SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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
[X] Definitive Proxy Statement Commission Only (as permitted by
[ ] Definitive Additional Materials Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
VIDAMED, INC.
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(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 transactions applies:
(2) Aggregate number of securities to which transactions 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:
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VIDAMED, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 3, 1999
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of VidaMed,
Inc., a Delaware corporation (the "Company"), will be held on Thursday, June 3,
1999 at 10:00 a.m., local time (the "Annual Meeting"), at the Embassy Suites
Hotel, 901 East Calaveras Boulevard, Milpitas, California 95035 for the
following purposes:
1. To approve an amendment to the Company's Restated Certificate of
Incorporation. To increase the number of authorized common shares.
2. To elect five directors to serve for the ensuing year and until
their successors are elected.
3. To approve an amendment to the Company's 1995 Employee Stock
Purchase Plan to increase the number of shares of Common Stock reserved for
issuance thereunder by 200,000 shares to a new total of 600,000 shares.
4. To approve an amendment to the Company's 1992 Stock Plan to
increase the number of shares of Common Stock reserved for issuance
thereunder by 1,200,000 shares to a new total of 5,500,000 shares.
5. To approve an amendment to the Company's 1995 Director Option Plan
to eliminate the vesting provisions and to vest immediately any options
granted pursuant to the plan.
6. To ratify the appointment of Ernst & Young LLP as independent
auditors of the Company for the year ending December 31, 1999.
7. To transact such other business as may properly come before the
meeting or any postponement or adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Stockholders of record at the close of business on April 26, 1999 are
entitled to vote at the Annual Meeting and are cordially invited to attend the
meeting. However, to ensure your representation at the meeting, you are urged
to mark, sign, date and return the enclosed proxy as promptly as possible in
the postage-prepaid envelope enclosed for that purpose. If you attend the
meeting, you may vote in person even if you return a proxy.
Very truly yours,
/s/ David J. Illingworth
David J. Illingworth
President and Chief Executive Officer
Fremont, California
April 30, 1999
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IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND RETURN THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE. IF A QUORUM IS NOT REACHED, THE COMPANY WILL HAVE THE ADDED EXPENSE
OF RE-ISSUING THESE PROXY MATERIALS. IF YOU ATTEND THE MEETING AND SO DESIRE,
YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON. THANK YOU FOR ACTING PROMPTLY.
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VIDAMED, INC.
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed proxy is solicited on behalf of the Board of Directors of
VidaMed, Inc. (the "Company" or "VidaMed") for use at the Annual Meeting of
Stockholders to be held Thursday, June 3, 1999 at 10:00 a.m., local time, or at
any postponement or adjournment thereof (the "Annual Meeting"), for the
purposes set forth herein and in the accompanying Notice of Annual Meeting of
Stockholders. The Annual Meeting will be held at the Embassy Suites Hotel, 901
East Calaveras Boulevard, Milpitas, California, 95035. The telephone number at
the meeting location is (408) 942-0400. The Company's telephone number at its
principal executive offices is (510) 492-4900.
These proxy solicitation materials were mailed on or about April 30, 1999
to all stockholders entitled to vote at the Annual Meeting.
Record Date and Stock Ownership
Stockholders of record of the Company's Common Stock at the close of
business on April 26, 1999 are entitled to notice of, and to vote at, the
Annual Meeting. As of March 31, 1999, 20,479,770 shares of the Company's Common
Stock, $0.001 par value (the "Common Stock") were issued and outstanding and
held of record by approximately 288 stockholders.
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the person
giving it any time before its use by delivering to American Securities
Transfer, Inc., 938 Quail Street, Suite 101, Lakewood, CO 80215-5513
(Attention: Proxy Department) a written notice of revocation or a duly executed
proxy bearing a later date or by attending the meeting and voting in person.
Voting and Solicitation
Holders of shares of Common Stock are entitled to one vote per share on
all matters submitted to a vote of stockholders.
Votes cast by proxy or in person at the Annual Meeting will be tabulated
by the Inspector of Elections (the "Inspector"). The Inspector will also
determine whether or not a quorum is present. Except in certain specific
circumstances which are not applicable to this Annual Meeting, the affirmative
vote of a majority of shares present in person or represented by proxy at a
duly held meeting at which a quorum is present is required under Delaware law
for approval of proposals presented to stockholders. In general, Delaware law
also provides that a quorum consists of a majority of the shares entitled to
vote and present in person or represented by proxy. The Inspector will treat
abstentions as shares that are present and entitled to vote for the purposes of
determining the presence of a quorum but the Company will not treat abstentions
as votes in favor of approving any matter submitted to the stockholders for a
vote. Thus, abstentions have the same effect as negative votes. Any proxy which
is returned using the form of proxy enclosed and which is not marked as to a
particular item will be voted for approval of amendment to restated certificate
of incorporation, for the election of directors, for approval of the amendment
to the 1995 Employee Stock Purchase Plan and reservation of an additional
200,000 shares for issuance thereunder, for approval of the amendment to the
1992 Stock Plan and reservation of an additional 1,200,000 shares for issuance
thereunder, for the approval of the amendment to the 1995 Director Option Plan
to eliminate the vesting provisions and to vest immediately any options granted
pursuant to the plan, for ratification of the appointment of the designated
independent auditors and, as the proxy holders deem advisable, on other matters
that may come before the meeting, as the case may be with respect to the item
not marked. If a broker indicates on the enclosed proxy or its substitute that
it does not have discretionary
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authority as to certain shares to vote on a particular matter, those shares
will be treated as present or represented for determining the presence of a
quorum for the meeting, but will not be considered as present with respect to
that matter. The Company believes that the tabulation procedures to be followed
by the Inspector are consistent with the general statutory requirements under
Delaware law concerning voting of shares and determination of a quorum.
Solicitation Expenses
The cost of soliciting proxies will be borne by the Company. In addition,
the Company may reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding solicitation
material to such beneficial owners. Proxies may also be solicited by certain of
the Company's directors, officers and regular employees, without additional
compensation, personally or by telephone, facsimile or telegram.
Deadline for Receipt of Stockholder Proposals for 2000 Annual Meeting
Proposals of stockholders that are intended to be presented by such
stockholders at the Company's 2000 annual meeting of stockholders must be
received by the Company no later than December 10, 1999 in order that such
proposals may be included in the proxy statement and form of proxy relating to
that meeting.
PROPOSAL NO. 1:
APPROVAL OF AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION
The Company's Restated Certificate of Incorporation (the "Certificate"),
as currently in effect, provides that authorized capital stock shall consist of
30,000,000 shares of Common Stock, $0.001 par value (the "Common Stock"), and
5,000,000 shares of Preferred Stock, $0.001 par value (the "Preferred Stock").
On February 26, 1999, the Company's Board of Directors approved an amendment to
the Certificate (the "Amendment") to increase the number of shares of Common
Stock authorized for issuance under the Certificate by 30,000,000 to a total of
60,000,000 shares. As more fully described below, the proposed Amendment is
intended to provide the Company flexibility to meet future needs for unreserved
Common Stock. The affirmative vote of holders of a majority of shares of Common
Stock represented at the meeting is necessary to approve the Amendment. The
Board of Directors recommends that stockholders vote FOR approval of the
Amendment. If approved by the Company's shareholders, the first paragraph of
Article IV of the Restated Certificate of Incorporation of VidaMed, Inc. would
be amended to read in its entirety as follows:
The Corporation is authorized to issue two classes of shares of stock to
be designated, respectively, Common Stock, $0.001 par value, and Preferred
Stock, $0.001 par value. The total number of shares that the Corporation is
authorized to issue is 65,000,000 shares. The number of shares of Common
Stock authorized is 60,000,000. The number of shares of Preferred Stock
authorized is 5,000,000.
The reasons for and the possible effects of the amendment to the
Certificate and certain information regarding the Certificate are set forth
below.
Reasons for Amendment. The Company's number of authorized shares of Common
Stock has remained at 30,000,000 since the last increase in the authorized
number of shares which was approved by the stockholders and effected in June
20, 1995. Since that time, the company's market capitalization has increased
from approximately $23,172,500 to approximately $61,439,310 as of March 31,
1999.
As of March 31, 1999, 20,479,770 shares of Common Stock, par value $0.001
per share, were issued and outstanding. The number of shares remaining
available is not considered adequate for the Company's future possible
requirements.
The Company's Board of Directors believes that it is prudent to increase
the number of authorized shares of Common Stock to the proposed level in order
to provide a reserve of shares available for
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issuances in connection with possible future actions. In particular, the
Company's Board of Directors believes that the current number of authorized
shares needs to be increased to provide the flexibility to effect other
possible actions such as financings, corporate mergers, acquisitions of
property, establishing strategic relationships with corporate partners,
employee benefit plans and for other general corporate purposes. Currently
there are no plans, agreements or arrangements in place requiring the
utilization of these additional shares for financing, corporate mergers,
acquisitions of property, establishment of strategic relationships with
corporate partners, employee benefit plans or other general corporate purposes.
Having such additional authorized Common Stock available for issuance in the
future would allow the Board of Directors to issue shares of Common Stock
without the delay and expense associated with seeking stockholder approval.
Elimination of such delays and expense occasioned by the necessity of obtaining
stockholder approval will better enable the Company, among other things, to
engage in financing transactions and acquisitions as well as to take advantage
of changing market and financial conditions on a more competitive basis as
determined by the Board of Directors.
The additional Common Stock to be authorized by adoption of the Amendment
would have rights identical to the currently outstanding Common Stock of the
Company. Adoption of the proposed Amendment and issuance of the Common Stock
would not affect the rights of the holders of currently outstanding Common
Stock of the Company. If the Amendment is adopted, it will become effective
upon filing of the Amendment with the Secretary of the State of Delaware.
Stockholder approval may be required if it is proposed that any such shares are
to be added to the number of shares reserved for issuance under the company's
option plans, in compliance with applicable rules and laws.
Possible Effects of the Amendment. If the proposed Amendment is approved,
the Board of Directors may cause the issuance of additional shares of Common
Stock without further vote of stockholders of the Company, except as provided
under the Delaware corporate law or under the rules of any national securities
exchange on which shares of Common Stock of the Company are then listed.
Current holders of Common Stock have no preemptive or like rights, which means
that current stockholders do not have a prior right to purchase any new issue
of capital stock of the Company in order to maintain their proportionate
ownership thereof. The effects of the authorization of additional shares of
Common Stock may also include dilution of the voting power of currently
outstanding shares and reduction of the portion of dividends and of liquidation
proceeds payable to the holders of currently outstanding Common Stock.
In addition, the Board of Directors could use authorized but unissued
shares to create impediments to a takeover or a transfer of control of the
Company. Accordingly, the increase in the number of authorized shares of Common
Stock may deter a future takeover attempt which holders of Common Stock may
deem to be in their best interest or in which holders of Common Stock may be
offered a premium for their shares over the market price.
The Board of Directors is not currently aware of any attempt to take over
or acquire the Company. While it may be deemed to have potential anti-takeover
effects, the proposed Amendment to increase the authorized Common Stock is not
prompted by any specific effort or takeover threat currently perceived by
management. Moreover, management does not currently intend to propose
additional anti-takeover measures in the foreseeable future.
RECOMMENDATION OF THE BOARD OF DIRECTORS:
The Board of Directors recommends a vote "FOR" the Amendment to the
Company's Restated Certificate of Incorporation.
PROPOSAL NO. 2:
ELECTION OF DIRECTORS
A board of five directors is to be elected at the Annual Meeting. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for the five nominees named below. All nominees are presently directors of the
Company. If any nominee is unable or declines to serve as a director at the
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time of the Annual Meeting, the proxies will be voted for any nominee who shall
be designated by the present Board of Directors to fill the vacancy. It is not
expected that any nominee will be unable or will decline to serve as a
director. If stockholders nominate additional persons for election as
directors, the proxy holders will vote all proxies received by them in
accordance to assure the election of as many of the Board's nominees as
possible, with the proxy holders making any required selection of specific
nominees to be voted for. The term of office of each person elected as a
director will continue until the next annual meeting of stockholders or until
that person's successor has been elected.
The Board of Directors recommends a vote FOR the nominees listed below:
David J. Illingworth
Franklin D. Brown
Robert Erra
Wayne I. Roe
Michael H. Spindler
Mr. Illingworth, age 45, became Chairman of the Board, President and Chief
Executive Officer of the Company on April 6, 1998. He has served as a director
of the Company since February 1998. From January 1993 through March 1998, Mr.
Illingworth held various positions with Nellcor Puritan Bennett, Inc., a wholly
owned subsidiary of Mallinckrodt Inc., most recently serving as Executive Vice
President and President, Alternative Care Business. Prior to joining Nellcor,
Mr. Illingworth spent 15 years with General Electric in their medical systems
business. Mr. Illingworth serves as a director of Somnus Medical Technologies,
Inc. He holds a B.S. in Engineering from Texas A&M University.
Mr. Brown, age 55, has served as a director of the Company since December
1997. Mr. Brown is currently President and Chief Executive Officer of
Endologix, Inc. From October 1997 until he joined Endologix, Inc. in 1998, he
was Chairman and President of FDB Healthcare Consulting. From October 1994 to
September 1997, Mr. Brown served as Chairman of the Board, President and Chief
Executive Officer of Imagyn Medical, Inc. Mr. Brown serves on the boards of
directors of Radiance Medical Systems, Inc., Qualisys Diagnostic, Inc., Bridge
Medical, Inc. and Xillix Technologies, Inc. He holds a B.S. degree from Western
Michigan University and an MBA from University of Michigan.
Mr. Erra, age 56, has served as a director of the Company since December
1997. Mr. Erra has been a partner of MCG HealthCare, a health care consulting
firm, since November 1993. He is currently a director of both Edix Corp. and
Hospitalists, Inc. He holds a B.A. in Finance from Pace University.
Mr. Roe, age 49, has served as a director of the Company since May 1997.
Mr. Roe has been Chairman at Covance Health Economics and Outcomes Services,
Inc. (formerly, Health Technology Associates, Inc.) since 1989. Mr. Roe holds a
B.A. in Economics from Union College, an M.A. in Economics from the University
of Maryland, and an M.A. in Political Economics from the State University of
New York at Albany.
Mr. Spindler, age 56, has served as a director of the Company since
October 1994. Since February 1996, he has served as President of Esquisse, Inc.
From June 1993 to February 1996, Mr. Spindler served as President and Chief
Executive Officer of, and as a director of, Apple Computer, Inc., with which he
was affiliated for 16 years. Mr. Spindler has also held positions at
Schlumberger AG, Siemens AG, Intel Corporation and Digital Equipment
Corporation. Mr. Spindler holds a B.S. in Electrical Engineering from
Rheinische Fachhochschule, Cologne, Germany.
There are no family relationships among directors or executive officers of
the Company.
Vote Required
The five nominees for director receiving the highest number of affirmative
votes of the shares entitled to vote at the Annual Meeting will be elected.
RECOMMENDATION OF THE BOARD OF DIRECTORS:
The Board of Directors recommends a vote "FOR" all of the nominees listed
above.
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Board Meetings and Committees
The Board of Directors of the Company held a total of seven meetings
during the year ended December 31, 1998. Wayne Roe attended fewer than 75
percent of the meetings of the Board of Directors. No other nominee who was a
director during the entire fiscal year attended fewer than 75 percent of the
meetings of the Board of Directors or of the committees on which such person
served. The Board of Directors has a Compensation Committee, an Audit Committee
and a Nominating Committee. The Compensation Committee makes recommendations
concerning salaries and incentive compensation, grants stock options and stock
awards to employees and consultants under the Company's stock option and award
plans and otherwise determines compensation levels, and performs such other
functions regarding compensation as the Board may delegate. The Compensation
Committee, which is composed of Michael Spindler and Robert Erra, held four
meetings during 1998.
The Audit Committee meets with the Company's independent auditors at least
annually to review the results of the annual audit and to discuss the financial
statements; recommends to the Board the independent auditors to be retained;
and receives and considers the auditors' comments as to controls, adequacy of
staff, and management performance and procedures in connection with audit and
financial controls. The Audit Committee, which was composed of John Scibelli
and Franklin Brown through December 14, 1998 and Robert Erra and Michael
Spindler for the remainder of 1998, held one meeting during 1998. Mr. Scibelli
resigned from the Board as of December 14, 1998. Messrs. Erra and Spindler
currently serve on the Audit Committee.
The Nominating Committee evaluates candidates for board membership and
makes recommendations regarding such evaluations to the Board. The Nominating
Committee, which was composed of Wayne Roe and James Heisch through April, 1998
and Mr. Roe and David Illingworth for the remainder of 1998, held one meeting
during 1998. Messrs. Roe and Illingworth currently serve on the Nominating
Committee. The Nominating Committee does not accept nominations for candidates
for board membership from stockholders.
PROPOSAL NO. 3:
AMENDMENT TO THE 1995 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1995 Employee Stock Purchase Plan (the "Purchase Plan")
provides employees of the Company with an opportunity to purchase Common Stock
of the Company through accumulated payroll deductions.
The Company proposes to amend the Purchase Plan to increase the number of
shares reserved for issuance thereunder by 200,000 shares to a new total of
600,000 shares. The essential features of the Purchase Plan are set forth
below.
Status of Shares. As of February 28, 1999, 166,181 shares had been issued
under the Purchase Plan and 233,819 shares remained available for issuance
under the Purchase Plan as of such date. If the proposed amendment to the
Purchase Plan is approved, an additional 200,000 shares of Common Stock will be
available for issuance pursuant to the Purchase Plan.
Operation of the Purchase Plan. Under the Purchase Plan, the Company
withholds a percentage of each salary payment to participating employees over
certain offering periods. The Purchase Plan is currently implemented by
overlapping twenty-four month offering periods which commence on January 1 and
July 1 of each year. Each such offering period is divided into four six-month
purchase periods. On the last business day of each purchase period, the funds
withheld are applied to the purchase of shares of Common Stock unless such
participating employee withdraws from the offering period prior to such purchase
date. To the extent permitted by Rule 16b-3 of the Securities Exchange Act, if
the fair market value of the Common Stock on the last day of the purchase period
is lower than the fair market value of the Common Stock on the first day of the
offering period, then all participating employees in such offering period shall
be automatically withdrawn from such offering period immediately after the stock
purchase on the last day of the purchase period and automatically re-enrolled in
the immediately following offering period. Employees may end their participation
in the offering at any time during the offering period, and participation ends
automatically on termination of employment with the Company.
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Eligibility; Administration. Employees are eligible to participate in the
Purchase Plan if they are employed by the Company on a given Enrollment Date.
Payroll deductions may not exceed 15% of an employee's compensation, which
under the Purchase Plan is defined as base straight time gross earnings plus
overtime and commissions. No employee may purchase more than $25,000 worth of
stock in any calendar year. The Purchase Plan is currently administered by the
Board of Directors.
Purchase Price; Market Value. The price at which stock is purchased under
the Purchase Plan is equal to 85% of the fair market value of the common Stock
on the first day of the applicable offering period or the last day of each
purchase period, whichever is lower.
Amendment and Termination. The Board of Directors may amend the Purchase
Plan from time to time or may terminate it or any purchase period or offering
period under it, without approval of the stockholders. However, to the extent
necessary and desirable to comply with Rule 16b-3 under the Securities Exchange
Act (or any other applicable law or regulation), the Company shall obtain
approval of the stockholders with respect to plan amendments to the extent and
in the manner required by such law or regulation. In the event of a merger or
sale of substantially all of the assets of the Company, the Board may shorten
the offering period or permit the assumption of outstanding rights to purchase
Common Stock. The Purchase Plan will terminate in April 2005 unless earlier
terminated by the Board.
Federal Income Tax Information Regarding Purchase Plan Transactions. The
Purchase Plan, and the right of participants to make purchases thereunder, is
intended to qualify under the provisions of Section 423 of the Code. Under
these provisions, no income is taxable to a participant until the shares
purchased under the Plan are sold or otherwise disposed of. Upon sale or other
disposition of the shares, the participant will generally be subject to tax,
the amount of which will depend in part on how long the shares are held by the
participant. If the date upon which the shares are sold or otherwise disposed
of is more than two years from the first day of the applicable offering period
or more than one year after the date upon which the shares were purchased,
whichever is the longer period (the "holding period"), the participant will
recognize ordinary income measured as the lesser of (a) the excess of the fair
market value of the shares at the time of such sale or disposition over the
purchase price, or (b) an amount equal to 15% of the fair market value of the
shares as of the first day of the offering period. Any additional gain will be
treated as long-term capital gain. If the shares are sold or otherwise disposed
of before the expiration of this holding period, the participant will recognize
ordinary income generally measured as the excess of the fair market value of
the shares on the date the shares were purchased by the participant over the
participant's purchase price. Any additional gain or loss on the sale or
disposition will be capital gain or loss. The Company is not entitled to a
deduction for amounts taxed as ordinary income or capital gain to a participant
except to the extent of ordinary income recognized by participants upon a sale
or disposition of shares prior to the expiration of the holding period
described above.
The foregoing is not intended to be, and should not be construed to be, an
exhaustive analysis or treatment of the tax consequences relating to stock
purchases pursuant to the Purchase Plan or resales of such stock. For instance,
the treatment of such transactions under state and local tax laws, which are
not described above, may differ from their treatment for Federal income tax
purposes.
RECOMMENDATION OF THE BOARD OF DIRECTORS:
The Board of Directors recommends a vote "FOR" the amendment of the 1995
Employee Stock Purchase Plan.
PROPOSAL NO. 4:
AMENDMENT TO THE 1992 STOCK PLAN
The Company's 1992 Stock Plan (the "Stock Plan") allows the Company to
grant to employees, including directors who are employees, and to consultants
options to purchase the Company's Common Stock.
The Company proposes to amend the Stock Plan to increase the number of
shares reserved for issuance thereunder by 1,200,000 shares for a new total of
5,500,000 shares. The principal purpose of the increase is to provide a
sufficient reserve for option grants to current employees and to potential new
employees. The essential features of the Stock Plan are set forth below:
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Status of Shares. As of December 31, 1998 a total of 4,300,000 shares of
Common Stock have been reserved for issuance under the Stock Plan. As of
December 31, 1998, 700,575 shares had been issued upon the exercise of stock
options granted under the Stock Plan, 3,524,881 options were outstanding and
74,544 shares remained available for future grants.
Eligibility; Administration. Under the Stock Plan, employees may be
granted "incentive stock options" intended to qualify within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code")
nonemployees may be granted "non-statutory stock options" not intended to
qualify under such statute. The Stock Plan is currently administered by the
Compensation Committee of the Board of Directors which determines the terms of
stock purchase rights and options granted, including the exercise price, the
number of shares subject to the option and the options' exercisability.
Exercise Price; Market Value. The exercise price of incentive stock
options under the Stock Plan must at least equal the fair market value of the
Common Stock on the date of grant, while the exercise price of nonstatutory
options must at least equal 85% of such market value. Payment of the exercise
price may be made in cash, promissory note, shares of Common Stock or certain
other consideration.
Exercisability. The exercisability and vesting provisions for options
granted under the Stock Plan are determined by the Compensation Committee of
the Board of Directors. The Compensation Committee has generally made options
granted under the Stock Plan exercisable at a rate of one-fourth of the shares
of stock subject to the option one year after the grant date and, then, one
forty-eighth of the shares of stock subject to option at the end of each month
thereafter, until the option is fully vested. The term of an option may not
exceed ten years. No option may be transferred by the optionee other than by
will or the laws of descent or distribution. Each option may be exercised,
during the lifetime of the optionee, only by such optionee.
Amendment and Termination. The Board of Directors may at any time amend,
alter, suspend or discontinue the Stock Plan, but no amendment, alteration,
suspension or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with Rule 16b-3 under
the Exchange Act or with Section 422 of the Code (or any other applicable law
or regulation, including the requirements of the NASD or an established stock
exchange), the Company shall obtain stockholder approval of any Stock Plan
amendment in such a manner and to such a degree as required.
Change of Control. In the event of a change in control of the Company,
including a merger or sale of substantially all of the Company's assets (a
"change of control"), outstanding options held by executive officers will
become fully exercisable and vested upon such change in control.
Federal Income Tax Information Regarding Stock Options. An optionee who is
granted an incentive stock option will not recognize taxable income either at
the time the option is granted or at the time it is exercised, although
exercise of the option may subject the optionee to the alternative minimum tax.
The Company will not be allowed a deduction for federal income tax purposes as
a result of the exercise of an incentive stock option regardless of the
applicability of the alternative minimum tax. Upon the sale or exchange of the
shares at least two years after grant of the option and one year after exercise
of the option, any gain will be treated as long-term capital gain. If these
holding periods are not satisfied at the time of sale, the optionee will
recognize ordinary income equal to the difference between the exercise price
and the lower of (i) the fair market value of the stock at the date of the
option exercise or (ii) the sale price of the stock, and the Company will be
entitled to a deduction in the same amount. (Different rules may apply upon a
premature disposition by an optionee who is an officer, director or 10%
stockholder of the Company.) Any additional gain or loss recognized on such a
premature disposition of the shares will be characterized as capital gain or
loss. If the Company grants an incentive stock option and as a result of the
grant the optionee has the right in any calendar year to exercise for the first
time one or more incentive stock options for shares having an aggregate fair
market value (under all plans of the Company and determined for each share as
of the date the option to purchase the share was granted) in excess of
$100,000, then the excess shares must be treated as non-statutory options.
An optionee who is granted a non-statutory stock option will also not
recognize any taxable income upon the grant of the option. However, upon
exercise of a non-statutory stock option, the optionee will
7
<PAGE>
recognize ordinary income for tax purposes measured by the excess of the then
fair market value of the shares over the exercise price. Any taxable income
recognized by an optionee who is an employee of the Company will be subject to
tax withholding by the Company. Upon resale of the shares by the optionee, any
difference between the sales price and the fair market value at the time of
exercise, to the extent not recognized as ordinary income as described above,
will be treated as capital gain or loss. The Company will be allowed a
deduction for federal income tax purposes equal to the amount of ordinary
income recognized by the optionee.
The foregoing is not intended to be, and should not be construed to be, an
exhaustive analysis or treatment of the tax consequences relating to stock
options issued pursuant to the Stock Plan.
RECOMMENDATION OF THE BOARD OF DIRECTORS:
The Board of Directors recommends a vote "FOR" Amendment of the 1992 Stock
Plan.
PROPOSAL NO. 5:
AMENDMENT TO THE 1995 DIRECTOR OPTION PLAN
The Company's 1995 Director Option Plan (the "Director Plan") provides for
automatic stock option grants to nonemployee directors of the Company. The
Director Plan was adopted by the Board of Directors in March 1995 and was
approved by the stockholders in April 1995. As of March 31, 1999, 96,676
options have been granted pursuant to the Director Plan. The Company has been
advised by its counsel that, in accordance with recently issued accounting
guidance, an unintended and potentially adverse accounting treatment could
result from imposing vesting schedules on options granted to nonemployee
directors. The Director Plan permits the Board of Directors to amend the
Director Plan from time to time (but not more frequently than once every six
months), without approval of the stockholders. Pursuant to its authority under
the Director Plan, the Board of Directors is amending the Director Plan in the
interest of mitigating any adverse accounting treatment.
The Board of Directors has adopted an amendment to the Director Plan, and
recommends that the stockholders approve the amendment, to eliminate the
vesting schedules applicable to options granted under the Director Plan, with
respect to those to be granted in the future. In the event that the
stockholders do not approve this amendment, the Board of Directors will
reconsider this amendment.
Purpose of the Director Plan. The Board of Directors adopted the Director
Plan to attract and retain the best available personnel for service as outside
directors, to provide additional incentive to the Company's outside directors
to continue to serve as directors and to improve the efficiency of granting and
administering stock options to the nonemployee directors of the Company.
Eligibility; Administration. Under the Director Plan, nonemployee
Directors are granted automatic "non-statutory stock options" not intended to
qualify within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"). Each nonemployee director who was already a director
of the Company at the time that the Director Plan was adopted, was
automatically granted a non-statutory option to purchase 13,334 shares of
Common Stock on the date the Director Plan was adopted. Thereafter, each
nonemployee director who has been elected to the Board of Directors since the
Director Plan was adopted (or may join the Board of Directors in the future),
either through election by the stockholders or appointment by the Board to fill
a vacancy has been (or will be, as the case may be) automatically granted a
non-statutory option to purchase 13,334 shares of Common Stock on the date on
which such person first becomes a director (the "Initial Grant"). In addition
to the Initial Grant, on the first business day of each calendar year, each
nonemployee director, who has then served on the Board of Directors for at
least six months, will automatically receive an additional non-statutory option
to purchase 3,334 shares of Common Stock (the "Subsequent Grants"). The
Director Plan is designed to be self-executing. All grants are automatic and
grants are not made at the discretion of the Board of Directors. No director
receives any additional compensation for administration of the Director Plan.
Exercise Price; Market Value. The exercise price of stock options granted
under the Director Plan must be at least equal to the last reported closing
sale price (or the closing bid, if no sales were reported)
8
<PAGE>
of the Company's Common Stock on the date of grant. Payment of the exercise
price may be made in cash, promissory notes, shares of Common Stock or certain
other consideration. On January 4, 1999 (the date of the most recent automatic
grant under the Director Plan), the closing price of the Company's Common Stock
as reported by NASDAQ National Market was $2.625.
Exercisability. The Director Plan currently provides that each Initial
Grant vests on a cumulative monthly basis over a four-year period at 1/48th of
the option per month, and each Subsequent Grant vests on a cumulative monthly
basis over a three-year period at 1/36th of the option per month. The Board of
Directors is amending the Director Plan to eliminate these vesting schedules. A
nonemployee director will be immediately vested in 100% of any option granted
pursuant to the Director Plan. All options granted pursuant to the Director Plan
have a term of ten years (unless terminated sooner pursuant to the provisions of
the Director Plan), but are exercisable by the optionee only so long as the
optionee remains a Director.
Federal Income Tax Information Regarding Stock Options. An optionee under
the Director Plan will not recognize any taxable income upon the grant of the
option. However, upon exercise of an option, the optionee will recognize
ordinary income for tax purposes measured by the then-fair market value of the
shares over the exercise price. Upon resale of the shares by the optionee, any
difference between the sales price and the fair market value at the time of
exercise, to the extent not recognized as ordinary income as described above,
will be treated as capital gain or loss. The Company will be allowed a
deduction for federal income tax purposes equal to the amount of ordinary
income recognized by the optionee.
The foregoing is not intended to be, and should not be construed to be, an
exhaustive analysis or treatment of the tax consequences relating to stock
options issued pursuant to the Director Plan.
RECOMMENDATION OF THE BOARD OF DIRECTORS:
The Board of Directors recommends a vote "FOR" Amendment of the 1995
Director Option Plan.
PROPOSAL NO. 6:
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed Ernst & Young LLP, independent
auditors, to audit the consolidated financial statements of the Company for the
fiscal year ending December 31, 1999, and has further directed that management
submit the selection of independent auditors for ratification by the
stockholders at the Annual Meeting. Ernst & Young LLP has audited the Company's
financial statements annually since the Company's inception in 1992.
Representatives of Ernst & Young LLP are expected to be present at the meeting,
with the opportunity to make a statement if they desire to do so, and to
respond to appropriate questions.
If stockholders fail to ratify the selection, the Audit Committee and the
Board will reconsider whether or not to retain that firm. Even if the selection
is ratified, the Audit Committee and the Board in their discretion may direct
the appointment of different independent auditors at any time during
the year if they determine that such a change would be in the best interests of
the Company and its stockholders.
Vote Required
The affirmative vote of the holders of a majority of the shares of common
stock present or represented and entitled to vote the Annual Meeting is
required for approval of this Proposal.
RECOMMENDATION OF THE BOARD OF DIRECTORS:
The Board of Directors recommends a vote "FOR" the ratification of the
appointment of Ernst & Young LLP as independent auditors for the Company.
9
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
The following table sets forth information known to the Company with
respect to the beneficial ownership of its Common Stock as of February 28,
1999, for (i) each person who is known by the Company to own beneficially more
than 5% of the Common Stock, (ii) each nominee for election as a director,
(iii) each executive officer named in the Summary Compensation Table and (iv)
all directors and executive officers as a group.
<CAPTION>
Shares Approximate
Beneficially Percent
Name and Address of Beneficial Owner Owned(1) of Total(2)
------------------------------------ ------------ -----------
<S> <C> <C>
Zesiger Capital Group LLC
320 Park Avenue
30th Floor
New York, NY 10022 ........................... 2,616,550 12.81%
Circle F Ventures, LLC
14988 North 78th Way
Suite 200
Scottsdale, AZ 85260 ........................ 1,368,928(3) 6.70%
Hayden R. Fleming
14988 North 78th Way
Suite 200
Scottsdale, AZ 85260 ........................ 415,200(3) 2.04%
David J. Illingworth ........................ 236,156(4) 1.16%
Randy D. Lindholm ........................... 14,797(5) *
Richard D. Brounstein ........................ 96,044(6) *
John N. Hendrick .............................. 237,148(7) 1.16%
James A. Heisch .............................. 410,463(12) 2.01%
Carol A. Chludzinski ........................ 16,066(13) *
Patricia S. Garfield ........................ 70,277(14) *
Franklin D. Brown
Endologix, Inc.
13700 Alton Parkway
Suite 164
Irvine, CA 92618 .............................. 7,848(8) *
Robert J. Erra
MCG Healthcare
608 2nd Avenue South
Suite 370
Minneapolis, MI 55402 ........................ 7,848(9) *
Wayne Roe
Covance
1100 New York Avenue, N.W.
Suite 200E
Washington, D.C. 20005 ........................ 11,182(10) *
Michael H. Spindler
Esquisse, Inc.
1717 Embarcadero Road
Palo Alto, CA 94303 ........................... 35,071(11) *
All executive officers and directors as a group
(11 persons) ................................. 1,142,900 5.60%
10
<PAGE>
<FN>
- ------------
* Represents beneficial ownership of less than 1%.
(1) Except as otherwise indicated in the footnotes to this table and pursuant
to applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock.
(2) Applicable percentage ownership is based on 20,420,032 shares of Common
Stock outstanding as of February 28, 1999 together with applicable options
for such stockholder. Beneficial ownership is determined in accordance
with the rules of the Securities and Exchange Commission, based on factors
including voting and investment power with respect to shares. Shares of
Common Stock subject to the options currently exercisable, or exercisable
with 60 days after February 28, 1999, are deemed outstanding for computing
the percentage ownership of the person holding such options, but are not
deemed outstanding for computing the percentage ownership of any other
person.
(3) In addition to those shares owned by Hayden R. Fleming individually, Mr.
Fleming is the managing partner of Circle F Ventures, LLC and may be
deemed to have sole voting power with respect to these shares.
(4) Includes 22,823 shares held by Mr. Illingworth and options to purchase up
to 213,333 shares exercisable within 60 days after February 28, 1999.
(5) Represents 14,797 shares held by Mr. Lindholm (and no options exercisable
within 60 days after February 28, 1999).
(6) Includes 46,013 shares held by Mr. Brounstein and options to purchase up
to 50,031 shares exercisable within 60 days after February 28, 1999.
(7) Includes 51,163 shares held by Mr. Hendrick and options to purchase up to
185,985 shares exercisable within 60 days after February 28, 1999.
(8) Includes 2,500 shares held by Mr. Brown and options to purchase up to
5,348 shares exercisable within 60 days after February 28, 1999.
(9) Includes 2,500 shares held by Mr. Erra and options to purchase up to 5,348
shares exercisable within 60 days after February 28, 1999.
(10) Includes 2,500 shares held by Mr. Roe and options to purchase up to 8,682
shares exercisable within 60 days after February 28, 1999.
(11) Includes 3,000 shares held by Mr. Spindler and options to purchase up to
32,071 shares exercisable within 60 days after February 28, 1999.
(12) Includes 59,376 shares held by Mr. Heish and options to purchase up to
351,087 shares exercisable within 60 days after February 28, 1999.
(13) Includes 13,628 shares held by Ms. Chludzinski and warrants to purchase up
to 2,438 shares exercisable within 60 days after February 28, 1999.
(14) Includes 10,797 shares held by Ms. Garfield and options and warrants to
purchase up to 59,480 shares exercisable within 60 days after February 28,
1999.
</FN>
</TABLE>
11
<PAGE>
EXECUTIVE COMPENSATION AND OTHER MATTERS
<TABLE>
The following table sets forth certain information concerning the annual
and long-term compensation paid or accrued by the Company for services in all
capacities to the Company for the fiscal years ended December 31, 1998, 1997
and 1996 of the Company's Chief Executive Officer and each of the Company's
other four most highly compensated executive officers as of the end of fiscal
1998. Compensation information is included only for those years during which
the named individual served as an executive officer of the Company.
<CAPTION>
Summary Compensation Table
Long Term
Compensation
Awards
Name and Number of All Other
Principal Positions Year Salary Severance Bonuses Stock Options Compensation(1)
------------------- ---- ------ --------- ------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
David Illingworth(2) 1998 $202,500(3) $155,000(4) 1,000,000
President and Chief
Executive Officer
James A. Heisch(5) 1998 72,775(6) 230,000(7) 1,313(8) 900
President and Chief 1997 214,346 20,000(9) 50,000 3,692
Executive Officer 1996 189,711 20,000(10) 290,000 3,600
Randy D. Lindholm(11) 1998 83,333(12) 75,000(13) 300,000 1,500
Executive VP
World Wide Sales & Marketing
Richard D. Brounstein 1998 150,000 50,000 3,600
VP Finance & CFO 1997 93,733(14) 100,000 2,400
John N. Hendrick 1998 190,000 1,125(15) 95,370 3,600
VP and Chief Operating Officer 1997 184,481 7,500(16) 35,000 3,646
1996 175,000 7,500(17) 65,000 3,600
Carol Chludzinski 1998 140,000 24,813(18) 6,000
Sr VP North American Sales 1997 157,419 62,032(19) 20,000 6,154
1996 110,000 24,000(20) 120,000 4,938
Patricia Garfield 1998 79,409(21) 116,563(22) 15,000 2,100
VP World Wide Marketing 1997 106,923(23) 100,000 3,225
<FN>
- ------------
(1) This column consists of automobile expenses paid for by the Company.
(2) Mr. Illingworth joined the Company as President and CEO in April 1998.
(3) Had he been employed for all of calendar year 1998, Mr. Illingworth's
annual salary would have been $270,000.
(4) Mr. Illingworth's offer letter from the Company provided for a one time
$30,000 signing bonus and forgivness of 50% of a loan in the amount of
$250,000 upon commencement of employment.
(5) Mr. Heisch resigned as President and Chief Executive Officer of the
Company in April 1998.
(6) Had he been employed for all of calendar year 1998, Mr. Heisch's annual
salary would have been $230,000.
(7) Mr. Heisch's separation agreement with the Company provided for $230,000
of severance compensation, paid during calendar year 1998. From April 6,
1999 through April 6, 2000, Mr. Heisch shall be eligible to receive up to
an additional $230,000.
(8) Mr. Heisch received this bonus pursuant to a Company-wide Performance
Bonus Program based upon aggregate sales during 1997.
(9) Mr. Heisch's employee bonus was for his continuous service with the
Company during 1997.
(10) Mr. Heisch's employee bonus was for his continuous service with the
Company during 1996.
(11) Mr. Lindholm joined the Company as Executive VP, World Wide Sales &
Marketing in July 1998.
(12) Had he been employed for all of calendar year 1998, Mr. Lindholm's annual
salary would have been $200,000.
12
<PAGE>
(13) Mr. Lindholm's offer letter from the Company provided for a one time
signing bonus of $75,000 upon commencement of employment.
(14) Mr. Brounstein joined the Company as Vice President, Finance and Chief
Financial Officer in May 1997. Had he been employed for all of calendar
year 1997, Mr. Brounstein's annual salary Would have been $140,000.
(15) Mr. Hendrick received this bonus pursuant to a Company-wide Performance
Bonus Program based upon aggregate sales during 1997.
(16) Mr. Hendrick's employee bonus was for his continuous service with the
Company during 1997.
(17) Mr. Hendrick's employee bonus was for his continuous service with the
Company during 1996.
(18) Ms. Chludzinski received a $24,000 non-recoverable annual draw pursuant to
the Company's Sales Incentive Compensation Program and she received $813
pursuant to a Company-wide Performance Bonus Program based upon aggregate
sales during 1997.
(19) Ms. Chludzinski's employee bonus was for her continuous service with the
Company during 1997.
(20) Ms. Chludzinski's employee bonus was for her continuous service with the
Company during 1996.
(21) Ms. Garfield resigned from the Company in July 1998. Had she been employed
for all of calendar year 1998, Ms. Garfield's annual salary would have
been $127,500.
(22) Ms. Garfield's separation agreement with the Company provided for $116,563
of severance compensation, paid during calendar year 1998.
(23) Ms. Garfield accepted the position of Vice President, World Wide Marketing
in February 1997. Had she been employed for all of calendar year 1997, Ms.
Garfield's annual salary would have Been $120,000.
</FN>
</TABLE>
<TABLE>
Option Grants in Last Fiscal Year. The following table sets forth certain
information concerning stock options granted during the calendar year ended
December 31, 1998 to the executive officers named in the Summary Compensation
Table above. Actual realizable values, if any, of stock options will depend on
the future performance of the Common Stock.
OPTION GRANTS IN FISCAL 1998
<CAPTION>
Potential Realizable
Value at Assumed Annual
Rates of Stock Price
Appreciation for
Individual Grants Option Term(1)
---------------------------------------------------------- -------------------------
Number of
Securities % of Total Exercise
Underlying Options or Base
Options Granted Price Expiration
Name Granted in 1998 ($/SH) Date 5% ($) 10% ($)
---- --------- ---------- -------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
David J. Illingworth 500,000(2) 26% 3.69 2/24/08 1,159,673 2,938,857
250,000(3) 13% 4.25 4/6/08 727,154 1,842,762
250,000(4) 13% 0.78 10/9/08 122,791 311,178
Randy D. Lindholm 200,000(5) 10% 3.56 7/9/08 448,147 1,135,699
100,000(4) 5% 0.78 10/9/08 49,116 124,471
John N. Hendrick 95,370(4) 5% 0.78 10/9/08 46,842 118,708
Richard D. Brounstein 50,000(4) 3% 0.78 10/9/08 24,558 62,236
Patricia S. Garfield 15,000(6) 1% 4.25 1/1/08 40,092 101,601
<FN>
- ------------
(1) The potential realizable value is based on the term of the option at date
of the grant (10 years). It is calculated by assuming that the stock price
on the date of grant appreciates at the indicated annual rate, compounded
annually for the entire term, and that the option is exercised and sold on
the last day of the option term for the appreciated stock price. These
amounts represent certain assumed rates of appreciation only, in
accordance with the rules of the SEC, and do not reflect the Company's
estimate or projection of future stock price performance. Actual gains, if
any, are dependent on the actual future performance of the Company's
stock. There can be no assurance that the amounts
13
<PAGE>
reflected in this table will be achieved. Gains are reported net of the
option exercise price but before taxes associated with exercise.
(2) The shares subject to these options will vest on February 24, 1999 as to
12/48 of the total shares subject to these options, and will vest as to
1/48th of the total shares at the end of each full month thereafter until
all shares are fully vested.
(3) The shares subject to these options vested on April 6, 1999 as to 12/48 of
the total shares subject to these options, and will vest as to 1/48th of the
total shares at the end of each full month thereafter until all shares are
fully vested.
(4) The shares subject to these options will vest on October 9, 1999 as to 12/48
of the total shares subject to these options and will vest as to 1/48th of
the total shares at the end of each full month thereafter until all shares
are fully vested.
(5) The shares subject to these options will vest on July 1, 1999 as to 12/48 of
the total shares subject to these options and will vest as to 1/48th of the
total shares at the end of each full month thereafter until all shares are
fully vested.
(6) The shares subject to these options vested on January 1, 1999 as to 12/48 of
the total shares subject to these options. Under a consulting agreement with
the Company, upon her resignation the remaining shares will continue to vest
as to 1/48th of the total shares at the end of each full month thereafter
through January 31, 2000.
</FN>
</TABLE>
14
<PAGE>
<TABLE>
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values. The following table sets forth, for each of the executive officers
named in the Summary Compensation Table, information with respect to option
exercises and year-end stock option values.
AGGREGATE OPTION EXERCISES IN FISCAL 1998 AND
FISCAL YEAR-END OPTION VALUES
<CAPTION>
Number of Shares Value of Unexercised
Underlying In-the-Money
Shares Value Unexercised Options at
Options at December 31, 1998
December 31, 1998 ($)(6)
Acquired on Realized ------------------------------ --------------------
Name Exercise (#) ($)(1) Vested Unvested Vested Unvested
---- ------------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
David J. Illingworth ...... 0 1,000,000 0 507,875
James A. Heisch ........... 260,623 156,609(2) 4,599 26
Randy D. Lindholm ......... 0 300,000 0 203,150
John N. Hendrick .......... 130,971 154,920(3) 3,763 199,851
Richard D. Brounstein ..... 29,688 120,312 0 101,575
Carol A. Chludzinski ...... 83,042 76,958(4) 0 0
Patricia S. Garfield ...... 45,833 69,167(5) 0 0
<FN>
- ------------
(1) No options were exercised by the named executive officers during fiscal
1998.
(2) Mr. Heisch holds 231 shares of the Company's Common Stock that were
purchased upon exercise of unvested options and are subject to repurchase
at the option of the Company at the original issuance price. The Company's
repurchase right lapses over the scheduled vesting period. Under a
consulting agreement with the Company, Mr. Heisch will continue to vest in
the shares of stock subject to the Company's repurchase right and in his
stock options through April 6, 2000.
(3) Mr. Hendrick holds 810 shares of the Company's Common Stock that were
purchased upon exercise of unvested options and are subject to repurchase
at the option of the Company at the original issuance price. The Company's
repurchase right lapses over the scheduled vesting period.
(4) Ms. Chludzinski resigned her position with the Company on January 18, 1999
and any stock options in which she had not vested as of that date have
been cancelled.
(5) Under a consulting agreement with the Company, Ms. Garfield will continue
to vest in her stock options through January 31, 2000 to vest in the
shares of stock.
(6) The numbers in these columns are calculated by determining the difference
between the fair value of the securities underlying the options on
December 31, 1998 ($2.8125 per share) and the exercise price (ranging from
$0.781 per share to $4.813 per share).
</FN>
</TABLE>
Compensation of Directors
As of December 1998, the Company pays its nonemployee directors a fee of
$1,500 per board meeting attended and $500 per committee meeting attended and
reimburses each nonemployee director for travel expenses incurred in attending
meetings. From time to time, certain directors who are not employees of the
Company have received grants of options to purchase shares of the Company's
Common Stock. Under the 1995 Director Option Plan, directors who are not
employees of the Company receive automatic initial statement and annual stock
option grants. The Company does not pay any director additional amounts for
special assignments of the Board of Directors.
Option Repricing Report and Table (As presented in the Notice of Annual Meeting
of Stockholders Held May 7, 1998)
In May 1997 and September 1997, the Board of Directors, including the
Compensation Committee thereof, authorized the exchange of certain stock
options at the then fair market values of the Company's Common Stock. The
Company and the Board of Directors took this action to retain employees due to
intense competition for experienced personnel and to maintain momentum relating
to the United States commercial launch of the Company's TUNA system for
treatment of benign prostate hyperplasia. In
15
<PAGE>
particular, the competition for skilled sales and marketing personnel in the
medical device industry has been, and is expected to continue to be, intense.
In the judgment of the Board of Directors, including the Compensation Committee
thereof, the disparity between the original exercise prices of the Company's
outstanding stock options and the market price for the Common Stock at the time
of the repricings did not provide a meaningful incentive or retention device to
the employees holding those stock options. The Board, including the
Compensation Committee, therefore determined that the repricing of stock
options was in the best interests of the Company and its stockholders.
In May 1997, options to purchase 866,250 shares of Common Stock at
exercise prices ranging from $7.500 to $11.875 per share were exchanged for a
like number of options at an exercise price of $6.875 per share. Participants
in the May 1997 repricing were required to agree not to exercise their new
options, except in the case of death, disability or involuntary termination of
employment, for a period of one year (in the case of executive officers) and
six months (in the case of all other employees). In September 1997, options to
purchase 987,581 shares of Common Stock at exercise prices ranging from $6.250
to $6.875 per share were exchanged for a like number of options at an exercise
price of $4.813 per share. Participants in the September 1997 repricing were
required to agree not to exercise their new options, except in the case of
death, disability or involuntary termination of employment, for a period of one
year (in the case of executive officers) and six months (in the case of all
other employees).
16
<PAGE>
<TABLE>
The following table sets forth certain information regarding the
participation of the Named Executive Officers and other officers in the
Company's repricing of stock options described above.
TEN YEAR OPTION/SAR REPRICINGS
<CAPTION>
Market Length of
Number of Price Exercise Original
Securities of Stock at Price at Option Term
Underlying Time of Time of Remaining at
Options/ Repricing Repricing New Date of
SARs or or Exercise Repricing or
Repriced or Amendment Amendment Price Amendment
Name Date Amended (#) ($) ($) ($) (in Years)
---- ---- ----------- ----------- --------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
James A. Heisch 5/07/97 40,000 $6.875 $ 7.625 $6.875 8.7
200,000 $6.875 8.750 $6.875 8.9
50,000 $6.875 10.875 $6.875 9.6
John N. Hendrick 5/07/97 40,000 $6.875 $ 7.625 $6.875 8.7
25,000 $6.875 10.875 $6.875 9.6
Patricia S. Garfield 5/07/97 100,000 $6.875 $ 7.750 $6.875 9.8
Carol A. Chludzinski 5/07/97 20,000 $6.875 $ 7.500 $6.875 8.4
3,000 $6.875 10.250 $6.875 8.8
37,000 $6.875 9.250 $6.875 8.9
80,000 $6.875 10.875 $6.875 9.6
All other executive officers
as a group (0 persons) -- 0 -- -- --
James A. Heisch 9/05/97 36,120 $4.813 $ 6.250 $4.813 7.9
40,000 $4.813 6.875 $4.813 8.3
200,000 $4.813 6.875 $4.813 8.6
50,000 $4.813 6.875 $4.813 9.3
Richard Brounstein 9/05/97 75,000 $4.813 $ 6.875 $4.813 9.7
John N. Hendrick 9/05/97 2,790 $4.813 $ 6.250 $4.813 7.9
40,000 $4.813 $ 6.875 $4.813 8.3
25,000 $4.813 $ 6.875 $4.813 9.3
Patricia S. Garfield 9/05/97 100,000 $4.813 $ 6.875 $4.813 9.5
Carol A. Chludzinski 9/05/97 20,000 $4.813 $ 6.875 $4.813 8.1
3,000 $4.813 $ 6.875 $4.813 8.4
37,000 $4.813 $ 6.875 $4.813 8.6
80,000 $4.813 $ 6.875 $4.813 9.3
All other executive officers
as a group (0 persons) -- 0 -- -- --
</TABLE>
17
<PAGE>
COMPENSATION COMMITTEE REPORT
THE FOLLOWING REPORT IS PROVIDED TO STOCKHOLDERS BY THE MEMBERS OF
THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS.
Compensation Philosophy. The goals of the Company's executive compensation
program are to attract and retain executive officers who will strive for
excellence, and to motivate those individuals to achieve superior performance
by providing them with rewards for assisting the Company in meeting revenue and
profitability targets.
Compensation for the Company's executive officers consists of base salary
and potential cash bonus, as well as potential long-term incentive compensation
through stock options. The Compensation Committee considers the total current
and potential long-term compensation of each executive officer in establishing
each element of compensation.
Cash-based Compensation. Each fiscal year, the Compensation Committee
reviews with the Chief Executive Officer and approves, with appropriate
modifications, an annual base salary plan for the Company's executive officers.
This base salary plan is based on industry and peer group surveys and
performance judgments as to the past and expected future contributions of the
individual executive officers. The Compensation Committee reviews and fixes the
base salary of the Chief Executive Officer based on similar competitive
compensation data and the Committee's assessment of his past performance and
its expectation as to his future contributions in leading the Company. A
variety of factors, both individual and corporate, were considered in
evaluating the performance of the Company's executive officers.
Stock Option Awards for 1998. The Company's 1992 Stock Plan provides for
the issuance of stock options to officers and employees of the Company to
purchase shares of the Company's Common Stock at an exercise price equal to the
fair market value of such stock on the date of grant. Stock options are granted
to the Company's executive officers and other employees both as a reward for
past individual and corporate performance and as an incentive for future
performance. The Committee believes that stock-based performance compensation
arrangements are essential in aligning the interests of management and the
stockholders in enhancing the value of the Company's equity. Consistent with
this philosophy, the Committee granted stock options to each of the Company's
executive officers, the amounts of such stock option awards being based upon
attainment of a combination of corporate and individual performance objectives.
The name of the executive officer, the number of options and the exercise price
for each such grant is set forth in this Proxy Statement under Option Grants In
Fiscal Year Ended December 31, 1998.
Severance Agreements. In October, 1998, the Compensation Committee
determined that it was in the best interests of the Company to enter into
severance agreements with four executive officers of the Company. The severance
agreements expired April 1, 1999. The severance agreements are described in
this Proxy Statement under Certain Relationships and Related Transactions.
Deductibility of Executive Compensation. Section 162(m) of the Internal
Revenue Code (the "Code") limits the Company to a deduction for federal income
tax purposes of no more than $1 million of compensation paid to certain Named
Executive Officers in a taxable year. Compensation above $1 million may be
deducted if it is "performance-based compensation" within the meaning of the
Code. The statute containing this law and the applicable proposed Treasury
regulations offer a number of transitional exceptions to this deduction limit
for pre-existing compensation plans, arrangements and binding contracts. As a
result, the Compensation Committee believes that at the present time it is
quite unlikely that the compensation paid to any Named Executive Officer in a
taxable year which is subject to the deduction limit will exceed $1 million.
Therefore, the Compensation Committee has not yet established a policy for
determining which forms of incentive compensation awarded to its Named
Executive Officers shall be designed to qualify as "performance-based
compensation." The Compensation Committee intends to continue to evaluate the
effects of the statute and any final Treasury regulations and to comply with
Code Section 162(m) in the future to the extent consistent with the best
interests of the Company.
Respectfully submitted,
Robert Erra and Michael H. Spindler
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STOCK PERFORMANCE GRAPH
The Stock Performance Graph below shall not be deemed incorporated by
reference in any general statement incorporating by reference this proxy
statement into any filing under the Securities Act of 1933 or the Securities
Exchange Act, except to the extent that the Company specifically incorporates
this information by reference, and shall not otherwise be deemed filed under
either of such Acts.
The following graph shows a comparison of cumulative total stockholder
returns for the Company's Common Stock, the Nasdaq U.S. Stock Market Index, and
an index based on companies in a peer group (Nasdaq Medical Devices,
Instruments and Supplies, Manufacturers and Distributors Stocks). The graph
assumes the investment of $100 on June 21, 1995, the date of the Company's
initial public offering and that all dividends were reinvested. No dividends
have been declared or paid on the Company's Common Stock. The performance shown
is not necessarily indicative of future performance.
COMPARISON OF 42 MONTH CUMULATIVE TOTAL RETURNS*
AMONG VIDAMED, INC., THE NASDAQ STOCK MARKET US-INDEX
AND THE PEER GROUP
[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T]
6/21/95 12/1/95 12/1/96 12/1/97 12/1/98
Vidamed Inc. 100 143 194 66 42
Nasdaq U.S. 100 113 139 171 241
Peer Group 100 125 117 134 152
* $100 INVESTED ON 6/21/95 IN STOCK OR INDEX
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31.
19
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In August 1994, the Company entered into a cross license agreement with
Rita Medical Systems, Inc. ("RITA"), formerly known as ZoMed International,
Inc., a corporation formed to develop a system for treating certain cancers.
Stuart D. Edwards, one of the Company's founders, was one of the co-founders of
RITA. Mr. Edwards is a member of RITA's Board of Directors and, until September
2, 1998, was also a member of the Company's Board of Directors.
The cross license grants RITA a worldwide, exclusive, royalty-bearing
license to use VidaMed technology in applications for the diagnosis and
treatment of cancer and grants VidaMed a worldwide, exclusive, royalty-free
license to use RITA technology in applications for the treatment of urological
disorders other than cancer. The cross license between VidaMed and RITA allows
both companies to develop products for treatment of prostate cancer and cancers
of the lower urinary tract. For purposes of the cross license, VidaMed
technology and RITA technology consist of technology developed prior to the
earlier of (i) a merger, reorganization or sale of substantially all of the
assets of VidaMed or RITA or (ii) December 31, 1999, and with respect to
applications for prostate and lower urinary tract cancers, technology existing
at the date of the cross license.
As consideration for the cross license, RITA issued VidaMed 1,800,000
shares of RITA common stock. RITA will also pay royalties to VidaMed based on a
percentage of net sales of products incorporating VidaMed technology, subject
to an aggregate maximum of $500,000. However, in the event that VidaMed
introduces a product for treatment of cancer of the prostate or lower urinary
tract, no royalties will be payable on any such product introduced by RITA. The
cross license and related transactions involving the organization of RITA were
approved by a majority of the disinterested stockholders of VidaMed as required
by applicable law.
In January 1996, John N. Hendrick exercised options to purchase 34,492
shares of the Company's Common Stock. A portion of the purchase price for such
shares was paid by delivery of a full-recourse promissory note in the principal
amount of $93,128.40 bearing interest at the rate of 7.96% per annum. The
principal and accrued interest are due on February 1, 2000, but are immediately
due and payable in the event of termination of Mr. Hendrick's employment with
the Company.
In March 1995, James A. Heisch exercised options to purchase 37, 778
shares of the Company's Common Stock. A portion of the purchase price for such
shares was paid by delivery of a full-recourse promissory note in the principal
amount of $72,000 bearing interest at the rate of 7.96%. The principal and the
accrued interest are due on the second anniversary of the Transition Date.
Mr. Heisch resigned as President and Chief Executive Officer of the
Company and as a member of the Company's Board of Directors on April 6, 1998
(the "Transition Date"). Pursuant to a consulting agreement and mutual release,
Mr. Heisch is serving as a consultant to the Company for a period of up to two
years from the Transition Date, during which period, the Company is paying Mr.
Heisch for his consulting services the monthly base salary that he was
receiving on the Transition Date. In addition, Mr. Heisch received $230,000 in
severance compensation during calendar year 1998. From April 6,1999 through
April 6, 2000 Mr. Heisch shall be eligible to receive up to an additional
$230,000.The consulting agreement and mutual release also provide that Mr.
Heisch will continue to vest in any stock options that he held on the
Transition Date and in any shares of the Company's Common Stock that, on the
Transition Date, were subject to the Company's right to repurchase.
David J. Illingworth joined the Company as President and Chief Executive
Officer in April 1998. Upon commencement of Mr. Illingworth's employment as
President and Chief Executive Officer, the Company provided Mr. Illingworth a
loan in the amount of $250,000. In consideration of the loan, Mr. Illingworth
executed a promissory note in favor of the Company, bearing interest at a rate
of 5.39% per annum. The principal and the accrued interest are due on October
31, 2000. Fifty percent of the principal and the accrued interest was forgiven
immediately upon commencement of his employment as President and Chief
Executive Officer. Assuming that he does not voluntarily resign his position
with the Company, another 25% of the principal and the accrued interest will be
forgiven upon the first anniversary of his commencement date and the remaining
25% of the principal and the accrued interest will be forgiven upon the second
anniversary of his commencement date. In the event the Company undergoes a
change in control prior to April 6, 2000, the loan will be forgiven.
20
<PAGE>
Randy D. Lindholm joined the Company as Executive Vice President for World
Wide Sales and Marketing in July 1998. Upon commencement of Mr. Lindholm's
employment as Executive Vice President for World Wide Sales and Marketing, the
Company provided Mr. Lindholm an interest-free loan in the amount of $200,000.
In consideration of the loan, Mr. Lindholm executed a promissory note in favor
of the Company. The principal is due on September 15, 2003; provided, however,
that in the event the Company undergoes a change in control prior to September
15, 2003, the loan will be forgiven.
Carol A. Chludzinski resigned her position as Vice President, North
American Sales on January 18, 1999. Pursuant to a severance agreement and
mutual release, the Company compensated Ms. Chludzinski $105,000 in a
combination of 44,000 shares of the Company's Common Stock valued at $89,875
and a cash payment for the difference.
In October 1998, the Company entered into severance agreements with
Messrs. Illingworth, Brounstein, Lindholm and Hendrick, that have expired by
their terms on April 1, 1999. The Board of Directors believes that it is in the
best interests of the Company to enter into new severance agreements with five
of the Company's executive officers, specifically Messrs. Illingworth,
Brounstein, Lindholm and Hendrick and Ms. Robin Bush. The Board of Directors
has approved the form of a new severance agreement and has authorized the
execution of the new agreement with each of these individuals. The Company's
obligation under the new agreement is triggered only by a future change in
control (as that term is defined in the agreement) and requires the Company,
upon any change in control of the Company, to compensate each of these
executive officers (if such executive officer elects to terminate his or her
employment due to the change in control) an amount equal to such executive's
annual base salary and accrued but unused vacation pay, together with any
reimbursement due for expenses incurred through such executive's termination
date.
Patricia Garfield was Vice President of Marketing of the Company through
July, 1998 and was concurrently serving as President of HealthCare Recruiters
International of the Bay Area, a health care executive search firm. While
affiliated with VidaMed, Ms. Garfield did not participate in the day-to-day
operations of HealthCare Recruiters International. However, during 1998, the
Company paid fees aggregating $115,450 to Healthcare Recruiters International
for executive searches. Pursuant to a consulting agreement and mutual release,
Ms. Garfield is serving as a consultant to the Company for a period of 16
months, during which period, Ms. Garfield will continue to vest in any stock
options that she held on July 31, 1998.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Company's directors,
its executive officers, and any persons holding more than ten percent of the
Company's Common Stock are required to report their initial ownership of the
Company's Common Stock and any subsequent changes in that ownership to the
Securities and Exchange Commission ("SEC"). Specific filing deadlines of these
reports have been established, and the Company is required to disclose in this
Proxy Statement any failure to file required reports by these dates during the
fiscal year ended December 31, 1998. To the best of the Company's knowledge,
all of these filing requirements have been satisfied, except that Messrs.
Illingworth and Scibelli did not timely file their initial statements of
beneficial ownership of securities on Form 3. In making this statement, the
Company has relied solely on written representations of its directors and
executive officers and any holders of ten percent or more of the Company's
Common Stock, and copies of the reports that they filed with the SEC.
OTHER MATTERS
The management of the Company does not know of any matters other than
those stated in this Proxy Statement that are to be presented for action at the
Annual Meeting. If any other matters should properly come before the meeting,
it is intended that the appointees named on the accompanying proxy card will
vote such shares in accordance with their judgment on such matters.
Discretionary authority to vote on such matters is conferred by such proxies on
the persons appointed and voting them.
21
<PAGE>
INCORPORATION BY REFERENCE
The SEC allows the Company to incorporate by reference the information it
files with the SEC. The information incorporated by reference is considered to
be a part of this Proxy Statement and later information that this Company files
with the SEC will automatically update and supersede this information. The
Company incorporates by reference the Company's Annual Report on Form 10-K for
the year ended December 31, 1998, filed with the SEC on March 30, 1999, its
Form 10-K/A for the year ended December 31, 1998 filed with the SEC on March
31, 1999, the Annual Report To Stockholders mailed to stockholders receiving
this Proxy Statement and any future filings made with the SEC under Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended.
THE COMPANY WILL MAIL WITHOUT CHARGE TO ANY STOCKHOLDER UPON WRITTEN
REQUEST A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K, INCLUDING THE
FINANCIAL STATEMENTS, SCHEDULES AND A LIST OF EXHIBITS. REQUESTS SHOULD BE SENT
TO MR. RICHARD BROUNSTEIN, CHIEF FINANCIAL OFFICER OF VIDAMED, INC., 46107
LANDING PARKWAY, FREMONT, CALIFORNIA 94538.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ David J. Illingworth
David J. Illingworth
President and Chief Executive Officer
Dated: April 30, 1999
22
<PAGE>
Appendix A
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PROXY
VIDAMED, INC.
1999 Annual Meeting of Stockholders
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of VidaMed, Inc., a Delaware corporation, hereby
acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy
Statement, each dated April 30, 1999, and hereby appoints Richard Brounstein
and William J.P. Weiland or either of them, proxies and attorneys-in-fact, with
full power to each of substitution, on behalf and in the name of the
undersigned, to represent the undersigned at the 1999 Annual Meeting of
Stockholders of VidaMed, Inc., to be held June 3, 1999 at 10:00 a.m., local
time, at the Embassy Suites Hotel, 901 East Calaveras Boulevard, Milpitas,
California 95035 and any postponement or adjournment thereof, and to vote all
shares of Common Stock which the undersigned would be entitled to vote if then
and there personally present, on the matters set forth below:
1. Approval of Amendment to the Restated Certificate of Incorporation:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Election of Directors:
[ ] FOR all the nominees listed below (except as indicated).
[ ] WITHHOLD authority to vote for all nominees listed below.
If you wish to withhold authority to vote for any individual nominee, strike a
line through that nominee's name in the list below:
Franklin D. Brown, Robert Erra, David J. Illingworth,
Wayne I. Roe, Michael H. Spindler
3. Proposal to approve an amendment to the 1995 Employee Stock Purchase Plan to
increase the number of Common Stock reserved for issuance thereunder by
200,000 shares to a new total of 600,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued and to be signed on reverse side)
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ATTENTION: PLEASE NOTE THAT THIS BOX WILL NOT BE PRINTED. IT IS TO
SHOW THE TEXT POSITION ON THE FRONT OF THIS PROXY CARD.
<PAGE>
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(Continued from other side)
4. Proposal to approve an amendment to the 1992 Stock Plan to increase the
number of Common Stock reserved for issuance thereunder by 1,200,000
shares to a new total of 5,500,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. Proposal to approve an amendment to the 1995 Director Option Plan to
eliminate the vesting provisions and to vest immediately any future
options granted pursuant to the plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. Proposal to ratify the appointment of Ernst & Young LLP as independent
auditors of the Company for the year ending December 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
This Proxy will be voted as directed or, if no contrary direction is
indicated, will be voted as follows: (1) for the amendment of the Company's
Restated Certificate of Incorporation; (2) for the election of Directors;
(3) for the amendment of the Company's 1995 Employee Stock Purchase Plan;
(4) for the amendment of the Company's 1992 Stock Plan; (5) for the
amendment of the Company's 1995 Director Option Plan; (6) for ratification
of the appointment of Ernst & Young LLP as independent auditors, and as the
proxy holders deem advisable on such other matters as may come before the
meeting.
Dated ______________________________ , 1999
Signature:_________________________________
Signature:_________________________________
NOTE: (This proxy should be marked, signed by the stockholder(s) exactly as his
or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.)
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS HEREON. IF THE STOCK IS REGISTERED IN
THE NAMES OF TWO OR MORE PERSONS, EACH SHOULD SIGN. EXECUTORS, ADMINISTRATORS,
TRUSTEES, GUARDIANS AND ATTORNEYS-IN-FACT SHOULD ADD THEIR TITLES. IF SIGNER IS
A CORPORATION, PLEASE GIVE FULL CORPORATE NAME AND HAVE A DULY AUTHORIZED
OFFICER SIGN, STATING TITLE. IF SIGNER IS A PARTNERSHIP, PLEASE SIGN IN
PARTNERSHIP NAME BY AUTHORIZED PERSON. PLEASE SIGN, DATE AND PROMPTLY RETURN
THIS PROXY IN THE ENCLOSED RETURN ENVELOPE WHICH IS POSTAGE PREPAID IF MAILED
IN THE UNITED STATES.
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ATTENTION: PLEASE NOTE THAT THIS BOX WILL NOT BE PRINTED. IT IS TO
SHOW THE TEXT POSITION ON THE BACK OF THIS PROXY CARD.
