upon the exercise of existing stock options.
(3) Excludes shares beneficially owned by Mr. Perkins, a director of the
Company and the controlling shareholder of Perkins Capital Management,
Inc. ("PCM"), a registered investment advisor. Of the 491,275 shares
held for the account of clients of PCM, for which beneficial ownership
is disclaimed by PCM, PCM has sole investment power with regard to all
such shares and sole voting power over 102,625 of such shares. Reflects
information as of February 28, 1999, based on a Schedule 13G, dated
March 10, 1999, filed by PCM with the Securities and Exchange
Commission.
3
<PAGE>
(4) Includes 210,000 shares that Mr. Pihl has the right to acquire within
60 days upon the exercise of stock options. Also includes 750 shares
held by Mr. Pihl's spouse.
(5) Includes 44,350 shares that Dr. Argiro has the right to purchase within
60 days upon the exercise of stock options. Excludes 108,000 shares
beneficially owned by Dr. Argiro's spouse and 1,550 shares that Dr.
Argiro's spouse has the right to purchase upon exercise of stock
options. Dr. Argiro disclaims beneficial ownership of the shares and
options held by his spouse.
(6) Includes 5,000 shares that Mr. Hickey has the right to acquire within
60 days upon exercise of stock options.
(7) Includes 5,250 shares held by the Perkins Foundation, 58,000 shares
held by various trusts of which Mr. Perkins is the sole trustee, and
28,125 shares held by Quest Venture Partners, of which Mr. Perkins is a
40% partner. Also includes 26,500 shares Mr. Perkins has the right to
purchase within 60 days upon the exercise of stock options. Excludes
the 491,275 shares of stock owned by PCM. Mr. Perkins disclaims
beneficial ownership of the shares held by PCM.
(8) Includes 25,000 shares held in Mr. Strickland's IRA, 1,050 shares held
by Mr. Strickland's spouse, 700 shares held in an IRA by Mr.
Strickland's spouse, and 500 shares held by a family limited
partnership. Also includes 36,500 shares that Mr. Strickland has the
right to purchase within 60 days upon the exercise of stock options.
(9) Includes 10,000 shares that Dr. Vannier has the right to acquire within
60 days upon the exercise of stock options.
(10) Includes 10,000 shares that Mr. Wehrwein has the right to acquire
within 60 days upon the exercise of stock options.
(11) Includes 8,400 shares that Mr. Canakes has the right to acquire within
60 days upon exercise of stock options.
(12) Includes 40,700 shares that Mr. Furness has the right to acquire within
60 days upon exercise of stock options.
(13) Includes 31,400 shares that Mr. Miller has the right to acquire within
60 days upon exercise of stock options.
(14) Includes 200,000 shares that Mr. Weiss has the right to acquire upon
the exercise of stock options.
(15) Includes shares which could be purchased within 60 days upon the
exercise of existing stock options as follows: Mr. Pihl, 210,000
shares; Dr. Argiro, 44,350 shares; Mr. Hickey, 5,000 shares; Mr.
Perkins, 26,500 shares; Mr. Strickland, 36,500 shares; Dr. Vannier,
10,000 shares; Mr. Wehrwein, 10,000 shares; Mr. Canakes, 8,400 shares;
Mr. Furness, 40,700 shares; Mr. Miller, 31,400 shares; and all
directors and executive officers as a group, 422,850 shares.
4
<PAGE>
ELECTION OF DIRECTORS
(Proposal 1)
The business and affairs of the Company are managed under the direction
of its Board of Directors. Directors of the Company are elected annually to
serve until the next annual meeting of shareholders or until their earlier
resignation, death or removal. The Board has nominated the six individuals named
below to serve as directors of the Company, and the shareholders will be asked
at the Annual Meeting to elect such individuals. Unless authority is withheld,
all proxies received in response to this solicitation will be voted FOR the
election of the nominees named below. Each of the nominees named below is now a
director of the Company and has served continuously as a director since the
month and year indicated. All nominees have indicated a willingness to serve if
elected. If any nominee becomes unable to serve prior to the Annual Meeting, the
proxies received in response to this solicitation will be voted for a
replacement nominee selected in accordance with the best judgment of the proxy
holders named therein.
<TABLE>
<CAPTION>
Director
Name Positions with the Company Age Since
---- -------------------------- --- --------
<S> <C> <C> <C>
Douglas M. Pihl Chairman of the Board, President, 59 May 1997
Chief Executive Officer and Director
Vincent J. Argiro, Ph.D. Executive Vice President, Chief 43 May 1997(1)
Technology Officer and Director
James B. Hickey, Jr. Director 45 May 1998
Richard W. Perkins Director 68 May 1997(1)
Michael W. Vannier, M.D. Director 50 December 1997
Sven A. Wehrwein Director 48 May 1997
</TABLE>
- -------------------
(1) Dr. Argiro was previously Chairman of the Board from September 1988 to
May 1994, and Mr. Perkins was also a director of the Company prior to
May 12, 1997, when the Company was spun-off from Bio-Vascular, Inc.
Shareholder Approval
The affirmative vote of a plurality of the shares of common stock of
the Company represented at the Annual Meeting either in person or by proxy,
assuming a quorum is present, is required for the election of directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
ELECTION OF THE NOMINEES FOR THE BOARD OF DIRECTORS AS SET FORTH IN PROPOSAL 1.
5
<PAGE>
INFORMATION CONCERNING DIRECTORS,
NOMINEES AND EXECUTIVE OFFICERS
Directors and Nominees
The following discussion sets forth certain information concerning the
individuals nominated by the Board of Directors to serve as directors of the
Company.
Douglas M. Pihl has been a director of the Company since May 1997, its
Chairman of the Board since December 1997, and its Chief Executive Officer since
February 1998. Since August 1996, Mr. Pihl has been a private investor. From May
1992 to August 1996, Mr. Pihl was President, Chief Executive Officer, and a
Director of NetStar, Inc. Mr. Pihl has over 30 years of experience in the
computer industry with extensive responsibility in design, product planning and
management. From February 1989 to December 1990, he was Senior Vice President,
Development for Apertus Technologies, Inc. (formerly Lee Data Corporation). From
December 1987 until February 1989, Mr. Pihl was an independent consultant. Mr.
Pihl was Senior Vice President-Development of Lee Data Corporation ("Lee Data")
from April 1979 until December 1987. Mr. Pihl was a founder in 1979 of Lee Data
which then developed, manufactured and marketed computer peripheral products. In
addition to the Company, Mr. Pihl serves as a director of Destron Fearing
Corporation, Global Maintech Corporation and Astrocom Corporation, all of which
are publicly-held companies, and as a director of RocketChips, Inc., Geometric
Imaging, Inc. and LSC Corporation, which are private companies.
Vincent J. Argiro, Ph.D. has been a director of the Company since May
1997. Dr. Argiro was appointed Executive Vice President and Chief Technology
Officer of Vital Images in October 1995. From May 1994 to May 1997, Dr. Argiro
served as a Vice President of Bio-Vascular, the former parent company of Vital
Images. Dr. Argiro also served as a director of Bio-Vascular from May 1994 until
March 1996. Following the acquisition of the Company by Bio-Vascular in May
1994, Dr. Argiro served as President of the Company until October 1995. Dr.
Argiro, the founder of the Company, served as Chairman of the Board of the
Company from September 1988 until May 1994. From 1988 to 1990 and from September
1991 to June 1992, Dr. Argiro also served as President of the Company. Prior to
June 1992, Dr. Argiro served as an Associate Professor of Physiology at
Maharishi International University in Fairfield, Iowa, where he conducted
research in neuroscience and cell biology.
James B. Hickey, Jr., has been a director of the Company since May
1998. Mr. Hickey is President and Chief Executive Officer of Angeion
Corporation, a publicly traded manufacturer of implantable cardioverter
defibrillators. Previously, Mr. Hickey served as President and Chief Executive
Officer of Aequitron Medical, Inc. from 1993 to 1997. In his earlier career, Mr.
Hickey spent 15 years with Baxter Healthcare/American Hospital Supply
Corporation, where he was President of the Respiratory Anesthesia Systems
Division from 1989 to 1993, and before that, was President of the Hospitex
Division for three years. Currently, Mr. Hickey serves as a director of Allied
Healthcare Products, Inc. and Angeion Corporation, both of which are
publicly-held companies, and Pulmonetic Systems, Inc., a private company.
6
<PAGE>
Richard W. Perkins has been a director of the Company since May 1997.
Mr. Perkins has served as President, Chief Executive Officer and a director of
Perkins Capital Management, Inc., an investment management firm, since 1984. Mr.
Perkins also serves on the board of directors of the following companies:
Bio-Vascular, Inc., LifeCore Biomedical, Inc., Children's Broadcasting
Corporation, CNS, Inc., Nortech Systems, Inc., Eagle Pacific Industries, Inc.,
Quantech Ltd., and Harmony Holdings, Inc.
Michael W. Vannier, M.D. has been a director of the Company since
December 1997. Dr. Vannier is currently a Professor and the Head of the
Department of Radiology in the College of Medicine at the University of Iowa.
From 1982 to 1997, Dr. Vannier was a staff radiologist at Barnes Jewish Hospital
and St. Louis Children's Hospital in St. Louis Missouri. Dr. Vannier was also
the Georgia Eminent Scholar in Medical Imaging at the Emory University School of
Medicine in Atlanta, Georgia from 1994 to 1996, and served as Vice-Chairman for
Research at the Mallinckrodt Institute of Radiology from 1992 to 1994. Dr.
Vannier also served as a Professor of Radiology at the Mallinckrodt Institute of
Radiology from 1989 to 1997, as an Assistant Professor of Radiology and Surgery
at the Washington University School of Medicine in St. Louis, Missouri from 1983
to 1997, and as an Affiliate Professor of System Science and Mathematics at the
Washington University College of Engineering in St. Louis, Missouri from 1984 to
1997.
Sven A. Wehrwein has been a director of the Company since May 1997.
From December 1998 to February 1999, Mr. Wehrwein was the Chief Financial
Officer of Digi International Inc. From November 1997 to July 1998, Mr. Wehrwein
was Chief Financial Officer of the Center for Diagnostic Imaging. He served as
Chief Financial Officer of InStent Inc. from June 1995 to August 1996. InStent
was acquired by Medtronic, Inc. in June 1996. From January 1995 to May 1995,
September 1996 to October 1997, and from August 1998 to November 1998, Mr.
Wehrwein was an independent financial consultant. From July 1990 to December
1994, Mr. Wehrwein served as a Managing Director in the Corporate Finance
Department of Wessels, Arnold & Henderson, a Minneapolis-based investment
banking firm. Mr. Wehrwein is a Certified Public Accountant.
Board Committees and Actions
During 1998, the Board of Directors met four times and took action by
written consent once. The Board of Directors has two standing committees, a
Compensation Committee, which met once and took action by written consent once
during 1998, and an Audit Committee, which met once during 1998. With the
exception of Edward E. Strickland who was absent from two meetings of the Board
of Directors and one meeting of the Audit Committee, each director attended at
least 75% of the total number of meetings of the Board of Directors and of
committees on which the director served during 1998.
The Compensation Committee reviews and makes recommendations to the
Board of Directors regarding salaries, compensation and benefits of executive
officers and senior management of the Company and administers the Company's 1997
Director Stock Option Plan and 1997 Stock Option and Incentive Plan. The current
members of the Compensation Committee are Michael W. Vannier, M.D. and Sven A.
Wehrwein.
The Audit Committee reviews the internal and external financial
reporting of the Company and reviews the scope of the independent audit. The
current members of the Audit Committee are Edward E. Strickland and Sven A.
Wehrwein.
The Board of Directors does not have a nominating committee.
7
<PAGE>
Director Compensation
The non-employee directors of the Company currently receive a fee of
$500 for each meeting they attend. In addition, each non-employee director who
is a member of a committee of the Board of Directors receives $500 for each
committee meeting attended. Non-employee directors of the Company also receive
automatic grants of stock options in connection with their service as directors
under the 1997 Director Stock Option Plan. On February 25, 1999, the Board of
Directors voted to increase the number of shares reserved for issuance under the
Director Plan to 210,000 shares, subject to the approval of the Company's
shareholders on or before February 25, 2000. See "Approval of Amendment to 1997
Director Stock Option Plan to Increase Number of Shares Reserved for Issuance
Thereunder (Proposal 3)" for a description of the 1997 Director Stock Option
Plan.
Executive Officers
The following discussion sets forth information about the executive
officers of the Company who are not directors.
Officer
Name Positions with the Company Age Since
---- -------------------------- --- -----
Steven P. Canakes Vice President--U.S. Sales 43 August 1998
Gregory S. Furness Senior Vice President--Finance, Chief 45 February 1997
Financial Officer, Treasurer and
Secretary
David M. Frazee Vice President--Engineering 38 March 1999
Jay D. Miller Senior Vice President and General Manager 39 February 1997
Robert C. Samec Vice President--Regulatory Affairs and 46 October 1998
Quality Assurance
Steven P. Canakes was named Vice President--U.S. Sales in August 1998.
Prior to that he was the Company's Director of U.S. Sales from March 1998. From
July 1996 to March 1998, Mr. Canakes was Vice President of Business Development
for MedManagement, LLC in Plymouth, Minnesota. From February 1994 to July 1996,
Mr. Canakes served as Vice President of Sales for Medintell Systems and Value
Health Corporation, a Medintell Systems Division. Prior to February 1994, Mr.
Canakes was a CT Product Sales Manager for Picker International, Inc.
Gregory S. Furness was named Senior Vice President--Finance in August
1998 and has served as Chief Financial Officer, Treasurer and Secretary of Vital
Images since February 1997. From December 1987 to December 1996, Mr. Furness
served as Executive Vice President and Chief Financial Officer of CAMAX
Manufacturing Technologies, Inc., a computer-aided manufacturing software
developer, which was acquired by Structural Dynamics Research Corporation in
June 1996. Prior to December 1987, Mr. Furness was employed as Vice President,
Finance and Chief Financial Officer of Mizar, Inc., and as an audit manager at
Deloitte and Touche LLP. Mr. Furness is a Certified Public Accountant.
8
<PAGE>
David M. Frazee. Mr. Frazee was named Vice President--Engineering in
March 1999. From July 1998 to March 1999, Mr. Frazee served as a Manager in the
Solution Strategies Practice of Whittman-Hart, Inc. From April 1997 to July
1998, Mr. Frazee was Director of Program Management and Internet Products at
LodgeNet Entertainment, Inc. Prior to April 1997, Mr. Frazee held several
systems and software development and management positions at GE Medical Systems,
Inc., most recently as Manager of the Global Software Applications Operation.
Jay D. Miller was named Senior Vice President and General Manager of
Vital Images in August 1998, and served as Vice President--Marketing and Sales
of Vital Images from February 1998 to August 1998. Mr. Miller also served as the
Company's Vice President--Marketing and Business Development from February 1997
to February 1998. From 1989 until his employment by Vital Images, Mr. Miller was
employed by GE Medical Systems, Inc. in positions of increasing responsibility
in the marketing area, including serving as product manager for MRI imaging
products and marketing manager for the cardiology market segment. Prior to 1989,
Mr. Miller was employed by Siemens Medical Systems in technical marketing.
Robert C. Samec was named Vice President--Regulatory Affairs and
Quality Assurance in October, 1998. Mr. Samec served as Vice President,
Regulatory/Quality of ContiMed, Inc., a urologic device developer from October
1997 to October 1998. Prior to October 1997, Mr. Samec spent 15 years with
Aequitron Medical, Inc., a developer of portable respiratory devices, where he
was Vice President, Regulatory Affairs/Quality Assurance.
Compliance with Section 16(a)
Section 16 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers, and any
persons holding more than 10% of the outstanding common stock of the Company to
file reports with the Securities and Exchange Commission concerning their
initial ownership of common stock and any subsequent changes in that ownership.
The Company believes that during 1998 the filing requirements were satisfied,
except as follows: (i) Douglas M. Pihl reported ownership of shares held by his
spouse, which were omitted from his initial Form 3, on a Form 5 for the year
ended December 31, 1998, (ii) Vincent J. Argiro reported ownership of stock
options held by his spouse, which were omitted from his initial Form 3, on a
Form 5 for the year ended December 31, 1998, and (iii) Robert C. Samec filed a
late Form 3. In making this disclosure, the Company has relied solely on written
representations of its directors, executive officers and beneficial owners of
more than 10% of common stock and copies of the reports that they have filed
with the Securities and Exchange Commission.
9
<PAGE>
Executive Compensation
The following table sets forth certain information regarding
compensation earned by or awarded to (i) each person who served as the Company's
Chief Executive Officer during any part of the year ended December 31, 1998, and
(ii) the Company's four other most highly compensated executive officers whose
annual compensation was $100,000 or more for the year ended December 31, 1998
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
-----------------
Annual Compensation(2) Awards
---------------------- -----------------
Shares Underlying All Other
Name and Principal Position Year(1) Salary Bonus(3) Options (#) Compensation
--------------------------- ------- ------ -------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Douglas M. Pihl 1998 $110,000 -- 300,000 --
President and Chief Executive 1997 -- -- 15,000(6) --
Officer (5) 1996 -- -- -- --
Andrew M. Weiss 1998 $ 20,130 -- -- $150,000(8)
Former President and Chief 1997 150,000 $62,983 84,468 --
Executive Officer (7) 1996 150,000 50,000 (4) 88,510(8)
Vincent J. Argiro, Ph.D. 1998 $120,000 $60,069 25,000 --
Executive Vice President and 1997 113,750 52,863 64,500 $ 25,380(9)
Chief Technology Officer 1996 105,000 -- (4) --
Steven P. Canakes 1998 $97,308 $63,821 50,000 --
Vice President--U.S. Sales (10) 1997 -- -- -- --
1996 -- -- -- --
Gregory S. Furness 1998 $120,000 $60,069 25,000 --
Senior Vice President--Finance, 1997 110,000 51,687 75,000 --
Chief Financial Officer, 1996 -- -- -- --
Treasurer and Secretary(11)
Jay D. Miller 1998 $120,000 $60,137 50,000 --
Senior Vice President and 1997 105,000 60,650 50,000 $ 23,475(13)
General Manager(12) 1996 -- -- -- --
</TABLE>
- --------------------
(1) On July 17, 1997, the Board of Directors voted to change the Company's
fiscal year end from October 31 to December 31, effective January 1,
1997. The compensation information set forth in the Summary
Compensation Table reflects compensation paid for the year ended
October 31, 1996 and the years ended December 31, 1997 and 1998. During
the two months ended December 31, 1996, Messrs. Weiss and Argiro
received additional compensation of $33,333 and $17,500, respectively.
(2) During the fiscal year ended October 31, 1996, all compensation to the
Named Executive Officers was paid indirectly by Bio-Vascular, Inc.
("Bio-Vascular"), the former parent company of Vital Images. On May 12,
1997 (the "Distribution Date"), Bio-Vascular distributed all of the
shares of common stock of Vital Images to its shareholders of record on
May 5, 1997 (the "Distribution"). During fiscal 1997, compensation was
paid indirectly by Bio-Vascular prior to the Distribution and directly
by the Company following the Distribution.
10
<PAGE>
(3) The executive officers of the Company are eligible to earn annual cash
bonuses tied to the level of achievement of annual performance targets.
Bonuses are generally paid following the end of the year in which they
are earned.
(4) Messrs. Weiss and Argiro were granted stock options to purchase shares
of Bio-Vascular common stock in connection with their employment by
Bio-Vascular prior to the Distribution. As a result of the
Distribution, Messrs. Weiss and Argiro (i) received Adjusted
Bio-Vascular Options, which after the Distribution were options to
purchase the same number of shares of Bio-Vascular common stock at
adjusted exercise prices, and (ii) were granted Vital Images Options to
purchase shares of Vital Images' common stock equal to one-half of the
number of shares of Bio-Vascular common stock subject to such
Bio-Vascular Options. Thus, after the Distribution, each holder of a
Bio-Vascular Option held separate options to purchase shares of
Bio-Vascular common stock and shares of Vital Images' common stock.
Each of the adjusted options is subject to the same terms and
conditions that applies to the corresponding Bio-Vascular Options prior
to the Distribution, except that vesting and expiration is based on
service with either Vital Images or Bio-Vascular. All such options were
granted on May 12, 1997. Specifically, Messrs. Weiss and Argiro
received grants of Adjusted Bio-Vascular Options for the purchase of
231,064 and 21,000 shares of Bio-Vascular common stock, respectively.
In connection with the Distribution, Messrs. Weiss and Argiro also
received Vital Images Options for the purchase of 115,532 and 10,500
shares of the Company's common stock, respectively. Such options
granted in connection with the Distribution are not included in the
Summary Compensation Table.
(5) Mr. Pihl was named President and Chief Executive Officer of the Company
in February 1998.
(6) Represents shares underlying a stock option granted to Mr. Pihl as a
non-employee director of the Company prior to his appointment as the
Company's President and Chief Executive Officer.
(7) Effective January 31, 1998, Mr. Weiss resigned as the Company's
President and Chief Executive Officer.
(8) Represents payments in 1996 made for relocation expenses and a lump sum
severance payment in 1998.
(9) Compensation related to the release of restricted stock to Dr. Argiro.
(10) Mr. Canakes has served as the Company's Vice President - U.S. Sales
since August 1998 and as the Director of U.S. Sales from March 1998 to
August 1998.
(11) Mr. Furness has served as the Company's Senior Vice President-Finance
since August 1998 and as Chief Financial Officer, Treasurer and
Secretary since February 1997.
(12) Mr. Miller has served as Senior Vice President and General Manager
since November 1998, as the Company's Vice President-Marketing and
Sales from February 1998 to November 1998 and as Vice
President-Marketing and Business Development from February 1997 to
February 1998.
(13) Represents payments for relocation expenses.
Retirement Savings Plan
The Company maintains a profit sharing and savings plan (the "401(k)
Plan") under Section 401(k) of the Internal Revenue Code of 1986, as amended
(the "Code"), which allows employees to contribute up to 25% of their pre-tax
income to the 401(k) Plan. The 401(k) Plan includes a discretionary matching
contribution by the Company and provides that the Company may make an additional
discretionary contribution out of profits at the end of any year. The Company
did not make any discretionary contributions for the years ended December 31,
1998 and 1997.
Stock Options
The Vital Images, Inc. 1997 Stock Option and Incentive Plan (the "1997
Plan") permits the granting of awards to employees, consultants and other
service providers in the form of incentive stock options, non-qualified stock
options, grants of restricted stock, performance units and stock bonuses. On
February 28, 1999, options for an aggregate of 719,193 shares were outstanding
under the 1997 Plan, and 203,857 shares were available for grant. On February
24, 1998, the Board of Directors voted to increase the number of shares which
may be issued pursuant to awards under the 1997 Plan from 675,000 shares to
925,000 shares, and the shareholders approved the increase at the Annual Meeting
11
<PAGE>
held on May 13, 1998. Effective February 25, 1999, the Board of Directors voted
to increase the number of shares reserved for issuance under the 1997 Plan to
1,425,000 shares, subject to the approval of the Company's shareholders on or
before February 25, 2000. Awards may be granted under the 1997 Plan through
March 19, 2007. The 1997 Plan may be terminated earlier by the Board of
Directors in its sole discretion.
The 1997 Plan is administered by the Compensation Committee of the
Board of Directors. The 1997 Plan gives broad powers to the Committee to
administer and interpret the plan, including the authority to select the
individuals to be granted awards and to prescribe the particular form and
conditions of each award granted. Awards are granted on the basis of various
factors, including the individual's capacity for contributing to the successful
performance of the Company, the nature of the operations for which the
individual is responsible, and the period for which the individual has served or
will have served the Company at the vesting of the award.
The following table sets forth certain information regarding stock
options granted to the Named Executive Officers during the Company's 1998 fiscal
year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
-------------------------------------------------------------- Value at Assumed
Percent of Annual Rates of Stock
Total Market Price Appreciation for
Options Granted Exercise Price at Option Term (1)
Options to Employees in Price Grant Date Expiration --------------------------
Name Granted (#) Fiscal Year ($/Sh) ($/Sh) Date 5% ($) 10% ($)
- ---- ----------- ----------- ------ ------ ---- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Douglas M. Pihl(2) 100,000 13.97% $1.125 $1.125 2/24/06 $53,714 $128,654
100,000 13.97% 2.250 1.125 2/24/06 -- 16,154
100,000 13.97% 4.500 1.125 2/24/06 -- --
Andrews M. Weiss -- -- -- -- -- -- --
Vincent J. Argiro, 5,000 0.70% $1.125 $1.125 2/24/06 $ 2,686 $ 6,433
Ph.D.(3) 20,000 2.79% 2.313 2.313 8/7/06 22,082 52,891
Steven P. Canakes(3) 30,000 4.19% $1.656 $1.656 3/31/06 $23,724 $ 56,824
20,000 2.79% 2.313 2.313 8/7/06 22,082 52,891
Gregory S. Furness(3) 10,000 1.40% $1.125 $1.125 2/24/06 $ 5,371 $ 12,865
15,000 2.09% 2.313 2.313 8/7/06 16,562 39,668
Jay D. Miller(3) 20,000 2.79% $1.125 $1.125 2/24/06 $10,743 $ 25,731
30,000 4.19% 2.313 2.313 8/7/06 33,123 79,336
</TABLE>
- --------------------
(1) Represents the potential realizable value of each grant of options assuming
that the market price of the underlying common stock appreciates in value
from its fair market value on the date of grant to the end of the option
term at the indicated annual rates.
(2) On February 24, 1998, the Company granted Mr. Pihl a non-plan,
non-qualified stock option to purchase 300,000 shares of common stock of
the Company, which vests as follows: (1) 100,000 shares having an exercise
price of $1.125 per share vested on February 24, 1998; (2) an additional
100,000 shares having an exercise price of $2.25 per share vested on
February 24, 1999; and (3) an additional 100,000 shares having an exercise
price of $4.50 per share vest on February 24, 2000.
(3) All options granted to such Named Executive Officers in 1998 vest and
become exercisable as to 28% of the shares one year after the date of
grant, and as to an additional 2% per month thereafter until fully vested
and exercisable.
12
<PAGE>
The following table sets forth certain information regarding the number
and value of unexercised stock options held by the Named Executive Officers as
of the end of the Company's 1998 fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money Options
Shares Options at Year-End (#) at Year-End ($) (1)
Acquired Value ----------------------- -------------------
Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Douglas M. Pihl - - 110,000 / 205,000 $68,750 / -
Andrew M. Weiss - - 200,000 / - - / -
Vincent J. Argiro, Ph.D. - - 37,590 / 62,410 - / $ 3,438
Steven P. Canakes - - - / 50,000 - / $ 4,686
Gregory S. Furness - - 31,500 / 68,500 - / $ 6,875
Jay D. Miller - - 21,000 / 79,000 - / $13,750
</TABLE>
- --------------------
(1) Based on the difference between the December 31, 1998 closing price of
$1.8125 per share as reported on the OTC Electronic Bulletin Board and
the exercise prices of the options.
Employee Stock Purchase Plan
The Vital Images, Inc. 1997 Employee Stock Purchase Plan (the "Stock
Purchase Plan") was adopted by the Board of Directors on March 19, 1997 and by
Bio-Vascular as the sole shareholder of the Company on May 1, 1997. The Stock
Purchase Plan permits eligible employees to make voluntary contributions through
payroll deductions to be used to purchase common stock from the Company. The
Stock Purchase Plan consists of periodic offerings and the first such offering
began on July 1, 1997. Each offering under the Stock Purchase Plan is for a
period of three months (an "Offering Period"). An employee may elect to have up
to a maximum of 10% deducted from his or her regular salary for purposes of
purchasing up to 500 shares under the Stock Purchase Plan during each Offering
Period. The price at which the employee shares are purchased will be the lower
of (a) 85% of the closing price of the common stock of the Company on the day
that an Offering Period commences under the Stock Purchase Plan, or (b) 85% of
the closing price of the Company's common stock on the day that such Offering
Period terminates. With certain exceptions, all employees of the Company who
work at least 20 hours per week, including officers and directors who are
employees, are eligible to participate in the Stock Purchase Plan. The Stock
Purchase Plan provides for the issuance of up to 250,000 shares of common stock,
and is administered by the Board of Directors, or by the Compensation Committee.
Through December 31, 1998, 40,170 shares have been issued under the Stock
Purchase Plan.
Other Stock Option Plans
Pursuant to an Employee Benefits Agreement between Vital Images and
Bio-Vascular, Vital Images and Bio-Vascular agreed to adjust each unexercised
option to purchase Bio-Vascular common stock outstanding as of the record date
for the Distribution ("Bio-Vascular Options") to reflect the Distribution (an
"Adjusted Bio-Vascular Option"), and each holder of a Bio-Vascular Option was
13
<PAGE>
granted an option to purchase common stock of Vital Images in connection with
the Distribution (a "Vital Images Option"). The exercise price and number of
shares covered by each Adjusted Bio-Vascular Option, as well as the exercise
price and number of shares covered by each Vital Images Option, was determined
according to a formula provided in the Employee Benefits Agreement that was
based on the relative fair market trading values of Bio-Vascular common stock
and the Company's common stock during the first five trading days following the
date of the Distribution.
In connection with the issuance of Vital Images Options with respect to
Bio-Vascular Options in existence on the date of the Distribution, the Company
adopted the 1995 Stock Incentive Adjustment Plan, the Incentive Stock Option
Adjustment Plan and the 1992 Director Stock Option Adjustment Plan. Each of
these plans is intended to mirror the provisions of a corresponding Bio-Vascular
option plan. As each Bio-Vascular option plan generally provides for the
termination of options following termination of employment, each of such mirror
plans was approved and adopted to provide that the Distribution will not cause a
termination of any employee of the Company for the purposes of such plans, and
that options held by employees of the Company following the Distribution will
remain exercisable following the Distribution, so long as such employees remain
employed by the Company or any subsidiary. Similar modifications to the existing
1990 Management Incentive Stock Option Plan and the 1992 Stock Option Plan were
also adopted by the Company with respect to Bio-Vascular employees. Awards of
options under these plans, as well as pursuant to certain non-plan award
agreements, were made in connection with the Distribution. It is intended that
the 1995 Stock Incentive Adjustment Plan, the Incentive Stock Option Adjustment
Plan and the 1992 Director Stock Option Adjustment Plan, as well as the 1992
Stock Option Plan and the 1990 Management Incentive Stock Option Plan, will not
be utilized to grant options to purchase common stock of the Company other than
in connection with the Distribution. In connection with the Distribution, Vital
Images granted 608,534 Vital Images Options.
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
Michael W. Vannier, M.D. and Sven A. Wehrwein, each of whom is a
non-employee director of the Company, served as the members of the Company's
Compensation Committee in 1998 and have been appointed to serve as members of
the Compensation Committee for 1999. See "Report of the Compensation Committee."
Messrs. Argiro and Pihl, the only executive officers of the Company who
currently serve on the Board of Directors, abstain from voting on compensation
matters affecting their compensation.
Employment Arrangements
Weiss Severance Agreement. Pursuant to a letter agreement dated
February 13, 1998, the Company and Andrew M. Weiss agreed to terms regarding the
resignation of Mr. Weiss as President and Chief Executive Officer effective as
of January 31, 1998. In exchange for certain representations, promises and
releases, the Company agreed to pay Mr. Weiss a 1997 bonus in the amount of
$62,983 and to extend the exercise period for certain stock options. In
addition, and in accordance with the terms of Mr. Weiss' employment arrangement,
the Company made a lump-sum payment of $150,000 to Mr. Weiss, equal to 12
months' base salary, and accelerated to January 31, 1998 the vesting of 92,234
option shares issuable under existing option agreements.
Pihl Employment Agreement. The Company has entered into an employment
agreement with Douglas M. Pihl effective February 1, 1998, which may be
terminated by either party on ten days
14
<PAGE>
notice. Mr. Pihl's employment agreement states that he will serve as the
President and Chief Executive Officer, and sets forth his duties, compensation,
employee benefits and other terms of employment. The agreement provides for an
annual salary of $120,000, with salary increases at the discretion of the Board
of Directors. Mr. Pihl may also receive bonuses in the sole discretion of the
Board of Directors. The agreement also provides for Mr. Pihl's participation in
the Company's fringe benefit plans and programs in which other senior executive
officers of the Company participate. In addition, the agreement includes
standard confidentiality provisions.
In connection with Mr. Pihl's employment with the Company, the Company
granted to him a non-qualified stock option to purchase 300,000 shares of common
stock of the Company, which vest as follows: (1) 100,000 shares having an
exercise price of $1.125 per share vested on February 24, 1998; (2) an
additional 100,000 shares having an exercise price of $2.25 per share vested on
February 24, 1999; and (3) an additional 100,000 shares having an exercise price
of $4.50 per share vest on February 24, 2000. Mr. Pihl ceases vesting in the
option at such time as his service with the Company, as an employee or
consultant, terminates. However, Mr. Pihl will be entitled to exercise his
option, to the extent such option has vested prior to his termination of service
with the Company, until the option's expiration date of February 24, 2006.
15
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors (the "Committee")
is composed of non-employee directors of the Company. The Committee is
responsible for assuring that compensation for executives is consistent with the
Company's compensation philosophy. The Committee also administers and makes
grants under the Company's 1997 Plan with respect to the Company's executive
officers. Michael W. Vannier, M.D. and Sven A. Wehrwein, each of whom is a
non-employee director of the Company, served as the members of the Company's
Compensation Committee in 1998 and have been appointed to serve as members of
the Compensation Committee for 1999.
The Company's executive compensation program is based on a
pay-for-performance philosophy. Under the Company's program, an executive's
compensation consists of three components: base salary, an annual incentive
(bonus) payment and long-term incentives (stock options). Base salary is
determined by an assessment of the executive's sustained performance against his
or her individual job responsibilities, including the impact of such performance
on the business results of the Company. Payments under the Company's annual
incentive plan are tied to the level of achievement of annual performance
targets, including revenue, operating results and other performance targets
related to business functions under the executive's direction. Annual
performance targets are based upon the Company's annual strategic plan as
reviewed by the Board of Directors. An individual executive's annual incentive
opportunity is based upon a percentage of his or her base salary.
The Company's long-term incentives are in the form of stock options.
The objectives of these awards are to advance the longer term interests of the
Company and its shareholders, complement incentives tied to annual performance
and align the interests of executives more closely with those of shareholders.
The Company also believes that the entrepreneurial character of its executives
makes the long-term incentives provided by its stock option program especially
significant in the motivation and retention of its executives. The number of
stock options awarded to an executive is based on the executive's position and
his or her performance in that position. The executive's right to the stock
options generally vests over a four-year period and each option is exercisable,
to the extent it has vested, over an eight-year period following its grant.
In February 1998, the entire Board of Directors approved a severance
agreement for Andrew M. Weiss, the Company's former President and Chief
Executive Officer, which included the payment of a bonus for 1997 in the amount
of $62,983 as well as the extension of the exercise period for certain stock
options. The severance arrangement also included a lump sum payment of $150,000,
which is equal to twelve months' base salary, and the acceleration of the
vesting of 92,234 option shares, as required by the terms of Mr. Weiss's
employment arrangement. The entire Board of Directors also approved a
compensation package for Douglas M. Pihl, the Company's current President and
Chief Executive Officer, which provides for an annual base salary of $120,000
with salary increases at the discretion of the Board of Directors. Mr. Pihl may
also receive an annual bonus in the sole discretion of the Board of Directors.
Mr. Pihl did not receive a bonus for 1998. In addition, Mr. Pihl was granted a
stock option for 300,000 shares of the Company's common stock which vests in
three separate 100,000 share installments on February 24, 1998, 1999, and 2000.
The exercise price of the option is $1.125 for the shares vesting on February
24, 1998, $2.25 per share for shares vesting on February 24, 1999 and $4.50 per
share for shares vesting on February 24, 2000. The Compensation Committee
believes that the arrangements for Mr. Pihl are consistent with the philosophies
and objectives described above.
16
<PAGE>
The Committee believes that the Company's executives are focused on the
attainment of a sustained high rate of growth and improving operating results
for the benefit of the Company and its shareholders, and that the Company's
compensation program, with its emphasis on performance-based and long-term
incentive compensation, serves to reinforce this focus.
By the Compensation Committee
Michael W. Vannier, M.D.
Sven A. Wehrwein
PERFORMANCE GRAPH
Since May 14, 1997, the Company's common stock has been traded on the
OTC Bulletin Board maintained by the National Association of Securities Dealers,
Inc. Prior to May 12, 1997, the Company was a wholly-owned subsidiary of
Bio-Vascular and there was no public market for the Company's common stock. The
following graph shows changes during the period from May 14, 1997 (the date on
which the Company's common stock was first traded on the OTC Bulletin Board) to
December 31, 1998, in the value of $100 invested in: (1) the Company's common
stock; (2) the CRSP Total Return Index for The Nasdaq Stock Market (US); and (3)
Nasdaq Non-Financial Stocks. The values of each investment as of the dates
indicated are based on share prices plus any dividends paid in cash, with the
dividends reinvested on the date they were paid. The calculations exclude
trading commissions and taxes.
GRAPH APPEARS HERE
- --------------------------------------------------------------------------------
5/14/97 6/30/97 12/31/97 6/30/98 12/31/98
- --------------------------------------------------------------------------------
Vital Images, Inc. $100 $ 61.45 $ 53.01 $121.67 $ 67.46
- --------------------------------------------------------------------------------
CRSP Total Return Index for
Nasdaq Stock Market (US) $100 $108.28 $118.55 $142.59 $167.05
- --------------------------------------------------------------------------------
Nasdaq Non-Financial Stocks $100 $107.86 $114.29 $141.05 $167.79
- --------------------------------------------------------------------------------
17
<PAGE>
APPROVAL OF AMENDMENT TO 1997 STOCK OPTION
AND INCENTIVE PLAN TO INCREASE NUMBER OF SHARES
RESERVED FOR ISSUANCE THEREUNDER
(Proposal 2)
The Vital Images, Inc. 1997 Stock Option and Incentive Plan ("1997
Plan") was adopted by the Board of Directors on March 19, 1997 and approved by
Bio-Vascular, the sole shareholder of the Company, on May 1, 1997. An aggregate
of 675,000 shares was reserved for issuance under the 1997 Plan at the time of
its adoption. Effective February 24, 1998, the Board of Directors voted to
increase the number of shares reserved for issuance under the 1997 Plan to
925,000 shares which was approved by the shareholders at the 1998 Annual
Meeting. Effective February 25, 1999, the Board of Directors voted to increase
the number of shares reserved for issuance under the 1997 Plan to 1,425,000
shares, subject to the approval of the Company's shareholders on or before
February 25, 2000. The shareholders are being asked to approve the amendment to
the 1997 Plan to increase the number of shares reserved for issuance thereunder
at the 1999 Annual Meeting.
The 1997 Plan is intended to assist the Company in hiring and retaining
well-qualified employees, consultants, and other service providers by allowing
them to participate in the ownership and growth of the Company through the grant
of incentive and non-qualified stock options ("Options"), awards of restricted
stock, performance units, stock bonuses or any combination thereof. Management
believes that the granting of Options and other awards will serve as partial
consideration for and give well-qualified employees, consultants, and other
service providers an additional inducement to remain in the service of the
Company and provide them with an increased incentive to work for the Company's
success. To enable to Company to continue to grant stock-based awards in
furtherance of the purposes and objectives of the 1997 Plan, the Board
recommends that the shareholders approve the proposed increase in the number of
shares reserved for issuance under the 1997 Plan.
The principal features and effects of the 1997 Plan are discussed
below.
Administration and Eligibility
The 1997 Plan is administered by the Compensation Committee of the
Board of Directors, which determines when and which employees, consultants, and
other service providers will be granted Options and awards under the 1997 Plan.
Subject to the provisions of the 1997 Plan, the Compensation Committee also
determines the type, amount and terms of awards (including restrictions) and
makes all other determinations necessary or advisable for the administration of
the 1997 Plan. The determinations by the Compensation Committee are not required
to be made on a uniform basis.
Employees of the Company and any of its "Affiliates" (as such term is
defined in the 1997 Plan) are eligible for selection to receive Options
qualified as incentive stock options ("ISOs") under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). Employees, consultants and other
service providers of the Company or its Affiliates may be granted non-qualified
options ("NQOs"), restricted stock awards, performance units or stock bonuses.
The 1997 Plan will terminate on the earlier of the date on which the
1997 Plan is terminated by the Board of Directors of the Company or March 19,
2007. Options or restricted stock awards outstanding at the termination of the
1997 Plan may continue to be exercised in accordance with their
18
<PAGE>
terms after such termination. The 1997 Plan may be amended at any time by the
Board of Directors. However, without the approval of a majority of the Company's
shareholders voting at a meeting at which a quorum is present, no such amendment
may (i) materially increase the benefits accruing to participants under the 1997
Plan; (ii) increase the number of shares available for issuance or sale pursuant
to the 1997 Plan (other than as permitted in certain circumstances provided by
the 1997 Plan); or (iii) materially modify the requirements as to eligibility
for participation in the 1997 Plan.
Shares Subject to 1997 Plan
The 1997 Plan, as amended, provides that the total number of shares of
the Company's common stock that may be purchased pursuant to the exercise of
Options and issued in connection with other awards shall not exceed 1,425,000
shares, subject to adjustment as provided in the 1997 Plan. The shares to be
issued upon the exercise of Options and awards granted under the 1997 Plan will
be currently authorized but unissued shares of common stock of the Company. The
number of shares of the Company's common stock available under the 1997 Plan,
the exercise price of an Option, or the value of an award, may be adjusted by
the Compensation Committee in its sole discretion upon any stock dividend or
split, recapitalization, reclassification, combination, exchange of shares, or
other similar corporate change, if the Compensation Committee determines that
such change necessarily or equitably requires such an adjustment.
Plan Awards
Stock Options. Upon the grant of an Option, the Compensation Committee
fixes the number of shares of the Company's common stock that the optionee may
purchase upon exercise of the Option and the price at which the shares may be
purchased. With regard to ISOs, the exercise price cannot be less than the "fair
market value" of the common stock at the time the ISO is granted, or 110% of
such fair market value in certain cases. Further, the aggregate fair market
value of common stock (determined at the time the ISO is granted) subject to
ISOs granted to an employee under all of the Company's option plans that become
exercisable for the first time by such employee during any calendar year may not
exceed $100,000. NQOs may be granted at less than the fair market value of the
common stock, but not less than 85% of fair market value. See "Federal Income
Tax Consequences." Each Option will be exercisable by the optionee only during
the term fixed by the Compensation Committee, with such term ending not later
than ten years after the date of grant (in the case of ISOs). Payment for shares
upon exercise of any Option may be made in cash, in shares of the Company's
common stock having an aggregate fair market value on the date of exercise which
is not less than the exercise price of the Option, or by a combination of cash
and such shares, as the Compensation Committee may determine. Options granted
under the 1997 Plan are non-transferable except to the extent permitted by the
agreement evidencing such Option. However, no ISO will be transferable by any
optionee other than by will or the laws of descent and distribution. If,
pursuant to the agreement evidencing any Option, such Option remains exercisable
after the optionee's death, it may be exercised to the extent permitted by such
agreement by the personal representative of the optionee's estate or by any
person who acquired the right to exercise such option by bequest, inheritance,
or otherwise, by reason of the optionee's death.
Restricted Stock Awards. Restricted stock awards granted pursuant to
the 1997 Plan entitle the holder to receive shares of the Company's common
stock, which will be subject to forfeiture to the Company if specified
conditions are not satisfied. The Compensation Committee may establish a period
(the "Restricted Period") at the time a restricted stock award is granted during
which the holder will not be permitted to sell, transfer, pledge, encumber, or
assign the shares of the Company common stock
19
<PAGE>
subject to the award. During the Restricted Period, the holder of shares subject
to the restricted stock award shall have all of the rights of a shareholder of
the Company with respect to such shares, including the right to vote the shares
and to receive any dividends and other distributions with respect to the shares.
Except to the extent otherwise provided in the restricted stock agreement
governing each restricted stock award, all shares of the Company's common stock
then subject to any restriction will be forfeited to the Company without further
obligation of the Company to the holder thereof, and all rights of the holder
with respect to such shares will terminate, if the holder ceases to provide
services to the Company or its Affiliates as an employee, consultant or other
service provider.
Performance Units and Stock Bonuses. Performance units may entitle the
recipient to receive a payment from the Company, in the form of stock, cash or a
combination of both, upon the achievement of established performance or other
goals. A stock bonus entitles a recipient to receive an award of common stock of
the Company. Performance units and stock bonuses will be subject to such terms
and conditions, consistent with the other provisions of the 1997 Plan, as may be
determined by the Compensation Committee in its sole discretion.
Immediate Acceleration of Awards
The 1997 Plan provides that, notwithstanding any other provisions
contained in the 1997 Plan or the agreement evidencing any Option or restricted
stock award thereunder, the restrictions on all shares of restricted stock shall
lapse immediately, and all outstanding Options will become exercisable
immediately, if any of the following events occur: (i) the sale, lease, exchange
or other transfer of substantially all of the assets of the Company; (ii) the
liquidation or dissolution of the Company; (iii) certain mergers or
consolidations of the Company which result in a reduction in the voting power of
the current shareholders of the Company; (iv) any person becomes the beneficial
owner of more than 20% of the Company's common stock without the advance
approval of the incumbent directors or more than 50% of the voting power of the
Company's outstanding stock without regard to consent by the incumbent
directors; (v) the incumbent directors cease for any reason to constitute at
least a majority of the Board; or (vi) any other change in control of the
Company of a nature that would be required to be reported pursuant to Section 13
or 15(d) of the Exchange Act. However, a participant under the 1997 Plan will
not be entitled to the immediate acceleration of an award as provided above if
such acceleration would, with respect to such participant, constitute a
"parachute payment" for purposes of Section 280G of the Internal Revenue Code of
1986, as amended, or any successor provision.
Federal Income Tax Consequences
The following description is a general summary of the current federal
income tax provisions relating to the grant and exercise of ISOs and NQOs under
the 1997 Plan, the grant of other awards thereunder, and the sale of shares of
common stock acquired upon exercise of Options or under a restricted stock
award, performance unit or stock bonus. The provisions summarized below are
subject to changes in federal income tax laws and regulations, and the effects
of such provisions may vary with individual circumstances.
Incentive Stock Options. ISOs granted under the 1997 Plan are intended
to be "incentive stock options" as defined by Section 422 of the Code. Under
present law, the recipient of an ISO will not realize taxable income upon the
grant or the exercise of an ISO, and the Company will not receive an income tax
deduction at either such time. Generally, if an optionee exercises an ISO at any
time prior to three months after termination of the optionee's employment and
does not sell the shares acquired upon
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exercise of an ISO within the later of either (i) two years after the grant of
the ISO or (ii) one year after the date of exercise of the ISO, the gain upon a
subsequent sale of the shares will be taxed as long-term capital gain. If the
optionee does not satisfy these requirements, the optionee generally will
recognize ordinary income in an amount equal to the difference between the
exercise price paid in connection with exercise of the ISO and the fair market
value of the shares acquired as of the date of exercise of the ISO, and will
recognize capital gain on the difference between the sale price of the shares
and the fair market value of the shares as of the date of exercise. In such
event, the Company would be entitled to a corresponding income tax deduction
equal to the amount recognized as ordinary income by the optionee. Upon the
exercise of an ISO, the excess of the stock's fair market value on the date of
exercise over the exercise price will be included in the optionee's alternative
minimum taxable income ("AMTI") and may result in the imposition of a tax on
such AMTI. Liability for the alternative minimum tax is complex and depends upon
an individual's overall tax situation.
Non-Qualified Stock Options. Generally, upon the grant of an NQO,
neither the Company nor the optionee will experience any tax consequences. Upon
exercise of an NQO granted under the 1997 Plan, or upon the exercise of an
Option initially intended to be an ISO that does not qualify for the tax
treatment described above, the optionee will realize ordinary income in an
amount equal to the excess of the fair market value of the shares of common
stock received over the exercise price paid by the optionee with respect to such
shares. The amount recognized as ordinary income by the optionee will increase
the optionee's basis in the stock acquired pursuant to the exercise of the NQO.
The Company will be allowed a federal income tax deduction for the amount
recognized as ordinary income by the optionee upon the optionee's exercise of
the NQO. Upon a subsequent sale of the stock, the optionee will recognize
short-term or long-term gain or loss depending upon the holding period for the
stock and upon the stock's subsequent appreciation or depreciation in value.
Restricted Stock Awards. A participant who receives an award of
restricted stock under the 1997 Plan generally will recognize ordinary income at
the time at which the restrictions on such shares (the "Restrictions") lapse, in
an amount equal to the excess of (i) the fair market value of such shares at the
time the Restrictions lapse, over (ii) the price, if any, paid for such shares.
If the participant makes an election with respect to such shares under Section
83(b) of the Internal Revenue Code of 1986, as amended (the "Code"), not later
than 30 days after the date shares are transferred to the participant pursuant
to such award, the participant will recognize ordinary income at the time of
transfer in an amount equal to the excess of (i) the fair market value of the
shares covered by the award (determined without regard to any restriction other
than a restriction which by its terms will never lapse) at the time of such
transfer over (ii) the price, if any, paid for such shares. If, subsequent to
the lapse of Restrictions on his or her shares, the participant sells such
shares, the difference, if any, between the amount realized from such sale and
the tax basis of such shares to the holder will be taxed as long-term or
short-term capital gain or loss, depending on whether the participant's holding
period for such shares exceeds the applicable holding period at the time of sale
and provided that the participant holds such shares as a capital asset at such
time.
Performance Units. A recipient of a performance unit normally will not
recognize taxable income at the time the performance unit is granted.
Thereafter, the recipient will recognize ordinary income as his or her rights
under the performance unit vest, and he or she receives a payment of the
economic value of a vested performance unit in the form of cash, common stock,
or any combination thereof. The amount of such ordinary income will be equal to
the amount of cash received, the market value of common stock received, or a
combination thereof. Upon a subsequent sale of any common stock received, the
change in the value of the common stock would be treated as a capital gain or
loss.
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The Company or its appropriate subsidiary will generally be allowed an income
tax deduction equal to the ordinary income recognized by the recipient.
Stock Bonus. A recipient of a stock bonus normally will recognize
ordinary income at the date of the award equal to the value of the stock
received, unless rights to all or part of the stock are not immediately vested
or are subject to restrictions. Upon a subsequent sale of the common stock, the
change in the value of the common stock would be treated as capital gain or
loss. The Company or its appropriate subsidiary will generally be allowed an
income tax deduction equal to the ordinary income recognized by the recipient.
Shareholder Approval
The affirmative vote of a majority of the shares of common stock of the
Company represented at the Annual Meeting either in person or by proxy, assuming
a quorum is present, is required to approve the amendment to the 1997 Plan
increasing the number of share reserved for issuance thereunder.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR
APPROVAL OF THE AMENDMENT TO THE 1997 STOCK OPTION AND INCENTIVE PLAN AS SET
FORTH IN PROPOSAL 2.
APPROVAL OF AMENDMENT TO 1997 DIRECTOR STOCK
OPTION PLAN TO INCREASE NUMBER OF SHARES
RESERVED FOR ISSUANCE THEREUNDER
(Proposal 3)
The Vital Images, Inc. 1997 Director Stock Option Plan ("Director
Plan") was adopted by the Board of Directors on March 19, 1997 and approved by
the sole shareholder of the Company on May 1, 1997. An aggregate of 75,000
shares was reserved for issuance under the Director Plan at the time of its
adoption. Effective February 24, 1998, the Board of Directors voted to increase
the number of shares reserved for issuance under the Director Plan to 105,000
shares, and the Shareholders approved the amendment to the Director Plan to
increase the number of shares issuable thereunder at the 1998 Annual Meeting.
Effective February 25, 1999, the Board of Directors voted to increase the number
of shares reserved for issuance under the Director Plan to 210,000 shares,
subject to the approval of the Company's shareholders on or before February 25,
2000. The shareholders are being asked to approve the amendment to the Director
Plan to increase the number of shares issuable thereunder at the 1999 Annual
Meeting.
The Director Plan is intended to assist the Company in attracting,
motivating and retaining well-qualified individuals to serve as directors of the
Company. Management believes that the granting of options will serve as partial
consideration for and give well-qualified directors an additional inducement to
remain in the service of the Company and provide them with an increased
incentive to work for the Company's success. As of February 28, 1999, the
Company had 15,000 shares of common stock available for future grants of stock
options under the Director Plan. Pursuant to the automatic grant provisions of
the Director Plan, the Company will be required to grant options for the
purchase of approximately 60,000 shares prior to the end of 2000. To enable to
Company to continue to grant stock-based awards in furtherance of the purposes
and objectives of the Director Plan, the Board recommends that the shareholders
approve the proposed increase in the number of shares reserved for issuance
under the Director Plan.
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The principal features and effects of the Director Plan are discussed
below.
Administration and Eligibility
The Board of Directors of the Company has full authority to administer
the Director Plan, including authority to interpret and construe any provisions
of the Director Plan and any stock options granted thereunder. Notwithstanding
the authority of the Board of Directors to administer the Plan, certain grants
of stock options under the Director Plan and the amounts and terms of the
options so granted will be automatically determined under the Director Plan. As
such, the Board of Directors will have no authority to determine the grant or
terms of such automatic options.
The only persons eligible to receive options under the Director Plan
are members of the Board of Directors of the Company. The only persons eligible
to receive automatic grants of options under the Director Plan are those
Directors of the Company who are not also employees of the Company
("Non-Employee Directors").
The Director Plan will terminate on the earlier of the date on which
the Director Plan is terminated by the Board of Directors of the Company or
March 19, 2007. Option rights outstanding at the termination of the Director
Plan may continue to be exercised in accordance with their terms after such
termination. The Director Plan may be amended at any time by the Board of
Directors. However, without the approval of a majority of the Company's
shareholders voting at a meeting at which a quorum is present, no such amendment
may (i) materially increase the benefits accruing to participants under the
Director Plan; (ii) increase the number of shares available for issuance or sale
pursuant to the Director Plan (other than as permitted in certain circumstances
provided by the Director Plan); or (iii) materially modify the requirements as
to eligibility for participation in the Director Plan.
Shares Subject to the Director Plan
The Director Plan, as amended, provides that the total number of shares
of the Company's common stock that may be purchased pursuant to the exercise of
options shall not exceed 210,000 shares, subject to adjustment as provided in
the Director Plan. The shares to be issued upon the exercise of Options and
restricted stock awards granted under the Director Plan will be currently
authorized but unissued shares of common stock of the Company. The number of
shares of the Company's common stock available under the Director Plan or the
exercise price of an option may be adjusted by the Board of Directors in its
sole discretion upon any stock dividend or split, recapitalization,
reclassification, combination, exchange of shares, or other similar corporate
change, if the Board of Directors determines that such change necessarily or
equitably requires such an adjustment.
Plans Awards
Under the Director Plan, eligible individuals may receive discretionary
or automatic grants of options to purchase shares of common stock of the
Company. Each option granted under the Director Plan is evidenced by a written
agreement between the Company and the recipient of the option. Such agreements
may not be identical for all individuals to whom options are granted, and the
terms and conditions of such agreements may be modified with the consent of
persons to whom the option was granted. The Director Plan permits the granting
of ISOs meeting the requirements of Section 422 of the Code and NQOs that do not
meet the requirements of Section 422.
Options granted under the Director Plan are non-transferable except to
the extent permitted by the agreement evidencing such option. However, no option
will be transferable by any optionee other than
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by will or the laws of descent and distribution. If, pursuant to the agreement
evidencing any option, such option remains exercisable after the optionee's
death, it may be exercised to the extent permitted by such agreement by the
personal representative of the optionee's estate or by any person who acquired
the right to exercise such option by bequest, inheritance, or otherwise, by
reason of the optionee's death. If an optionee's term as a director of the
Company shall terminate for any reason, any Option then held by the optionee, to
the extent then exercisable under the applicable option agreement, shall remain
exercisable after the termination of the optionee's director status for a period
of ninety (90) days (but in no event beyond eight years from the date of grant
of the option).
Automatic Option Grants. The Director Plan provides Non-Employee
Directors of the Company (each an "Eligible Director") with automatic grants of
stock options, and allows the Board of Directors to make additional
discretionary option grants to any or all directors. Each Eligible Director is
automatically granted an initial option to purchase 15,000 shares on the date of
his or her initial election or appointment to the Board of Directors (in each
case, an "Initial Grant"). On the third anniversary date of the date of the
Initial Grant to each Eligible Director and on each successive third anniversary
thereafter, such Eligible Director will automatically receive an option under
the Director Plan to purchase an additional 15,000 shares of the Company's
common stock. All options automatically granted under the Director Plan will
expire eight (8) years after the date of grant. The exercise price per share for
each option granted under the Director Plan (with the exception noted above)
will be equal to 100% of the "fair market value" of a share of the Company's
common stock on the date such option is granted. Options automatically granted
under the Director Plan vest and become exercisable as to one-third of the
option shares on the first, second and third December 31 following the date of
grant. Payment for the exercise price of options granted under the Director Plan
may be made in cash, or in the discretion of the Board of Directors, by delivery
of shares of common stock of the Company having an aggregate fair market value
on the date of exercise which is not less than the exercise price of the option,
or by a combination thereof. The Director Plan also permits the Board of
Directors to make discretionary grants of stock options to one or more Directors
in addition to the automatic option grants described above.
Discretionary Option Grants. Upon the discretionary grant of an option,
the Board of Directors fixes the number of shares of the Company's common stock
that the optionee may purchase upon exercise of the option and the price at
which the shares may be purchased. The exercise price of such options cannot be
less than the "fair market value" of the common stock at the time the option is
granted. Each Option will be exercisable by the optionee only during the term
fixed by the Compensation Committee, with such term ending not later than eight
years after the date of grant (ten years in the case of ISOs). Upon exercise of
any Option, payment for shares as to which the Option is exercised may be made
in cash, in shares of the Company's common stock having an aggregate fair market
value on the date of exercise which is not less than the exercise price of the
Option, or by a combination of cash and such shares, as the Compensation
Committee may determine.
Immediate Acceleration of Awards
The Director Plan provides that, notwithstanding any other provisions
contained in the Director Plan or the agreement evidencing any Option or
restricted stock award thereunder, the restrictions on all shares of restricted
stock shall lapse immediately, and all outstanding Options will become
exercisable immediately, if any of the following events occur: (i) the sale,
lease, exchange or other transfer of substantially all of the assets of the
Company; (ii) the liquidation or dissolution of the Company; (iii) certain
mergers or consolidations of the Company which result in a reduction in the
voting power of the
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current shareholders of the Company; (iv) any person becomes the beneficial
owner of more than 20% of the Company's common stock without the advance
approval of the incumbent directors or more than 50% of the voting power of the
Company's outstanding stock without regard to consent by the incumbent
directors; (v) the incumbent directors cease for any reason to constitute at
least a majority of the Board; or (vi) any other change in control of the
Company of a nature that would be required to be reported pursuant to Section 13
or 15(d) of the Exchange Act. However, a participant under the Director Plan
will not be entitled to the immediate acceleration of an award as provided above
if such acceleration would, with respect to such participant, constitute a
"parachute payment" for purposes of Section 280G of the Internal Revenue Code of
1986, as amended, or any successor provision.
Federal Income Tax Consequences
See "Approval of Amendment to 1997 Stock Option and Incentive Plan to
Increase Number of Shares Reserved for Issuance Thereunder (Proposal 2) -
Federal Income Tax Consequences" for a description and general summary of the
current federal income tax provisions relating to the grant and exercise of ISOs
and NQOs under the Director Plan and the sale of shares of common stock acquired
upon exercise of options. The provisions summarized therein are subject to
changes in federal income tax laws and regulations, and the effects of such
provisions may vary with individual circumstances.
Shareholder Approval
The affirmative vote of a majority of the shares of common stock of the
Company represented at the Annual Meeting either in person or by proxy, assuming
a quorum is present, is required to approve the amendment to the Director Plan
increasing the number of shares reserved for issuance thereunder.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR
APPROVAL OF THE AMENDMENT TO THE 1997 DIRECTOR STOCK OPTION PLAN AS SET FORTH IN
PROPOSAL 3.
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RATIFICATION OF THE APPOINTMENT
OF INDEPENDENT ACCOUNTANTS
(Proposal 4)
The Board of Directors has appointed the firm of PricewaterhouseCoopers
LLP as independent accountants for the year ending December 31, 1999. A
representative of PricewaterhouseCoopers LLP will be present at the Annual
Meeting, will have an opportunity to make a statement if he desires to do so and
will be available to respond to appropriate questions from shareholders.
All proxies received in response to this solicitation will be voted in
favor of the ratification of the appointment of the independent accountants,
unless other instructions are indicated thereon.
Shareholder Approval
The affirmative vote of a majority of the shares of common stock of the
Company represented at the Annual Meeting either in person or by proxy, assuming
a quorum is present, is required to ratify the appointment of
PricewaterhouseCoopers LLP as independent accountants for the Company for the
year ending December 31, 1999.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT
ACCOUNTANTS AS SET FORTH IN PROPOSAL 4.
By Order of the Board of Directors
/s/ Gregory S. Furness
Gregory S. Furness, Secretary
April 13, 1999
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Appendix A
VITAL IMAGES, INC.
1997 STOCK OPTION AND INCENTIVE PLAN
Section 1. Purpose of Plan. The purpose of the Vital Images, Inc. 1997
Stock Option and Incentive Plan (the "Plan") is to advance the interests of
Vital Images, Inc. (the "Company") and its shareholders by enabling the Company
and its Subsidiaries to attract and retain persons of ability to perform
services for the Company and its Subsidiaries by providing an incentive to such
individuals through equity participation in the Company and by rewarding such
individuals who contribute to the achievement by the Company of its economic
objectives.
Section 2. Definitions. The following terms will have the meanings set
forth below, unless the context clearly otherwise requires:
(a) "Board" means the Board of Directors of the Company.
(b) "Broker Exercise Notice" means a written notice pursuant to which a
Participant, upon exercise of an Option, irrevocably instructs a broker
or dealer to sell a sufficient number of shares or loan a sufficient
amount of money to pay all or a portion of the exercise price of the
Option and/or any related withholding tax obligations and remit such
sums to the Company and directs the Company to deliver stock
certificates to be issued upon such exercise directly to such broker or
dealer.
(c) "Change in Control" means an event described in Section 12(a) of
the Plan.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means the group of individuals administering the Plan,
as provided in Section 3 of the Plan.
(f) "Common Stock" means the common stock of the Company, par value
$.01 per share, or the number and kind of shares of stock or other
securities into which such Common Stock may be changed in accordance
with Section 4(c) of the Plan.
(g) "Disability" means the disability of the Participant such as would
entitle the Participant to receive disability income benefits pursuant
to the long-term disability plan of the Company or Subsidiary then
covering the Participant or, if no such plan exists or is applicable to
the Participant, the permanent and total disability of the Participant
within the meaning of Section 22(e)(3) of the Code.
(h) "Eligible Recipients" means all employees of the Company or any
Subsidiary and any directors, consultants and independent contractors
of the Company or any Subsidiary.
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(i) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(j) "Fair Market Value" means, with respect to the Common Stock, the
following:
(i) if the Common Stock is listed or admitted to unlisted
trading privileges on any national securities exchange or is
not so listed or admitted but transactions in the Common Stock
are reported on the Nasdaq National Market or on the Nasdaq
SmallCap Market, the closing price of the Common Stock on such
exchange or reported by the Nasdaq National Market or the
Nasdaq SmallCap Market as of such date (or, if no shares were
traded on such day, as of the next preceding day on which
there was such a trade).
(ii) if the Common Stock is not so listed or admitted to
unlisted trading privileges or reported on the Nasdaq National
Market or the Nasdaq SmallCap Market, and bid and asked prices
therefor in the over-the-counter market are reported by the
National Quotation Bureau, Inc. (or any comparable reporting
service), the mean of the closing bid and asked prices as of
such date, as so reported by the National Quotation Bureau,
Inc. (or such comparable reporting service).
(iii) if the Common Stock is not so listed or admitted to
unlisted trading privileges, or reported on the Nasdaq
National Market, and such bid and asked prices are not so
reported, such price as the Committee determines in good faith
in the exercise of its reasonable discretion. The Committee
shall not be required to obtain an appraisal within six months
of the adoption of the Plan. The Committee's determination as
to the current value of the Common Stock shall be final,
conclusive and binding for all purposes and on all persons,
including, without limitation, the Company, the shareholders
of the Company, the Participants and their respective
successors-in-interest. No member of the Board of the
Committee shall be liable for any determination regarding
current value of the Common Stock that is made in good faith.
(k) "Incentive Award" means an Option, Restricted Stock Award,
Performance Unit or Stock Bonus granted to an Eligible Recipient
pursuant to the Plan.
(l) "Incentive Stock Option" means a right to purchase Common Stock
granted to an Eligible Recipient pursuant to Section 6 of the Plan that
qualifies as an "incentive stock option" within the meaning of Section
422 of the Code.
(m) "Non-Statutory Stock Option" means a right to purchase Common Stock
granted to an Eligible Recipient pursuant to Section 6 of the Plan that
does not qualify as an Incentive Stock Option.
(n) "Option" means an Incentive Stock Option or a Non-Statutory Stock
Option.
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(o) "Participant" means an Eligible Recipient who receives one or more
Incentive Awards under the Plan.
(p) "Performance Unit" means a right granted to an Eligible Recipient
pursuant to Section 8 of the Plan to receive a payment from the
Company, in the form of stock, cash or a combination of both, upon the
achievement of established performance or other goals.
(q) "Previously Acquired Shares" means shares of Common Stock that are
already owned by the Participant or, with respect to any Incentive
Award, that are to be issued upon the grant, exercise or vesting of
such Incentive Award.
(r) "Restricted Stock Award" means an award of Common Stock granted to
an Eligible Recipient pursuant to Section 7 of the Plan that is subject
to the restrictions on transferability and the risk of forfeiture
imposed by the provisions of such Section 7.
(s) "Retirement" means termination of employment or service pursuant to
and in accordance with the regular (or, if approved by the Board for
purposes of the Plan, early) retirement/pension plan or practice of the
Company or Subsidiary then covering the Participant, provided that if
the Participant is not covered by any such plan or practice, the
Participant will be deemed to be covered by the Company's plan or
practice for purposes of this determination.
(s) "Securities Act" means the Securities Act of 1933, as amended.
(u) "Stock Bonus" means an award of Common Stock granted to an Eligible
Recipient pursuant to Section 9 of the Plan.
(v) "Subsidiary" means any entity that is directly or indirectly
controlled by the Company or any entity in which the Company has a
significant equity interest, as determined by the Committee.
(w) "Tax Date" means the date any withholding tax obligation arises
under the Code for a Participant with respect to an Incentive Award.
Section 3. Plan Administration.
(a) The Committee. So long as the Company has a class of its equity
securities registered under Section 12 of the Exchange Act, the Plan
will be administered by (i) the Board or (ii) a committee (the
"Committee") consisting solely of not less than two members of the
Board who are not employees of the Company (for purposes of this Plan
and with respect to the administration of this Plan, references
hereinafter to the Committee shall mean either the Committee, or if the
Board has not appointed a Committee, the Board.) To
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the extent consistent with corporate law, the Committee may delegate to
any officers of the Company the duties, power and authority of the
Committee under the Plan pursuant to such conditions or limitations as
the Committee may establish; provided, however, that only the Committee
may exercise such duties, power and authority with respect to Eligible
Recipients who are subject to Section 16 of the Exchange Act. Each
determination, interpretation or other action made or taken by the
Committee pursuant to the provisions of the Plan will be conclusive and
binding for all purposes and on all persons, and no member of the
Committee will be liable for any action or determination made in good
faith with respect to the Plan or any Incentive Award granted under the
Plan.
(b) Authority of the Committee.
(i) In accordance with and subject to the provisions of the
Plan, the Committee will have the authority to determine all
provisions of Incentive Awards as the Committee may deem
necessary or desirable and as consistent with the terms of the
Plan, including, without limitation, the following: (A) the
Eligible Recipients to be selected as Participants; (B) the
nature and extent of the Incentive Awards to be made to each
Participant (including the number of shares of Common Stock to
be subject to each Incentive Award, any exercise price, the
manner in which Incentive Awards will vest or become
exercisable and whether Incentive Awards will be granted in
tandem with other Incentive Awards) and the form of written
agreement, if any, evidencing such Incentive Award; (C) the
time or times when Incentive Awards will be granted; (D) the
duration of each Incentive Award; and (E) the restrictions and
other conditions to which the payment or vesting of Incentive
Awards may be subject. In addition, the Committee will have
the authority under the Plan in its sole discretion to pay the
economic value of any Incentive Award in the form of cash,
Common Stock or any combination of both.
(ii) The Committee will have the authority under the Plan to
amend or modify the terms of any outstanding Incentive Award
in any manner, including, without limitation, the authority to
modify the number of shares or other terms and conditions of
an Incentive Award, extend the term of an Incentive Award,
accelerate the exercisability or vesting or otherwise
terminate any restrictions relating to an Incentive Award,
accept the surrender of any outstanding Incentive Award or, to
the extent not previously exercised or vested, authorize the
grant of new Incentive Awards in substitution for surrendered
Incentive Awards; provided, however that the amended or
modified terms are permitted by the Plan as then in effect and
that any Participant adversely affected by such amended or
modified terms has consented to such amendment or
modification. No amendment or modification to an Incentive
Award, however, whether pursuant to this Section 3(b) or any
other provisions of the Plan, will be deemed to be a regrant
of such Incentive Award for purposes of this Plan.
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(iii) In the event of (A) any reorganization, merger,
consolidation, recapitalization, liquidation,
reclassification, stock dividend, stock split, combination of
shares, rights offering, extraordinary dividend or divestiture
(including a spin-off) or any other change in corporate
structure or shares, (B) any purchase, acquisition, sale or
disposition of a significant amount of assets or a significant
business, (C) any change in accounting principles or
practices, or (D) any other similar change, in each case with
respect to the Company or any other entity whose performance
is relevant to the grant or vesting of an Incentive Award, the
Committee (or, if the Company is not the surviving corporation
in any such transaction, the board of directors of the
surviving corporation) may, without the consent of any
affected Participant, amend or modify the vesting criteria of
any outstanding Incentive Award that is based in whole or in
part on the financial performance of the Company (or any
Subsidiary or division thereof) or such other entity so as
equitably to reflect such event, with the desired result that
the criteria for evaluating such financial performance of the
Company or such other entity will be substantially the same
(in the sole discretion of the Committee or the board of
directors of the surviving corporation) following such event
as prior to such event; provided, however, that the amended or
modified terms are permitted by the Plan as then in effect.
Section 4. Shares Available for Issuance.
(a) Maximum Number of Shares Available. Subject to adjustment as
provided in Section 4(c) of the Plan, the maximum number of shares of
Common Stock that will be available for issuance under the Plan will be
675,000 shares of Common Stock.
(b) Accounting for Incentive Awards. Shares of Common Stock that are
issued under the Plan or that are subject to outstanding Incentive
Awards will be applied to reduce the maximum number of shares of Common
Stock remaining available for issuance under the Plan. Any shares of
Common Stock that are subject to an Incentive Award that lapses,
expires, is forfeited or for any reason is terminated unexercised or
unvested and any shares of Common Stock that are subject to an
Incentive Award that is settled or paid in cash or any form other than
shares of Common Stock will automatically again become available for
issuance under the Plan. Any shares of Common Stock that constitute the
forfeited portion of a Restricted Stock Award, however, will not become
available for further issuance under the Plan.
(c) Adjustments to Shares and Incentive Awards. In the event of any
reorganization, merger, consolidation, recapitalization, liquidation,
reclassification, stock dividend, stock split, combination of shares,
rights offering, divestiture or extraordinary dividend (including a
spin-off) or any other change in the corporate structure or shares of
the Company, the Committee (or, if the Company is not the surviving
corporation in any such transaction, the board of directors of the
surviving corporation) will make appropriate adjustment (which
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determination will be conclusive) as to the number and kind of
securities available for issuance under the Plan and, in order to
prevent dilution or enlargement of the rights of Participants, the
number, kind and, where applicable, exercise price of securities
subject to outstanding Incentive Awards.
Section 5. Participation. Participants in the Plan will be those
Eligible Recipients who, in the judgment of the Committee, have contributed, are
contributing or are expected to contribute to the achievement of economic
objectives of the Company or its Subsidiaries. Eligible Recipients may be
granted from time to time one or more Incentive Awards, singly or in combination
or in tandem with other Incentive Awards, as may be determined by the Committee
in its sole discretion. Incentive Awards will be deemed to be granted as of the
date specified in the grant resolution of the Committee, which date will be the
date of any related agreement with the Participant.
Section 6. Options.
(a) Grant. An Eligible Recipient may be granted one or more Options
under the Plan, and such Options will be subject to such terms and
conditions, consistent with the other provisions of the Plan, as may be
determined by the Committee in its sole discretion. The Committee may
designate whether an Option is to be considered an Incentive Stock
Option or a Non-Statutory Stock Option. To the extent that any
Incentive Stock Option granted under the Plan ceases for any reason to
qualify as an "incentive stock option" for purposes of Section 422 of
the Code, such Incentive Stock Option will continue to be outstanding
for purposes of the Plan but will thereafter be deemed to be a
Non-Statutory Stock Option.
(b) Exercise Price. The per share price to be paid by a Participant
upon exercise of an Option will be determined by the Committee in its
discretion at the time of the Option grant, provided that (i) such
price will not be less than 100% of the Fair Market Value of one share
of Common Stock on the date of grant with respect to an Incentive Stock
Option (110% of the Fair Market Value if, at the time the Incentive
Stock Option is granted, the Participant owns, directly or indirectly,
more than 10% of the total combined voting power of all classes of
stock of the Company or any parent or subsidiary corporation of the
Company), and (ii) such price will not be less than 85% of the Fair
Market Value of one share of Common Stock on the date of grant with
respect to a Non-Statutory Stock Option.
(c) Exercisability and Duration. An Option will become exercisable at
such times and in such installments as may be determined by the
Committee in its sole discretion at the time of grant; provided,
however, that no Option may be exercisable after 10 years from its date
of grant.
(d) Payment of Exercise Price. The total purchase price of the shares
to be purchased upon exercise of an Option will be paid entirely in
cash (including check, bank draft or money order); provided, however,
that the Committee, in its sole discretion and upon terms
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and conditions established by the Committee, may allow such payments to
be made, in whole or in part, by tender of a Broker Exercise Notice,
Previously Acquired Shares, a promissory note (on terms acceptable to
the Committee in its sole discretion) or by a combination of such
methods.
(e) Manner of Exercise. An Option may be exercised by a Participant in
whole or in part from time to time, subject to the conditions contained
in the Plan and in the agreement evidencing such Option, by delivery in
person, by facsimile or electronic transmission or through the mail of
written notice of exercise to the Company (Attention: Secretary) at its
principal executive office in Minneapolis, Minnesota and by paying in
full the total exercise price for the shares of Common Stock to be
purchased in accordance with Section 6(d) of the Plan.
Section 7. Restricted Stock Awards.
(a) Grant. An Eligible Recipient may be granted one or more Restricted
Stock Awards under the Plan, and such Restricted Stock Awards will be
subject to such terms and conditions, consistent with the other
provisions of the Plan, as may be determined by the Committee in its
sole discretion. The Committee may impose such restrictions or
conditions, not inconsistent with the provisions of the Plan, to the
vesting of such Restricted Stock Awards as it deems appropriate,
including, without limitation, that the Participant remain in the
continuous employ or service of the Company or a Subsidiary for a
certain period or that the Participant or the Company (or any
Subsidiary or division thereof) satisfy certain performance goals or
criteria.
(b) Rights as a Shareholder; Transferability. Except as provided in
Sections 7(a), 7(c) and 12(c) of the Plan, a Participant will have all
voting, dividend, liquidation and other rights with respect to shares
of Common Stock issued to the Participant as a Restricted Stock Award
under this Section 7 upon the Participant becoming the holder of record
of such shares as if such Participant were a holder of record of shares
of unrestricted Common Stock.
(c) Dividends and Distributions. Unless the Committee determines
otherwise in its sole discretion (either in the agreement evidencing
the Restricted Stock Award at the time of grant or at any time after
the grant of the Restricted Stock Award), any dividends or
distributions (including regular quarterly cash dividends) paid with
respect to shares of Common Stock subject to the unvested portion of a
Restricted Stock Award will be subject to the same restrictions as the
shares to which such dividends or distributions relate. In the event
the Committee determines not to pay such dividends or distributions
currently, the Committee will determine in its sole discretion whether
any interest will be paid on such dividends or distributions. In
addition, the Committee in its sole discretion may require such
dividends and distributions to be reinvested (and in such case the
Participants consent to such reinvestment) in shares of Common Stock
that will be subject to the same
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restrictions as the shares to which such dividends or distributions
relate.
(d) Enforcement of Restrictions. To enforce the restrictions referred
to in this Section 7, the Committee may place a legend on the stock
certificates referring to such restrictions and may require the
Participant, until the restrictions have lapsed, to keep the stock
certificates, together with duly endorsed stock powers, in the custody
of the Company or its transfer agent or to maintain evidence of stock
ownership, together with duly endorsed stock powers, in a
certificateless book-entry stock account with the Company's transfer
agent.
Section 8. Performance Units. An Eligible Recipient may be granted one
or more Performance Units under the Plan, and such Performance Units will be
subject to such terms and conditions, consistent with the other provisions of
the Plan, as may be determined by the Committee in its sole discretion. The
Committee may impose such restrictions or conditions, not inconsistent with the
provisions of the Plan, to the vesting of such Performance Units as it deems
appropriate, including, without limitation, that the Participant remain in the
continuous employ or service of the Company or any Subsidiary for a certain
period or that the Participant or the Company (or any Subsidiary or division
thereof) satisfy certain performance goals or criteria. The Committee will have
the sole discretion either to determine the form in which payment of the
economic value of vested Performance Units will be made to the Participant
(i.e., cash, Common Stock or any combination thereof) or to consent to or
disapprove the election by the Participant of the form of such payment.
Section 9. Stock Bonuses. An Eligible Recipient may be granted one or
more Stock Bonuses under the Plan, and such Stock Bonuses will be subject to
such terms and conditions, consistent with the other provisions of the Plan, as
may be determined by the Committee. The Participant will have all voting,
dividend, liquidation and other rights with respect to the shares of Common
Stock issued to a Participant as a Stock Bonus under this Section 9 upon the
Participant becoming the holder of record of such shares; provided, however,
that the Committee may impose such restrictions on the assignment or transfer of
a Stock Bonus as it deems appropriate.
Section 10. Effect of Termination of Employment or Other Service.
(a) Termination Due to Death, Disability or Retirement. In the event a
Participant's employment or other service with the Company and all
Subsidiaries is terminated by reason of death, Disability or
Retirement:
(i) All outstanding Options then held by the Participant will
become immediately exercisable in full and will remain
exercisable for a period of one year (three months in the case
of Retirement) after such termination (but in no event after
the expiration date of any such Option);
(ii) All Restricted Stock Awards then held by the Participant
will become fully
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vested; and
(iii) All Performance Units and Stock Bonuses then held by the
Participant will vest and/or continue to vest in the manner
determined by the Committee and set forth in the agreement
evidencing such Performance Units or Stock Bonuses.
(b) Termination for Reasons Other than Death, Disability or Retirement.
(i) In the event a Participant's employment or other service
is terminated with the Company and all Subsidiaries for any
reason other than death, Disability or Retirement, or a
Participant is in the employ or service of a Subsidiary and
the Subsidiary ceases to be a Subsidiary of the Company
(unless the Participant continues in the employ or service of
the Company or another Subsidiary), all rights of the
Participant under the Plan and any agreements evidencing an
Incentive Award will immediately terminate without notice of
any kind, and no Options then held by the Participant will
thereafter be exercisable, all Restricted Stock Awards then
held by the Participant that have not vested will be
terminated and forfeited, and all Performance Units and Stock
Bonuses then held by the Participant will vest and/or continue
to vest in the manner determined by the Committee and set
forth in the agreement evidencing such Performance Units or
Stock Bonuses; provided, however, that if such termination is
due to any reason other than termination by the Company or any
Subsidiary for "cause," all outstanding Options then held by
such Participant will remain exercisable to the extent
exercisable as of such termination for a period of three
months after such termination (but in no event after the
expiration date of any such Option).
(ii) For purposes of this Section 10(b), "cause" (as
determined by the Committee) will be as defined in any
employment or other agreement or policy applicable to the
Participant or, if no such agreement or policy exists, will
mean (A) dishonesty, fraud, misrepresentation, embezzlement or
deliberate injury or attempted injury, in each case related to
the Company or any Subsidiary, (B) any unlawful or criminal
activity of a serious nature, (C) any intentional and
deliberate breach of a duty or duties that, individually or in
the aggregate, are material in relation to the Participant's
overall duties, or (D) any material breach of any employment,
service, confidentiality or noncompete agreement entered into
with the Company or any Subsidiary.
(c) Modification of Rights Upon Termination. Notwithstanding the other
provisions of this Section 10, upon a Participant's termination of
employment or other service with the Company and all Subsidiaries, the
Committee may, in its sole discretion (which may be exercised at any
time on or after the date of grant, including following such
termination), cause Options (or any part thereof) then held by such
Participant to become or continue to become exercisable and/or remain
exercisable following such termination of employment or
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<PAGE>
service and Restricted Stock Awards, Performance Units and Stock
Bonuses then held by such Participant to vest and/or continue to vest
or become free of transfer restrictions, as the case may be, following
such termination of employment or service, in each case in the manner
determined by the Committee; provided, however, that no Option may
remain exercisable beyond its expiration date.
(d) Breach of Confidentiality or Noncompete Agreements. Notwithstanding
anything in the Plan to the contrary, in the event that a Participant
materially breaches the terms of any confidentiality or noncompete
agreement entered into with the Company or any Subsidiary, whether such
breach occurs before or after termination of such Participant's
employment or other service with the Company or any Subsidiary, the
Committee in its sole discretion may immediately terminate all rights
of the Participant under the Plan and any agreements evidencing an
Incentive Award then held by the Participant without notice of any
kind.
(e) Date of Termination of Employment or Other Service. Unless the
Committee otherwise determines in its sole discretion, a Participant's
employment or other service will, for purposes of the Plan, be deemed
to have terminated on the date recorded on the personnel or other
records of the Company or the Subsidiary for which the Participant
provides employment or other service, as determined by the Committee in
its sole discretion based upon such records.
Section 11. Payment of Withholding Taxes.
(a) General Rules. The Company is entitled to (i) withhold and deduct
from future wages of the Participant (or from other amounts that may be
due and owing to the Participant from the Company or a Subsidiary), or
make other arrangements for the collection of, all legally required
amounts necessary to satisfy any and all federal, state and local
withholding and employment-related tax requirements attributable to an
Incentive Award, including, without limitation, the grant, exercise or
vesting of, or payment of dividends with respect to, an Incentive Award
or a disqualifying disposition of stock received upon exercise of an
Incentive Stock Option, or (ii) require the Participant promptly to
remit the amount of such withholding to the Company before taking any
action, including issuing any shares of Common Stock, with respect to
an Incentive Award.
(b) Special Rules. The Committee may, in its sole discretion and upon
terms and conditions established by the Committee, permit or require a
Participant to satisfy, in whole or in part, any withholding or
employment-related tax obligation described in Section 11(a) of the
Plan by electing to tender Previously Acquired Shares, a Broker
Exercise Notice or a promissory note (on terms acceptable to the
Committee in its sole discretion), or by a combination of such methods.
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<PAGE>
Section 12. Change in Control.
(a) Change in Control. For purposes of this Section 12, a "Change in
Control" of the Company will mean the following:
(i) the sale, lease, exchange or other transfer, directly or
indirectly, of substantially all of the assets of the Company
(in one transaction or in a series of related transactions) to
a person or entity that is not controlled by the Company,
(ii) the approval by the shareholders of the Company of any
plan or proposal for the liquidation or dissolution of the
Company;
(iii) a merger or consolidation to which the Company is a
party if the shareholders of the Company immediately prior to
effective date of such merger or consolidation have
"beneficial ownership" (as defined in Rule 13d-3 under the
Exchange Act), immediately following the effective date of
such merger or consolidation, of securities of the surviving
corporation representing (A) more than 50%, but not more than
80%, of the combined voting power of the surviving
corporation's then outstanding securities ordinarily having
the right to vote at elections of directors, unless such
merger or consolidation has been approved in advance by the
Incumbent Directors (as defined in Section 12(b) below), or
(B) 50% or less of the combined voting power of the surviving
corporation's then outstanding securities ordinarily having
the right to vote at elections of directors (regardless of any
approval by the Incumbent Directors);
(iv) any person becomes after the effective date of the Plan
the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of (A) 20% or more, but
not 50% or more, of the combined voting power of the Company's
outstanding securities ordinarily having the right to vote at
elections of directors, unless the transaction resulting in
such ownership has been approved in advance by the Incumbent
Directors, or (B) 50% or more of the combined voting power of
the Company's outstanding securities ordinarily having the
right to vote at elections of directors (regardless of any
approval by the Incumbent Directors);
(v) the Incumbent Directors cease for any reason to constitute
at least a majority of the Board; or
(vi) any other change in control of the Company of a nature
that would be required to be reported pursuant to Section 13
or 15(d) of the Exchange Act, whether or not the Company is
then subject to such reporting requirements.
(b) Incumbent Directors. For purposes of this Section 12, "Incumbent
Directors" of the
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Company will mean any individuals who are members of the Board on the
effective date of the Plan and any individual who subsequently becomes
a member of the Board whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority
of the Incumbent Directors (either by specific vote or by approval of
the Company's proxy statement in which such individual is named as a
nominee for director without objection to such nomination).
(c) Acceleration of Vesting. Without limiting the authority of the
Committee under Section 3(b) of the Plan, if a Change in Control of the
Company occurs, then, unless otherwise provided by the Committee in its
sole discretion either in an agreement evidencing an Incentive Award at
the time of grant or at any time after the grant of an Incentive Award,
(i) all Options will become immediately exercisable in full and will
remain exercisable for the remainder of their terms, regardless of
whether the Participants to whom such Options have been granted remain
in the employ or service of the Company or any Subsidiary; (ii) all
outstanding Restricted Stock Awards will become immediately fully
vested; and (iii) all Performance Units and Stock Bonuses then held by
the Participant will vest and/or continue to vest in the manner
determined by the Committee and set forth in the agreement evidencing
such Performance Unit or Stock Bonuses.
(d) Cash Payment for Options. If a Change in Control of the Company
occurs, then the Committee, if approved by the Committee in its sole
discretion either in an agreement evidencing an Incentive Award at the
time of grant or at any time after the grant of an Incentive Award, and
without the consent of any Participant effected thereby, may determine
that some or all Participants holding outstanding Options will receive,
with respect to some or all of the shares of Common Stock subject to
such Options, as of the effective date of any such Change in Control of
the Company, cash in an amount equal to the excess of the Fair Market
Value of such shares immediately prior to the effective date of such
Change in Control of the Company over the exercise price per share of
such Options.
(e) Limitation on Change in Control Payments. Notwithstanding anything
in Section 12(c) or 12(d) of the Plan to the contrary, if, with respect
to a Participant, the acceleration of the vesting of an Incentive Award
as provided in Section 12(c) or the payment of cash in exchange for all
or part of an Incentive Award as provided in Section 12(d) (which
acceleration or payment could be deemed a "payment" within the meaning
of Section 280G(b)(2) of the Code), together with any other "payments"
which such Participant has the right to receive from the Company or any
corporation that is a member of an "affiliated group" (as defined in
Section 1504(a) of the Code without regard to Section 1504(b) of the
Code) of which the Company is a member, would constitute a "parachute
payment" (as defined in Section 280G(b)(2) of the Code), then the
"payments" to such Participant pursuant to Section 12(c) or 12(d) of
the Plan will be reduced to the largest amount as will result in no
portion of such "payments" being subject to the excise tax imposed by
Section 4999 of the Code; provided, however, that if a Participant is
subject to a separate agreement with the Company or a Subsidiary that
expressly addresses the potential
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application of Sections 280G or 4999 of the Code (including, without
limitation, that "payments" under such agreement or otherwise will not
be reduced or that the Participant will have the discretion to
determine which "payments" will be reduced), then the limitations of
this Section 12(e) will not apply, and any "payments" to a Participant
pursuant to Section 12(c) or 12(d) of the Plan will be treated as
"payments" arising under such separate agreement.
Section 13. Rights of Eligible Recipients and Participants;
Transferability.
(a) Employment or Service. Nothing in the Plan will interfere with or
limit in any way the right of the Company or any Subsidiary to
terminate the employment or service of any Eligible Recipient or
Participant at any time, nor confer upon any Eligible Recipient or
Participant any right to continue in the employ or service of the
Company or any Subsidiary.
(b) Rights as a Shareholder. As a holder of Incentive Awards (other
than Restricted Stock Awards and Stock Bonuses), a Participant will
have no rights as a shareholder unless and until such Incentive Awards
are exercised for, or paid in the form of, shares of Common Stock and
the Participant becomes the holder of record of such shares. Except as
otherwise provided in the Plan, no adjustment will be made for
dividends or distributions with respect to such Incentive Awards as to
which there is a record date preceding the date the Participant becomes
the holder of record of such shares, except as the Committee may
determine in its discretion.
(c) Restrictions on Transfer. Except pursuant to testamentary will or
the laws of descent and distribution or as otherwise expressly
permitted by the Plan, no right or interest of any Participant in an
Incentive Award prior to the exercise or vesting of such Incentive
Award will be assignable or transferable, or subjected to any lien,
during the lifetime of the Participant, either voluntarily or
involuntarily, directly or indirectly, by operation of law or
otherwise. A Participant will, however, be entitled to designate a
beneficiary to receive an Incentive Award upon such Participant's
death, and in the event of a Participant's death, payment of any
amounts due under the Plan will be made to, and exercise of any Options
(to the extent permitted pursuant to Section 10 of the Plan) may be
made by, the Participant's legal representatives, heirs and legatees.
(d) Non-Exclusivity of the Plan. Nothing contained in the Plan is
intended to modify or rescind any previously approved compensation
plans or programs of the Company or create any limitations on the power
or authority of the Board to adopt such additional or other
compensation arrangements as the Board may deem necessary or desirable.
Section 14. Securities Law and Other Restrictions. Notwithstanding any
other provision of the Plan or any agreements entered into pursuant to the Plan,
the Company will not be required to issue any shares of Common Stock under this
Plan, and a Participant may not sell, assign, transfer or otherwise dispose of
shares of Common Stock issued pursuant to Incentive
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Awards granted under the Plan, unless (i) there is in effect with respect to
such shares a registration statement under the Securities Act and any applicable
state securities laws or an exemption from such registration under the
Securities Act and applicable state securities laws, and (ii) there has been
obtained any other consent, approval or permit from any other regulatory body
which the Committee, in its sole discretion, deems necessary or advisable. The
Company may condition such issuance, sale or transfer upon the receipt of any
representations or agreements from the parties involved, and the placement of
any legends on certificates representing shares of Common Stock, as may be
deemed necessary or advisable by the Company in order to comply with such
securities law or other restrictions.
Section 15. Plan Amendment, Modification and Termination. The Board may
suspend or terminate the Plan or any portion thereof at any time, and may amend
the Plan from time to time in such respects as the Board may deem advisable in
order that Incentive Awards under the Plan will conform to any change in
applicable laws or regulations or in any other respect the Board may deem to be
in the best interests of the Company; provided, however, that no amendments to
the Plan will be effective without approval of the stockholders of the Company
if stockholder approval of the amendment is then required under the Exchange
Act, Section 422 of the Code or the rules of any stock exchange or Nasdaq. No
termination, suspension or amendment of the Plan may adversely affect any
outstanding Incentive Award without the consent of the affected Participant;
provided, however, that this sentence will not impair the right of the Committee
to take whatever action it deems appropriate under Sections 4(c) and 12 of the
Plan.
Section 16. Effective Date and Duration of the Plan. The Plan was
adopted by the Board on March 19, 1997 and by the sole shareholder of the
Company on May 1, 1997, and is effective as of the consummation of the
distribution of the Company's Common Stock by Bio-Vascular, Inc. ("Bio-
Vascular") to the shareholder of Bio-Vascular. The Plan will terminate at
midnight on March 19, 2007, and may be terminated prior to such time to by Board
action, and no Incentive Award will be granted after such termination. Incentive
Awards outstanding upon termination of the Plan may continue to be exercised, or
become free of restrictions, in accordance with their terms.
Section 17. Miscellaneous.
(a) Governing Law. The validity, construction, interpretation,
administration and effect of the Plan and any rules, regulations and
actions relating to the Plan will be governed by and construed
exclusively in accordance with the laws of the State of Minnesota.
(b) Successors and Assigns. The Plan will be binding upon and inure to
the benefit of the successors and permitted assigns of the Company and
the Participants.
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FIRST AMENDMENT TO THE
VITAL IMAGES, INC.
1997 STOCK OPTION AND INCENTIVE PLAN
The Vital Images, Inc. 1997 Stock Option and Incentive Plan (the
"Plan") was adopted by the Board of Directors of Vital Images, Inc. (the
"Company") and approved by the sole shareholder of the Company in 1997, and is
now in full force and effect. This Amendment is adopted in order to amend the
Plan with respect to the number of shares of capital stock which may be granted
under the Plan.
A. Amendment. Section 4(a) of the Plan is hereby amended to read as
follows:
(a) Maximum Number of Shares Available. Subject to adjustment as
provided in Section 4(c) of the Plan, the maximum number of shares of
Common Stock that will be available for issuance under the Plan will be
925,000 shares of Common Stock.
B. Effective Date. This Amendment shall be effective as of February 24,
1998, and shall be subject to the approval by the shareholders of the Company at
the next Annual or Special Meeting of Shareholders.
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SECOND AMENDMENT TO THE
VITAL IMAGES, INC.
1997 STOCK OPTION AND INCENTIVE PLAN
The Vital Images, Inc. 1997 Stock Option and Incentive Plan (the
"Plan") was adopted by the Board of Directors of Vital Images, Inc. (the
"Company") and approved by the sole shareholder of the Company in 1997, was
amended in 1998 to increase the number of shares available for issuance to
925,000 and is now in full force and effect. This Amendment is adopted in order
to amend the Plan with respect to the number of shares of capital stock which
may be granted under the Plan.
A. Amendment. Section 4(a) of the Plan is hereby amended to read as
follows:
(a) Maximum Number of Shares Available. Subject to adjustment as
provided in Section 4(c) of the Plan, the maximum number of shares of
Common Stock that will be available for issuance under the Plan will be
1,425,000 shares of Common Stock.
B. Effective Date. This Amendment shall be effective as of February 25,
1999, and shall be subject to the approval by the shareholders of the Company at
the next Annual or Special Meeting of Shareholders.
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Appendix B
VITAL IMAGES, INC.
1997 DIRECTOR STOCK OPTION PLAN
Section 1. Purpose of Plan. The purpose of the Vital Images, Inc. 1997 Director
Stock Option Plan (the "Plan") is to advance the interests of Vital Images, Inc.
(the "Company") and its shareholders by enabling the Company to attract and
retain persons of ability to serve as directors of the Company and by providing
an incentive to such individuals through equity participation in the Company.
Section 2. Definitions. The following terms will have the meanings set forth
below, unless the context clearly otherwise requires:
(a) "Board" means the Board of Directors of the Company.
(b) "Broker Exercise Notice" means a written notice pursuant to which
an Option Holder, upon exercise of an Option, irrevocably instructs a
broker or dealer to sell a sufficient number of shares or loan a
sufficient amount of money to pay all or a portion of the exercise
price of the Option and/or any related withholding tax obligations and
remit such sums to the Company and directs the Company to deliver stock
certificates to be issued upon such exercise directly to such broker or
dealer.
(c) "Change in Control" means an event described in Section 7(a) of the
Plan.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Common Stock" means the common stock of the Company, par value
$.01 per share, or the number and kind of shares of stock or other
securities into which such Common Stock may be changed in accordance
with Section 4(c) of the Plan.
(f) "Continuous Status as a Director" shall mean the absence of any
interruption or termination of service as a Director. Continuous Status
as a Director shall not be considered as interrupted in the case of
sick leave, military leave, or any other leave of absence approved by
the Board.
(g) "Director" shall mean a member of the Board of Directors of the
Company.
(h) "Disability" means the permanent and total disability of the
Participant within the meaning of Section 22(e)(3) of the Code.
(i) "Distribution Date" means the effective date of the distribution of
the Company's outstanding common stock to the shareholders of
Bio-Vascular, Inc.
(j) "Employee" means any person, including officers and Directors,
employed by the Company or any Subsidiary. The payment of director's
fees by the Company shall not be sufficient to constitute employment by
the Company.
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(k) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(l) "Fair Market Value" means, with respect to the Common Stock, the
following:
(i) if the Common Stock is listed or admitted to unlisted
trading privileges on any national securities exchange or is
not so listed or admitted but transactions in the Common Stock
are reported on the Nasdaq National Market or Nasdaq SmallCap
Market, the closing price of the Common Stock on such exchange
or reported by the Nasdaq National Market or Nasdaq SmallCap
Market as of such date (or, if no shares were traded on such
day, as of the next preceding day on which there was such a
trade).
(ii) if the Common Stock is not so listed or admitted to
unlisted trading privileges or reported on the Nasdaq National
Market or the Nasdaq SmallCap Market, and bid and asked prices
therefor in the over-the-counter market are reported by the
the National Quotation Bureau, Inc. (or any comparable
reporting service), the mean of the closing bid and asked
prices as of such date, as so reported by the National
Quotation Bureau, Inc. (or such comparable reporting service).
(iii) if the Common Stock is not so listed or admitted to
unlisted trading privileges, or reported on the Nasdaq
National Market or Nasdaq SmallCap Market, and such bid and
asked prices are not so reported, such price as the Committee
determines in good faith in the exercise of its reasonable
discretion.
(m) "Non-employee Director" means a Director who is not an Employee of
the Company.
(n) "Option" means an Option granted pursuant to the Plan.
(o) "Option Stock" shall mean the Common Stock subject to an Option.
(p) "Option Holder" shall mean a Director who receives an Option under
this Plan.
(q) "Previously Acquired Shares" means shares of Common Stock that are
already owned by the Option Holder or, with respect to any Option, that
are to be issued upon the exercise of such Option.
(r) "Securities Act" means the Securities Act of 1933, as amended.
(s) "Subsidiary" means any entity that is directly or indirectly
controlled by the Company or any entity in which the Company has a
significant equity interest, as determined by the Board.
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Section 3. Plan Administration.
(a) The Administration by the Board. The Plan will be administered by
the Board of Directors of the Company. Each determination,
interpretation or other action made or taken by the Board pursuant to
the provisions of the Plan will be conclusive and binding for all
purposes and on all persons, and no member of the Board will be liable
for any action or determination made in good faith with respect to the
Plan or any Option granted under the Plan.
(b) Authority of the Board.
(i) In accordance with and subject to the provisions of the
Plan, the Board will have the authority to determine all
provisions of Options (except for Options granted pursuant to
Section 5(a)) as the Board may deem necessary or desirable and
as consistent with the terms of the Plan, including, without
limitation, the following: (A) the Directors to be granted
Options; (B) the nature and extent of the Options to be made
to each Option Holder (including the number of shares of
Common Stock to be subject to each Option, any exercise price,
the manner in which Options will vest or become exercisable
and whether Options will be granted in tandem with other
Options) and the form of written agreement, if any, evidencing
such Option; (C) the time or times when Options will be
granted; (D) the duration of each Option; and (E) the
restrictions and other conditions to which the payment or
vesting of Options may be subject.
(ii) The Board will have the authority under the Plan to amend
or modify the terms of any outstanding Option in any manner,
including, without limitation, the authority to modify the
number of shares or other terms and conditions of an Option,
extend the term of an Option, accelerate the exercisability or
vesting or otherwise terminate any restrictions relating to an
Option, accept the surrender of any outstanding Option or, to
the extent not previously exercised or vested, authorize the
grant of new Options in substitution for surrendered Options;
provided, however that the amended or modified terms are
permitted by the Plan as then in effect and that any Option
Holder adversely affected by such amended or modified terms
has consented to such amendment or modification. No amendment
or modification to an Option, however, whether pursuant to
this Section 3(b) or any other provisions of the Plan, will be
deemed to be a regrant of such Option for purposes of this
Plan.
Section 4. Shares Available for Issuance.
(a) Maximum Number of Shares Available. Subject to adjustment as
provided in Section 4(c) of the Plan, the maximum number of shares of
Common Stock that will be available for issuance under the Plan will be
75,000 shares of Common Stock.
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(b) Accounting for Options. Shares of Common Stock that are issued
under the Plan or that are subject to outstanding Options will be
applied to reduce the maximum number of shares of Common Stock
remaining available for issuance under the Plan. Any shares of Common
Stock that are subject to an Option that lapses, expires, is forfeited
or for any reason is terminated unexercised or unvested and any shares
of Common Stock that are subject to an Option that is settled or paid
in cash or any form other than shares of Common Stock will
automatically again become available for issuance under the Plan.
(c) Adjustments to Shares and Option Awards. In the event of any
reorganization, merger, consolidation, recapitalization, liquidation,
reclassification, stock dividend, stock split, combination of shares,
rights offering, divestiture or extraordinary dividend (including a
spin-off) or any other change in the corporate structure or shares of
the Company, the Board (or, if the Company is not the surviving
corporation in any such transaction, the board of directors of the
surviving corporation) will make appropriate adjustment (which
determination will be conclusive) as to the number and kind of
securities available for issuance under the Plan and, in order to
prevent dilution or enlargement of the rights of Option Holders, the
number, kind and, where applicable, exercise price of securities
subject to outstanding Options.
Section 5. Automatic Grants of Options to Non-employee Directors.
(a) Automatic Option Grants. Under the Plan, each Non-employee Director
will automatically be granted Options to purchase shares of Common
Stock as follows:
(i) Initial Option Grants. Each current and future
Non-employee Director will be granted an initial Option (the
"Initial Grant") as follows:
A. Current Non-Employee Directors. Each person
appointed to serve as a Non-employee Director
effective as of the Distribution Date shall
automatically be granted an Option on such date to
purchase 15,000 shares of Common Stock.
B. Future Non-Employee Directors. Each person who is
first elected or appointed to serve as a Non-employee
Director after the Distribution Date will
automatically be granted an Option on the date of his
or her initial election or appointment to the
Company's Board of Directors to purchase 15,000
shares of Common Stock.
(ii) Additional Option Grants. Each Non-employee Director will
automatically be granted an additional Option to purchase
shares of Common Stock as follows:
A. On the third anniversary date of the Initial Grant
to a Non-employee Director under the Plan, such
Non-employee Director will automatically be granted
an additional Option to purchase 15,000 shares of
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Common Stock (the "Second Option"); provided such
person is a Non-employee Director on such date.
B. Thereafter, on the third anniversary of the Second
Option, and on each successive third anniversary
thereof, such Non-employee Director will
automatically be granted an additional Option to
purchase 15,000 shares of Common Stock; provided such
person is a Non-employee Director on such date.
(iii) Notwithstanding the provisions of this Section 5(a), in
the event that a grant would cause the number of shares
subject to outstanding Options held by Directors plus shares
of Common Stock previously purchased upon exercise of Options
by Directors to exceed the number of shares set forth in
Section 4(a), then each such automatic grant shall be for that
number of shares determined by dividing the total number of
shares remaining available for grant by the number of
Directors on an automatic grant date. Any further grants shall
then be deferred until such time, if any, as additional shares
of Common Stock become available for grant under the Plan
through action of the shareholders to increase the number of
shares which may be issued under the Plan or through
cancellation or expiration of Options previously granted
hereunder.
(iv) Vesting, Exercisability and Expiration. All Options
granted under Section 5(a) shall vest and become exercisable
in cumulative installments with respect to one-third of such
Option on the first, second and third December 31 following
the date of grant of such option. All Options granted under
this Section 5(a) shall expire eight (8) years after the date
of grant.
(v) Exercise Price. The exercise price of Options granted
under the Plan shall be 100% of the fair market value of one
share of Common Stock on the date of grant.
(b) Discretionary Grants. In addition to the Options granted pursuant
to Section 5(a), a Director may be granted one or more Options under
the Plan, and such Options will be subject to such terms and
conditions, consistent with the other provisions of the Plan, as may be
determined by the Board in its sole discretion.
(i) Exercise Price. The per share price to be paid by an
Option Holder upon exercise of an Option granted pursuant to
this Section 5(b) will be determined by the Board in its
discretion at the time of the Option grant, provided that (i)
such price will not be less than 100% of the Fair Market Value
of one share of Common Stock on the date of grant.
(ii) Exercisability and Duration. An Option granted pursuant
to this Section 5(b) will become exercisable at such times and
in such installments as may be determined by the Board in its
sole discretion at the time of grant; provided,
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<PAGE>
however, that no Option may be exercisable after eight (8)
years from its date of grant.
(c) Payment of Exercise Price. The total purchase price of the shares
to be purchased upon exercise of an Option will be paid entirely in
cash (including check, bank draft or money order); provided, however,
that the Board, in its sole discretion and upon terms and conditions
established by the Board, may allow such payments to be made, in whole
or in part, by tender of a Broker Exercise Notice, Previously Acquired
Shares, a promissory note (on terms acceptable to the Board in its sole
discretion) or by a combination of such methods.
(d) Manner of Exercise. An Option may be exercised by an Option Holder
in whole or in part from time to time, subject to the conditions
contained in the Plan and in the agreement evidencing such Option, by
delivery in person, by facsimile or electronic transmission or through
the mail of written notice of exercise to the Company (Attention: Chief
Financial Officer) at its principal executive office in Minneapolis,
Minnesota and by paying in full the total exercise price for the shares
of Common Stock to be purchased in accordance with Section 5(c) of the
Plan.
Section 6. Effect of Termination of Service as a Director.
(a) Termination of Status as a Director. If a Director ceases to serve
as a Director, he may, but only within ninety (90) days after the date
he ceases to be a Director of the Company, exercise his Option to the
extent that he was entitled to exercise it at the date of such
termination. To the extent that he was not entitled to exercise an
Option at the date of such termination, or if he does not exercise such
Option (which he was entitled to exercise) within the time specified
herein, the Option shall terminate.
(b) Disability of Option Holder. Notwithstanding the provisions of
Section 6(a) above, in the event a Director is unable to continue his
service as a Director with the Company as a result of his total and
permanent disability (as defined in Section 22(e)(3) of the Internal
Revenue Code), he may, buy only within ninety (90) days from the date
of termination of such service, exercise his Option to the extent he
was entitled to exercise it at the date of such termination. To the
extent that he was not entitled to exercise the Option at the date of
termination, or if he does not exercise such Option (which he was
entitled to exercise) within the time specified herein, the Option
shall terminate.
(c) Death of Option Holder. In the event of the death of an Option
Holder:
(i) during the term of the Option when such Option Holder was,
at the time of his death, a Director of the Company and who
shall have been in Continuous Status as a Director since the
date of grant of the Option, the Option may be exercised, at
any time within one year following the date of death, by the
Option Holder's estate or by a person who acquired the right
to exercise the Option by
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<PAGE>
bequest or inheritance, but only to the extent of the right to
exercise that existed at the date of death.
(ii) within ninety (90) days after the termination of
Continuous Status as a Director, the Option may be exercised,
at any time within ninety (90) days following the date of
death, by the Option Holder's estate or by a person who
acquired the right to exercise the Option by bequest or
inheritance, but only to the extent of the right to exercise
that had accrued at the date of termination.
Section 7. Change in Control.
(a) Change in Control. For purposes of this Section 7, a "Change in
Control" of the Company will mean the following:
(i) the sale, lease, exchange or other transfer, directly or
indirectly, of substantially all of the assets of the Company
(in one transaction or in a series of related transactions) to
a person or entity that is not controlled by the Company,
(ii) the approval by the shareholders of the Company of any
plan or proposal for the liquidation or dissolution of the
Company;
(iii) a merger or consolidation to which the Company is a
party if the shareholders of the Company immediately prior to
effective date of such merger or consolidation have
"beneficial ownership" (as defined in Rule 13d-3 under the
Exchange Act), immediately following the effective date of
such merger or consolidation, of securities of the surviving
corporation representing (A) more than 50%, but not more than
80%, of the combined voting power of the surviving
corporation's then outstanding securities ordinarily having
the right to vote at elections of directors, unless such
merger or consolidation has been approved in advance by the
Incumbent Directors (as defined in Section 7(b) below), or (B)
50% or less of the combined voting power of the surviving
corporation's then outstanding securities ordinarily having
the right to vote at elections of directors (regardless of any
approval by the Incumbent Directors);
(iv) any person becomes after the effective date of the Plan
the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of (A) 20% or more, but
not 50% or more, of the combined voting power of the Company's
outstanding securities ordinarily having the right to vote at
elections of directors, unless the transaction resulting in
such ownership has been approved in advance by the Incumbent
Directors, or (B) 50% or more of the combined voting power of
the Company's outstanding securities ordinarily having the
right to vote at elections of directors (regardless of any
approval by the Incumbent Directors);
(v) the Incumbent Directors cease for any reason to constitute
at least a majority of the Board; or
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<PAGE>
(vi) any other change in control of the Company of a nature
that would be required to be reported pursuant to Section 13
or 15(d) of the Exchange Act, whether or not the Company is
then subject to such reporting requirements.
(b) Incumbent Directors. For purposes of this Section 7, "Incumbent
Directors" of the Company will mean any individuals who are members of
the Board on the effective date of the Plan and any individual who
subsequently becomes a member of the Board whose election, or
nomination for election by the Company's shareholders, was approved by
a vote of at least a majority of the Incumbent Directors (either by
specific vote or by approval of the Company's proxy statement in which
such individual is named as a nominee for director without objection to
such nomination).
(c) Acceleration of Vesting. Without limiting the authority of the
Board under Section 3(b) of the Plan, if a Change in Control of the
Company occurs, then, unless otherwise provided by the Board in its
sole discretion either in an agreement evidencing an Option at the time
of grant or at any time after the grant of an Option, all Options will
become immediately exercisable in full and will remain exercisable for
the remainder of their terms, regardless of whether the Option Holders
to whom such Options have been granted remain in the employ or service
of the Company or any Subsidiary.
(d) Cash Payment for Options. If a Change in Control of the Company
occurs, then the Board, if approved by the Board in its sole discretion
either in an agreement evidencing an Option at the time of grant or at
any time after the grant of an Option, and without the consent of any
Option Holder effected thereby, may determine that some or all Option
Holders holding outstanding Options will receive, with respect to some
or all of the shares of Common Stock subject to such Options, as of the
effective date of any such Change in Control of the Company, cash in an
amount equal to the excess of the Fair Market Value of such shares
immediately prior to the effective date of such Change in Control of
the Company over the exercise price per share of such Options.
(e) Limitation on Change in Control Payments. Notwithstanding anything
in Section 7(c) or 7(d) of the Plan to the contrary, if, with respect
to an Option Holder, the acceleration of the vesting of an Option as
provided in Section 7(c) or the payment of cash in exchange for all or
part of an Option as provided in Section 7(d) (which acceleration or
payment could be deemed a "payment" within the meaning of Section
280G(b)(2) of the Code), together with any other "payments" which such
Option Holder has the right to receive from the Company or any
corporation that is a member of an "affiliated group" (as defined in
Section 1504(a) of the Code without regard to Section 1504(b) of the
Code) of which the Company is a member, would constitute a "parachute
payment" (as defined in Section 280G(b)(2) of the Code), then the
"payments" to such Option Holder pursuant to Section 7(c) or 7(d) of
the Plan will be reduced to the largest amount as will result in no
portion of such "payments" being subject to the excise tax imposed by
Section 4999 of the Code; provided, however, that if a Option Holder is
subject to a separate agreement with the Company or a Subsidiary that
expressly
8
<PAGE>
addresses the potential application of Sections 280G or 4999 of the
Code (including, without limitation, that "payments" under such
agreement or otherwise will not be reduced or that the Option Holder
will have the discretion to determine which "payments" will be
reduced), then the limitations of this Section 7(e) will not apply, and
any "payments" to a Option Holder pursuant to Section 7(c) or 7(d) of
the Plan will be treated as "payments" arising under such separate
agreement.
Section 8. Rights of Option Holders; Transferability.
(a) Service as a Director. Nothing in the Plan will interfere with or
limit in any way the right of the Company to terminate the directorship
of any Director at any time, nor confer upon any Director any right to
continue to serve as a director of the Company.
(b) Rights as a Shareholder. As a holder of Options an Option Holder
will have no rights as a shareholder unless and until such Options are
exercised for, or paid in the form of, shares of Common Stock and the
Option Holder becomes the holder of record of such shares. Except as
otherwise provided in the Plan, no adjustment will be made for
dividends or distributions with respect to such Options as to which
there is a record date preceding the date the Option Holder becomes the
holder of record of such shares, except as the Board may determine in
its discretion.
(c) Restrictions on Transfer. Options granted under this Plan shall not
be assignable or transferable during the lifetime of the Director,
either voluntarily or involuntarily. Options shall be exercisable
during a Director's lifetime only by such Director. In the event of the
death of a Director, such Option may be transferred by will or the laws
of descent and distribution and may only be exercised by the executors
or administrators of such Director's estate or by the person or persons
to whom such Director's rights under the Option shall pass by the
Director's will or the laws of descent and distribution.
Section 9. Securities Law and Other Restrictions. Notwithstanding any other
provision of the Plan or any agreements entered into pursuant to the Plan, the
Company will not be required to issue any shares of Common Stock under this
Plan, and an Option Holder may not sell, assign, transfer or otherwise dispose
of shares of Common Stock issued pursuant to Options granted under the Plan,
unless (i) there is in effect with respect to such shares a registration
statement under the Securities Act and any applicable state securities laws or
an exemption from such registration under the Securities Act and applicable
state securities laws, and (ii) there has been obtained any other consent,
approval or permit from any other regulatory body which the Board, in its sole
discretion, deems necessary or advisable. The Company may condition such
issuance, sale or transfer upon the receipt of any representations or agreements
from the parties involved, and the placement of any legends on certificates
representing shares of Common Stock, as may be deemed necessary or advisable by
the Company in order to comply with such securities law or other restrictions.
Section 10. Plan Amendment, Modification and Termination. The Board may suspend
or terminate the Plan or any portion thereof at any time, and may amend the Plan
from time to time
9
<PAGE>
in such respects as the Board may deem advisable in order that Options under the
Plan will conform to any change in applicable laws or regulations or in any
other respect the Board may deem to be in the best interests of the Company;
provided, however, that no amendments to the Plan will be effective without
approval of the stockholders of the Company if stockholder approval of the
amendment is then required under the Exchange Act or the rules of any stock
exchange or Nasdaq. No termination, suspension or amendment of the Plan may
adversely affect any outstanding Option without the consent of the affected
Option Holder; provided, however, that this sentence will not impair the right
of the Board to take whatever action it deems appropriate under Sections 4(c)
and 7 of the Plan.
Section 11. Effective Date and Duration of the Plan. The Plan was adopted by the
Board on March 19, 1997 and by the sole shareholder of the Company on May 1,
1997, and is effective as of the Distribution Date. The Plan will terminate at
midnight on March 19, 2007, and may be terminated prior to such time to by Board
action, and no Option will be granted after such termination. Options
outstanding upon termination of the Plan may continue to be exercised, or become
free of restrictions, in accordance with their terms.
Section 12. Miscellaneous.
(a) Governing Law. The validity, construction, interpretation,
administration and effect of the Plan and any rules, regulations and
actions relating to the Plan will be governed by and construed
exclusively in accordance with the laws of the State of Minnesota.
(b) Successors and Assigns. The Plan will be binding upon and inure to
the benefit of the successors and permitted assigns of the Company and
the Option Holders.
10
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FIRST AMENDMENT TO THE
VITAL IMAGES, INC.
1997 DIRECTOR STOCK OPTION PLAN
The Vital Images, Inc. 1997 Director Stock Option Plan (the "Plan") was
adopted by the Board of Directors of Vital Images, Inc. (the "Company") and
approved by the sole shareholder of the Company in 1997, and is now in full
force and effect. This Amendment is adopted in order to amend the Plan with
respect to the number of shares of capital stock which may be granted under the
Plan.
A. Amendment. Section 4(a) of the Plan is hereby amended to read as
follows:
(a) Maximum Number of Shares Available. Subject to adjustment as
provided in Section 4(c) of the Plan, the maximum number of shares of
Common Stock that will be available for issuance under the Plan will be
105,000 shares of Common Stock.
B. Effective Date. This Amendment shall be effective as of February 24,
1998, and shall be subject to the approval by the shareholders of the Company at
the next Annual or Special Meeting of Shareholders.
11
<PAGE>
SECOND AMENDMENT TO THE
VITAL IMAGES, INC.
1997 DIRECTOR STOCK OPTION PLAN
The Vital Images, Inc. 1997 Director Stock Option Plan (the "Plan") was
adopted by the Board of Directors of Vital Images, Inc. (the "Company") and
approved by the sole shareholder of the Company in 1997, was amended in 1998 to
increase the number of shares available for issuance to 105,000 and is now in
full force and effect. This Amendment is adopted in order to amend the Plan with
respect to the number of shares of capital stock which may be granted under the
Plan.
A. Amendment. Section 4(a) of the Plan is hereby amended to read as
follows:
(a) Maximum Number of Shares Available. Subject to adjustment as
provided in Section 4(c) of the Plan, the maximum number of shares of
Common Stock that will be available for issuance under the Plan will be
210,000 shares of Common Stock.
B. Effective Date. This Amendment shall be effective as of February 25,
1999, and shall be subject to the approval by the shareholders of the Company at
the next Annual or Special Meeting of Shareholders.
12
<PAGE>
PROXY
VITAL IMAGES, INC.
PROXY SOLICITED BY BOARD OF DIRECTORS
For Annual Meeting of Shareholders May 12, 1999
The undersigned, revoking all prior proxies, hereby appoints Douglas M. Pihl
and Gregory S. Furness, or either of them, as proxy or proxies, with full
power of substitution and revocation, to vote all shares of common stock of
Vital Images, Inc. (the "Company") of record in the name of the undersigned
at the close of business on March 26, 1999, at the Annual Meeting of
Shareholders to be held on Wednesday, May 12, 1999, or at any adjournment
thereof, upon the following matters:
(To be Signed on Reverse Side)
-----------
SEE REVERSE
SIDE
-----------
<PAGE>
Please mark your
[X] votes as in this
example.
1. ELECTION OF DIRECTORS.
FOR all nominees listed WITHHOLD AUTHORITY Nominees:
(except as marked to to vote for all Vincent J. Argiro,
the contrary below) nominees listed James B. Hickey, Jr.,
Richard W. Perkins,
[ ] [ ] Douglas M. Pihl,
Michael W. Vannier,
Sven A. Wehrwein
(Instructions: to withhold authority to vote for any individual nominee write
that nominee's name in the space provided below.)
___________________________________________________________________________
2. Approval of amendment to the 1997 Stock [ ] FOR [ ] AGAINST [ ] ABSTAIN
Option and Incentive Plan to increase
the number of shares reserved for
issuance thereunder.
3. Approval of amendment to the 1997 Director [ ] FOR [ ] AGAINST [ ] ABSTAIN
Stock Option Plan to increase the number
of shares reserved for issuance thereunder.
4. Ratification of appointment of [ ] FOR [ ] AGAINST [ ] ABSTAIN
PricewaterhouseCoopers LLP as
independent accountants for the year
ending December 31, 1999.
5. In their discretion the proxies are authorized to vote upon such matters as
may properly come before the meeting.
This proxy when properly executed will be voted in the manner directed herein
by the undersigned shareholder. If no direction is made, this proxy will be
voted FOR Proposals 1, 2, 3 and 4. The Board of Directors recommends a vote FOR
Proposals 1, 2, 3 and 4.
Dated: ___________________________, 1999
________________________________________
Signature of Shareholder
________________________________________
Signature of Joint Shareholder
(if held jointly).
PLEASE MARK, SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
PLEASE DATE AND SIGN exactly as your name(s) appears above indicating, where
proper, official position or representative capacity in which you are signing.
When signing as executor, administrator, trustee or guardian, give full title
as such; when shares have been issued in names of two or more persons, all
should sign.
