SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement |_| Confidential, For Use of the
Commission Only (as permitted
|_| Definitive Proxy Statement by Rule 14a-6(e)(2))
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
VIDAMED, INC.
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(Name of Registrant as Specified in Its Charter)
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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)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(1) Aggregate number of securities to which transaction applies:
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(1) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
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(1) Proposed maximum aggregate value of transaction:
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(1) Total fee paid:
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|_| Fee paid previously with preliminary materials:
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|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing. (1) Amount previously paid:
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(1) Form, Schedule or Registration Statement no.:
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(1) Filing Party:
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(1) 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
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
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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 there-under,
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 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
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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.
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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 and 4,432,197 were reserved for
issuance under the Company's stock option plans, leaving only 5,088,033 shares
of Common Stock available for future issuance. 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 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
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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 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
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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.
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
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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.
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.
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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:
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
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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 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
-12-
<PAGE>
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) 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
-13-
<PAGE>
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 stock-holders.
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.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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.
-14-
<PAGE>
Approximate
Name and Address of Beneficial Shares Beneficially Percent of
Owner Owned (1) Total (2)
- ----- --------- ---------
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) *
-15-
<PAGE>
Michael H. Spindler
Esquisse, Inc.
1717 Embarcadero Road
Palo Alto, CA 94303 35,071(11) *
All executive officers and directors 1,142,900 5.60%
as a group (11 persons)
* 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.
EXECUTIVE COMPENSATION AND OTHER MATTERS
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.
-16-
<PAGE>
<TABLE>
Summary Compensation Table
<CAPTION>
Long Term
Compensation
Name Awards All
And Number of Stock Other
Principal Positions Year Salary Severance Bonuses 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.
-17-
<PAGE>
(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.
(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 $120,000.
</FN>
</TABLE>
-18-
<PAGE>
<TABLE>
Option Grants in Last Fiscal Year. The following table sets forth certain
information concerning stock options granted during the calendar year ended
December 31, 1998 to the executive officers named in the Summary Compensation
Table above. Actual realizable values, if any, of stock options will depend on
the future performance of the Common Stock.
OPTION GRANTS IN FISCAL 1998
<CAPTION>
Individual Grants
Potential Realizable
Value at Assumed Annual
Number of % of Rates of Stock Price
Securities Total Exercise Appreciation for
Underlying Options or Base Option Term (1)
Options Granted Price Expiration -----------------------
Name Granted in 1998 ($/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
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 1/48 th
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 1/48 th 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 1/48 th 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 1/48 th of the
total shares at the end of each full month thereafter until all shares are fully
vested.
-19-
<PAGE>
(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
1/48 th of the total shares at the end of each full month thereafter through
January 31, 2000.
</FN>
</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.
<TABLE>
AGGREGATE OPTION EXERCISES IN FISCAL 1998 AND
FISCAL YEAR-END OPTION VALUES
<CAPTION>
Number of Shares Value of Unexercised
Underlying Unexercised In-the-Money
Shares Value Options at Options at
Acquired on Realized December 31, 1998 December 31, 1998($)(6)
Exercise (#) ($)(1) Vested Unvested Vested Unvested
------------ ------ ------ -------- ------ --------
<S> <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.
-20-
<PAGE>
(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 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 $4.813 per share. Participants in the September 1997 repricing were
required to agree not to exercise their new options, except in the case of
death, disability or involuntary termination of employment, for a period of one
year (in the case of executive officers) and six months (in the case of all
other employees).
The following table sets forth certain information regarding the
participation of the Named Executive Officers and other officers in the
Company's repricing of stock options described above.
-21-
<PAGE>
<TABLE>
TEN YEAR OPTION/SAR REPRICINGS
<CAPTION>
Market
Number of Price Exercise Length of
Securities of Stock at Price at Original
Underlying Time of Time of Option Term
Options/ Repricing Repricing New Remaining at
SARs or or Exercise Date of
Repriced or Amendment Amendment Price Repricing or
Name Date Amended (#) ($) ($) ($) Amendment
---- ---- ----------- --------- --------- ----- ------------
<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 $4.813 9.3
All other executive
officers as a group (0
22
<PAGE>
Market
Number of Price Exercise Length of
Securities of Stock at Price at Original
Underlying Time of Time of Option Term
Options/ Repricing Repricing New Remaining at
SARs or or Exercise Date of
Repriced or Amendment Amendment Price Repricing or
Name Date Amended (#) ($) ($) ($) Amendment
---- ---- ----------- --------- --------- ----- ------------
persons) -- 0 -- -- --
</TABLE>
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
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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
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.
[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T]
COMPARISON OF 42 MONTH CUMULATIVE TOTAL RETURNS*
AMONG VIDAMED, INC., THE NASDAQ STOCK MARKET US-INDEX AND THE PEER GROUP
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- --------------------------------------------------------------------------------
06/21/95 12/95 12/96 12/97 12/98
- --------------------------------------------------------------------------------
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.
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,
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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.
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
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$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.
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
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<PAGE>
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
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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 D. 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
q FOR q AGAINST q ABSTAIN
2. Election of Directors:
q FOR all the nominees listed below (except as indicated).
q 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.
q FOR q AGAINST q ABSTAIN
(Continued and to be signed on reverse side)
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<PAGE>
(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.
q FOR q AGAINST q 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.
q FOR q AGAINST q ABSTAIN
6. Proposal to ratify the appointment of Ernst & Young LLP as independent
auditors of the Company for the year ending December 1999.
q FOR q AGAINST q 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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