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 by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to SECTION 240.14a-11(c) or
SECTION 240.14a-12
MERGE TECHNOLOGIES INCORPORATED
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(Name of Registrant as Specified in its Charter)
- ---------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date of its
filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[MERGE LETTERHEAD]
Subject to completion __________,1998
Dear Shareholder:
You are cordially invited to attend the annual meeting of
shareholders of Merge Technologies Incorporated (the "Company") to be held
at ________________________,_____________________, Milwaukee,
Wisconsin______________ on June 16, 1998, at 10:00 a.m. central time. At
the meeting, you will be asked to consider and vote upon proposals to:
(i) elect seven individuals as Directors; (ii) concur in the selection of
KPMG Peat Marwick LLP as the Company's independent accountants; (iii)
amend the Company's Restated Articles of Incorporation ("Articles") by
adding a provision expressly electing not to be governed by Sections
180.1131 through 180.1133 of the Wisconsin Business Law Corporation
("WBCL"); (iv) amend the Company's Articles by adding a provision expressly
electing not to be governed by Section 180.1150 of the WBCL; (v) amend the
Company's Articles by increasing the number of authorized shares of Common
Stock ("Common Shares")from 10,000,000 to 30,000,000; and (vi) amend the
Company's Stock Option Plan for Employees to increase the number of Common
Shares authorized for issuance under the plan from 1,015,826 to 2,015,826,
all as more particularly described in the accompanying Proxy Statement.
With respect to the proposal described in (i) above, the seven
individuals receiving the highest number of votes will be elected as
Directors. Approval of the proposals described in (ii) and (vi) above
requires the affirmative vote of a majority of Common Shares present in
person or represented by proxy and eligible to vote at the annual meeting,
a quorum being present. Approval of the proposal described in (iii) above
requires the affirmative vote of 80% of the Company's outstanding Common
Shares and the affirmative vote of two-thirds of the Company's Common
Shares held by persons who are not significant shareholders of the Company.
Approval of the proposals described in (iv) and (v) above requires the
affirmative vote of a majority of the outstanding Common Shares.
Accordingly, whether or not you plan to attend the meeting, please
complete, sign and date the accompanying proxy and return it in the
enclosed prepaid envelope. You may revoke your proxy in the manner
described in the accompanying Proxy Statement at any time before it has
been voted at the meeting. If you attend, you may vote in person, even if
you have previously returned your proxy. Your prompt cooperation will be
greatly appreciated. This solicitation is authorized by and is made on
behalf of the Company's Board of Directors.
Sincerely,
MERGE TECHNOLOGIES INCORPORATED
William C. Mortimore
President
<PAGE>
MERGE TECHNOLOGIES INCORPORATED
1126 SOUTH 70TH STREET
SUITE S107B
MILWAUKEE, WISCONSIN 53214-3151
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints William C. Mortimore and Colleen M.
Doan, and each of them, as Proxies, with the power to appoint their
substitutes, and hereby authorizes them to represent and to vote, as
designated on the reverse side, all of the shares of common stock, par
value $0.01 per share (the "Common Stock"), of Merge Technologies
Incorporated (the "Company") held of record by the undersigned on May 8,
1998, at the Annual Meeting of Shareholders when convened on June 16, 1998,
or any adjournment thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE,
THIS PROXY WILL BE VOTED FOR EACH OF THE PROPOSALS SET FORTH HEREIN.
CONTINUED ON THE REVERSE SIDE.
<PAGE>
PROXY CARD
[ X ] Please mark your votes
as in this example
1. Elect seven individuals to serve as Directors until the next annual
meeting of Shareholders or otherwise as provided in the Amended and
Restated By-Laws (check one box).
FOR WITHHELD
[ ] [ ]
NOMINEES:
--------
William C. Mortimore
Robert T. Geras
Robert A. Barish, M.D.
Dennis Brown
Michael D. Dunham
Douglas S. Harrington, M.D.
Kevin E. Moley
For, except vote withheld from the following nominee(s):
------------------------
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2. Concur in the selection of KPMG Peat Marwick LLP as the Company's
independent public accountants for the fiscal year ending December 31, 1998
(check one box).
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Amend the Company's Restated Articles of Incorporation by adding a
provision expressly electing not to be governed by Sections 180.1131
through 180.1133 of the Wisconsin Business Corporation Law (check one box)
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. Amend the Company's Restated Articles of Incorporation by adding a
provision expressly electing not to be governed by Section 180.1150 of the
Wisconsin Business Corporation Law (check one box).
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
5. Amend the Company's Articles of Incorporation by increasing the
number of authorized shares of Common Stock from 10,000,000 to 30,000,000
(check one box).
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
6. Amend the Company's Stock Option Plan for Employees to increase the
number of shares of Common Stock authorized for issuance under the Plan
from 1,015,826 to 2,015,826 (check one box).
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
7. Transact such other business as may properly come before the Annual
Meeting, or any adjournment thereof (check one box).
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
SIGNATURE(S) ______________________________________ DATE _______________
NOTE: Sign exactly as name appears at left. If joint tenant, both should
sign. If attorney, executor, administrator, Trustee or guardian, give full
title as such. If a corporation, please sign corporate name by president
or authorized officer. If partnership, sign in full partnership name by
authorized person.
<PAGE>
MERGE TECHNOLOGIES INCORPORATED
1126 SOUTH 70TH STREET, SUITE S107B
MILWAUKEE, WISCONSIN 53214-3151
(414) 475-4300
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders of Merge Technologies Incorporated:
Notice is hereby given that the Annual Meeting of Shareholders (the
"Annual Meeting" or the "Meeting") of Merge Technologies Incorporated, a
Wisconsin corporation (the "Company"), will be convened at______________,
________________, Milwaukee, Wisconsin _________ on June 16, 1998, at 10:00
a.m. central time (the "Meeting Date"). All Shareholders of the Company
(the "Shareholders") are entitled to attend the Meeting. The Annual
Meeting will be held for the purpose of considering and voting upon
proposals to:
1. Elect seven individuals to serve as Directors until the next
annual meeting of Shareholders or otherwise as provided in the Amended and
Restated By-Laws of the Company;
2. Concur in the selection of KPMG Peat Marwick LLP as the
Company's independent public accountants for the fiscal year ending
December 31, 1998;
3. Amend the Company's Restated Articles of Incorporation
("Articles") by adding a provision expressly electing not to be governed by
Sections 180.1131 through 180.1133 of the Wisconsin Business Corporation
Law ("WBCL");
4. Amend the Company's Articles by adding a provision expressly
electing not to be governed by Section 180.1150 of the WBCL;
5. Amend the Company's Articles by increasing the number of
authorized shares of Common Stock of the Company from 10,000,000 to
30,000,000;
6. Amend the Company's Stock Option Plan for Employees to increase
the number of shares of Common Stock authorized for issuance under the Plan
from 1,015,826 to 2,015,826; and
7. Transact such other business as may properly come before the
Annual Meeting, or any adjournment thereof.
Only Shareholders of record at the close of business on May 8, 1998
are entitled to receive notice of and to vote at the Annual Meeting or any
adjournment thereof (the "Eligible Holders"). A complete list of Eligible
Holders will be available for inspection at the Company's offices for at
least ten days prior to the Meeting. Unless otherwise defined, defined
terms in this Notice shall have the meaning ascribed to them in the Proxy
Statement accompanying this Notice.
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A PROXY STATEMENT AND PROXY ARE ENCLOSED. WHETHER OR NOT YOU EXPECT
TO ATTEND THE ANNUAL MEETING, IT IS IMPORTANT THAT YOU PROMPTLY FILL IN,
SIGN, DATE AND MAIL THE PROXY IN THE ENCLOSED ENVELOPE SO THAT YOUR SHARES
MAY BE VOTED FOR YOU.
By order of the Board of Directors:
William C. Mortimore
President and Chief Executive Officer
Milwaukee, Wisconsin
_________________ , 1998
The Company's 1997 Annual Report is enclosed with this notice and
Proxy Statement.
<PAGE>
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS OF
MERGE TECHNOLOGIES INCORPORATED
________________, 1998
This proxy statement is furnished to the holders of shares (the
"Shareholders") of common stock, par value $0.01 per share (the "Common
Shares" or "Common Stock"), of Merge Technologies Incorporated, a Wisconsin
corporation (the "Company"), in connection with the solicitation of proxies
by the Company's Board of Directors (the "Directors" or the "Board") for
use at the annual meeting of Shareholders to be held on June 16, 1998 (the
"Annual Meeting"). The Annual Meeting will be convened at approximately
10:00 a.m. central time. Any adjournment or postponement thereof will be
announced at the meeting. This Proxy Statement, the enclosed notice and
proxy were first sent or given to Shareholders on or about _______, 1998.
Shareholders who wish to attend the Annual Meeting should contact the
Company at (414) 475-4300 to make arrangements.
The Company will make arrangements with brokerage houses, banks and
other custodians, nominees and fiduciaries to forward solicitation
materials to the beneficial owners of the Common Shares held of record by
those persons. The Company may reimburse these custodians, nominees and
fiduciaries for their reasonable out-of-pocket expenses incurred in
forwarding the material. The Company will bear the cost of soliciting
proxies, although the Company currently does not intend to solicit proxies.
Brokerage firms, fiduciaries, nominees and others holding Common Shares for
beneficial owners will be reimbursed for the out-of-pocket expenses in
forwarding proxy materials to these beneficial owners. In addition to the
use of the mails, proxies may be solicited by directors, officers and
employees of the Company who will not be specifically compensated for these
services, by means of personal calls upon, or telephonic, telegraphic or
telecopy communications with, Shareholders or their representatives.
Only Common Shares represented by properly executed proxies in the
accompanying form received by the Board prior to the Annual Meeting will be
voted at the Annual Meeting. If a Shareholder specifies a choice with
respect to any matter to be acted upon, the Common Shares represented by
that proxy will be voted as specified. If a Shareholder does not specify a
choice, in an otherwise properly executed proxy, with respect to any
proposal referred to therein, the Common Shares represented by that proxy
will be voted with respect to that proposal in accordance with the
recommendations of the Board described herein. A Shareholder who signs and
returns a proxy in the accompanying form may revoke it by: (i) giving
written notice of revocation to the Company before the proxy is voted at
the Annual Meeting; (ii) executing and delivering a later-dated proxy
before the proxy is voted at the Annual Meeting; or (iii) attending the
Annual Meeting and voting the Common Shares in person.
The close of business on May 8, 1998 has been fixed as the date for
determining Shareholders entitled to notice of and to vote at the Annual
Meeting (the "Record Date"). On the Record Date, the Company had 5,778,216
Common Shares outstanding, each of which entitles the holder thereof to one
vote per Share. Directors and officers of the Company own 1,447,161 or
approximately 25% of these Common Shares and intend to vote in favor of
each of the proposals. Only Shareholders of record as of the Record Date
will be entitled to vote at the meeting. Votes cast by proxy or in person
at the Annual Meeting will be tabulated by an inspector of election
appointed for the meeting who will determine whether or not a quorum is
present. The presence of a majority of the outstanding Common Shares
represented in person or by proxy at the Annual Meeting will constitute a
quorum. Abstentions and broker non-votes will be treated as Common Shares
that are present for the purpose of determining whether a quorum exists and
will have the effect of a vote against Proposals Number Three through Five
since these proposals require the affirmative vote of a majority of the
outstanding Common Shares (80% of Common Shares and two-thirds of Common
Shares not held by Significant Shareholders in the case of Proposal Number
Three). With respect to Proposals Number Two and Six, abstentions and
<PAGE>
broker non-votes will have no effect since these proposals merely requires
approval of a majority of the Common Shares cast in person or by proxy.
With respect to Proposal Number One, the seven nominees receiving the
highest vote totals will be elected as Directors.
The mailing address of the principal executive offices of the Company
is 1126 South 70th Street, Suite S107B, Milwaukee, Wisconsin 53214-3151.
The Company's Internet address is www.merge.com. The Common Shares are
included for quotation on the Nasdaq SmallCap Market ("Nasdaq") under the
symbol "MRGE". On ________ __, 1998, the last reported sales price of the
Common Shares as reported by Nasdaq was $____ per Common Share.
THE DATE OF THIS PROXY STATEMENT IS __________, 1998.
SHAREHOLDERS SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS
PROXY STATEMENT OR INCORPORATED BY REFERENCE. NO PERSON HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER
THAN THOSE CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT IN CONNECTION WITH THE SOLICITATION MADE BY THIS PROXY STATEMENT
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THE DELIVERY OF THIS
PROXY STATEMENT SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH EITHER IN THIS
PROXY STATEMENT OR IN THE COMPANY'S AFFAIRS SINCE THE DATE HEREOF. THIS
PROXY STATEMENT DOES NOT CONSTITUTE A SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH THE SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE
PERSON MAKING THE SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO
WHOM IT IS UNLAWFUL TO MAKE A SOLICITATION.
AVAILABLE INFORMATION
The Company files reports, proxy materials and other information with
the Securities and Exchange Commission (the "Commission"). These reports,
proxy materials and other information concerning the Company can be
inspected and copied at the Public Reference Section maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549; The Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511, and at Seven World Trade Center, Suite
1300, New York, New York 10048. Copies can be obtained by mail from the
Commission at prescribed rates from the Public Reference Section of the
Commission at its principal office in Washington, D.C. The Commission also
maintains a site on the World Wide Web (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The Common
Shares are included for quotation on Nasdaq and copies of reports and other
material concerning the Company can be inspected at the offices of the
National Association of Securities Dealers, Inc. at 1801 K Street, N.W.,
8th Floor, Washington, D.C. 20006.
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE
READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION APPEARING ELSEWHERE
IN THIS PROXY STATEMENT. UNLESS THE CONTEXT OTHERWISE REQUIRES, ALL
REFERENCES IN THIS PROXY STATEMENT TO THE "COMPANY" REFER TO MERGE
TECHNOLOGIES INCORPORATED, AND ITS SUBSIDIARY. UNLESS DEFINED HEREIN, ALL
DEFINED TERMS SHALL HAVE THE MEANING AS ASCRIBED TO THEM IN THE COMPANY'S
AMENDED AND RESTATED BY-LAWS, AS AMENDED (THE "BY-LAWS").
MATTERS TO BE CONSIDERED BY SHAREHOLDERS AT THE ANNUAL MEETING
The Annual Meeting of Shareholders of the Company will be held for
the purpose of considering and voting upon proposals to:
1. Elect seven individuals to serve as Directors until the next
annual meeting of Shareholders or otherwise as provided in the By-Laws;
2. Concur in the selection of KPMG Peat Marwick LLP as the
Company's independent public accountants for the fiscal year ended December
31, 1998;
3. Amend the Company's Restated Articles of Incorporation
("Articles") by adding a provision expressly electing not to be governed by
Sections 180.1131 through 180.1133 of the Wisconsin Business Corporation
Law ("WBCL");
4. Amend the Company's Articles by adding a provision expressly
electing not to be governed by Section 180.1150 of the WBCL;
5. Amend the Company's Articles by increasing the number of
authorized shares of common stock of the Company, par value $0.01 per share
("Common Shares") from 10,000,000 to 30,000,000;
6. Amend the Company's Stock Option Plan for Employees (the
"Employee Plan") to increase the number of shares of Common Stock
authorized for issuance under the Employee Plan from 1,015,826 to
2,015,826; and
7. Transact such other business as may properly come before the
Annual Meeting, or any adjournment thereof.
Only Shareholders of record at the close of business on the Record
Date are entitled to receive notice of and to vote at the Annual Meeting or
any adjournment thereof.
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
Certain statements in this Proxy Statement that are not historical
facts constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995, Section 27A of the
Securities Act of 1933, as amended (the "Securities Act") and Section 21E
of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Discussions containing such forward-looking statements may be included
herein in the material set forth under "Matters to be Considered by
Shareholders" as well as within the Proxy Statement generally. In
addition, when used in the Proxy Statement, the words "believes,"
"intends," "anticipates," "expects" and similar expressions are intended to
identify forward-looking statements. These statements are subject to a
number of risks and uncertainties, including, among others, the Company's
lack of consistent profitability, history of operating losses, fluctuations
in operating results, credit and payment risks associated with end-user
sales, involvement with rapidly developing technology in highly competitive
markets, dependence on major customers, expansion of its international
sales effort, broad discretion of management and dependence on key
<PAGE>
personnel, risks associated with product liability and product defects,
costs of complying with government regulation, changes in external
competitive market factors which might impact trends in the Company's
results of operation, unanticipated working capital and other cash
requirements, general changes in the industries in which the Company
competes, and various other competitive factors that may prevent the
Company from competing successfully in the marketplace. Actual results
could differ materially from those projected in the forward-looking
statements as a result of the factors set forth in the Proxy Statement
generally and in the Company's annual report on Form 10-KSB under the
heading "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The Company undertakes no obligation to publicly
release the result of any revisions to these forward-looking statements
that may be made to reflect any future events or circumstances.
OVERVIEW
In addition to electing nominees to serve as Directors and seeking
the concurrence of the Shareholders for the selection of KPMG Peat Marwick
LLP as the Company's independent public accountants, the Directors have
approved, and are seeking Shareholder approval of, proposals to amend
various provisions of the Articles and the Employee Plan.
Proposal Number Three, if approved by the Shareholders, would
decrease the shareholder vote necessary to approve a "Business Combination"
(as defined in Proposal Number Three) between a Wisconsin corporation and a
Significant Shareholder (as defined in Proposal Number Three). Currently,
the affirmative vote of 80% of the Company's Common Shares and at least
two-thirds of the Company's Common Shares not beneficially held by a
Significant Shareholder is required to approve a Business Combination
between the Company and a Significant Shareholder. Proposal Number Three,
if approved by the Shareholders, would change the vote required to approve
such a Business Combination to the affirmative vote of a majority of the
Common Shares.
Adoption of Proposal Number Three may render it easier to effectuate
or may encourage a merger, tender offer, proxy contest, or other Business
Combination between the Company and a Significant Shareholder, whether or
not such an event would be favorable to, and in the best interests of,
Shareholders.
Proposal Number Four, if approved by the Shareholders, would increase
the voting power of a person (or persons acting as a group) holding in
excess of 20% of the voting power of the Company by enabling such person or
persons to vote all of such shares, rather than the WBCL's statutorily-
prescribed maximum voting power of 10% of the voting power of the Company,
in the election of Directors.
Adoption of Proposal Number Four may render it easier for a
Significant Shareholder to affect the outcome of election of Directors.
This may make it easier for a Significant Shareholder to successfully
engage in a proxy contest to elect Directors and may result in the election
of Directors who favor a Business Combination between the Company and the
Significant Shareholder, whether or not such an event would be favorable
to, and in the best interests of, Shareholders.
Proposal Number Five, if approved by the Shareholders, would amend
the Company's Articles by increasing the authorized number of Common Shares
from 10,000,000 to 30,000,000. The Board of Directors believes that
adoption of Proposal Number Five would provide the Company with sufficient
flexibility in making acquisitions and raising capital. Although the Board
of Directors has no current plans to undertake any mergers or acquisitions,
the Board believes that the use of Common Shares as consideration in an
acquisition is beneficial to Shareholders because it preserves cash, does
not in itself result of the Company incurring indebtedness and may allow
the Company to make an acquisition at lower prices than if the
consideration consisted entirely of cash. However, any future issuances of
Common Shares would result in increased dilution to the ownership interests
<PAGE>
of Shareholders, since Shareholders are not entitled to pre-emptive rights.
Proposal Number Six, if approved by the Shareholders, would amend the
Employee Plan to increase the number of Common Shares authorized for
issuance under the Employee Plan from 1,015,826 to 2,015,826. The Company
is seeking to increase the number of Common Shares issuable under this Plan
in order to have a sufficient number of Common Shares available to grant
additional options to current and future employees and executive officers.
A copy of the Articles reflecting the proposed additions and
deletions is attached to this Proxy Statement as Annex A. A copy of the
Employee Plan is attached to this Proxy Statement as Annex B.
PROPOSAL NUMBER ONE: ELECT SEVEN INDIVIDUALS TO SERVE AS DIRECTORS UNTIL
THE NEXT ANNUAL MEETING OF SHAREHOLDERS OR OTHERWISE AS PROVIDED IN THE BY-
LAWS;
Seven individuals will be elected at the Annual Meeting to serve as
Directors until the next annual meeting of the Shareholders or otherwise as
provided in the By-Laws. Unless instructions to the contrary are given,
the persons named as proxy voters in the accompanying proxy, or their
substitutes, will vote for the following nominees with respect to all
proxies received by the Company. If any nominee should become unavailable
for any reason, the votes will be cast for a substitute nominee designated
by the Board. The Directors have no reason to believe that any of the
nominees named below will be unable to serve if elected.
The nominees for election to the Board, all of whom currently serve
as Directors, are as follows:
WILLIAM C. MORTIMORE, 52, Founder of the Company, has served as
President and Chief Executive Officer and a member of the Board of
Directors of the Company since its inception in 1987. Mr. Mortimore has
served as co-founder and a senior manager of several businesses in the
fields of information communications technology, healthcare services and
real estate, and has been responsible for securing public and private
financing for these organizations. Mr. Mortimore is an original member of
the American College of Radiology/National Association of Electrical
Manufacturers ("ACR/NEMA") committee responsible for establishing and
maintaining the DICOM medical imaging standard. Mr. Mortimore is also
Chair of the Medical Imaging Information Section, and a member of the Board
of Directors, of the Diagnostic Imaging Division of NEMA. Mr. Mortimore
received a B.S. in Electrical Engineering from Michigan State University,
an M.E.E. from the University of Minnesota, and pursued doctoral studies in
Electrical Engineering at the University of Minnesota.
ROBERT T. GERAS, 60, Chairman of the Board of Directors, has served
as Chairman of the Board of Directors of the Company since July 1997 and as
a Director since 1992 and has been a shareholder of the Company since May
1989. Mr. Geras has been a private venture investor for more than 25
years, and has participated as a director of, investor in, and/or advisor
to numerous small businesses in fields ranging from medical equipment,
computer software, banking, telecommunications, industrial distribution and
packaging. He has also assisted in corporate planning, capital formation
and management for his various investments. Mr. Geras holds a B.S.B.A.
from Northwestern University.
ROBERT A. BARISH, M.D., 44, a Director, is the Chief Executive
Officer of University CARE, the Clinical and Research Enterprise at the
University of Maryland. Dr. Barish is a Professor of the Department of
Surgery and Medicine at the University of Maryland School of Medicine. He
is a Trustee of the Endowment Fund of the University of Maryland. He is
also a Director of Doctors Health System, Inc. Dr. Barish holds an M.D.
from the New York Medical College, an M.B.A. from Loyola College and a B.A.
from the University of New Hampshire. Mr. Barish was nominated to serve as
an independent Director by H.C. Wainwright Co., Inc., pursuant to an
agreement executed in connection with the IPO. See "Certain Relationships
and Related Transactions."
<PAGE>
DENNIS BROWN, 50, a Director, has served since 1993 as the Chief
Financial Officer and Treasurer of Sybron International Corporation, a
publicly-traded company headquartered in Milwaukee, Wisconsin. From 1990
through 1993, Mr. Brown was the President of the European Region of
Allen-Bradley Company. Prior to that, he served as the Treasurer of The
Marmon Group. Mr. Brown is a Fellow of the Chartered Institute of
Management Accountants.
MICHAEL D. DUNHAM, 52, a Director, is President of Effective
Management Systems, Inc., a publicly-traded Milwaukee-based corporation
that markets and supports manufacturing software systems from 35 locations
worldwide. Mr. Dunham co-founded Effective Management Systems, Inc. in
1978. Mr. Dunham is a director of United Wisconsin Services, Inc., a
publicly-traded health insurance concern, two private software companies
and a bank. Mr. Dunham is also a director of the Milwaukee Metropolitan
Association of Commerce and the Milwaukee Education Trust, a non-profit
organization for the enhancement of local primary and secondary education.
Mr. Dunham holds a B.S. in Electrical Engineering from the University of
Denver and a M.M.S. from the Stevens Institute of Technology.
DOUGLAS S. HARRINGTON, M.D., 44, a Director, has been Chief Executive
Officer of Chromavision, Inc., a publicly-traded company, since December
1996. From 1995 through 1996, Dr. Harrington served as Chairman and
President of Strategic Business Solutions, Inc., a privately-held company
specializing in the commercialization of biotechnology, and as a Principal
in Douglas S. Harrington and Associates, a strategic consulting firm. From
1992 to 1995, Dr. Harrington served as President of the Nichols Institute,
a healthcare laboratory services provider. Prior to 1992, Dr. Harrington
held various management positions within Nichols Institute including Vice
President of Operations and Medical Director. Dr. Harrington currently
serves on the boards, advisory boards, or scientific advisory boards of ten
healthcare and medical device companies. He is a director of Pacific
Biometric, Inc., a publicly-traded healthcare technology company. He is
also an Associate Professor of Clinical and Anatomic Pathology at the
University of Nebraska Medical Center. Dr. Harrington has over 18 years
experience in the commercialization of healthcare technology and has
published over 80 peer-reviewed publications.
KEVIN E. MOLEY, 51, a Director, is a consultant to Kinetra L.L.C. and
has been the President and Chief Executive Officer of Integrated Medical
Systems, Inc. since 1995, where he has also served as a director since
1994. Mr. Moley is a director of Cephalon, Inc., a publicly-traded
biopharmaceutical company. From 1984 to 1989, Mr. Moley held positions of
increasing responsibility with the United States Department of Health and
Human Services. From 1989 through 1991, Mr. Moley served as Assistant
Secretary of the United States Department of Health and Human Services.
From 1991 through 1993, Mr. Moley served as the Deputy Secretary of the
United States Department of Health and Human Services where he was
responsible for day-to-day operations of all of the agencies of the
Department, including the FDA, Public Health Service and the Center for
Disease Control. Mr. Moley attended the School of Foreign Service at
Georgetown University.
BOARD COMMITTEES AND INSIDER PARTICIPATION IN COMPENSATION DECISIONS
The Board is required to meet at least once per year, either in
person or by telephonic conference. The Board met six times during
calendar year 1997.
The Board of Directors has four standing committees: an Audit
Committee, a Compensation Committee, a Stock Option Committee and a
Nominating Committee. The Audit, Compensation and Nominating Committees
were formed in March 1998 and, accordingly, did not meet in 1997.
The Audit Committee is comprised of William C. Mortimore, Dennis
Brown and Robert A. Barish, M.D. This committee recommends engagement of
the Company's independent accountants, approves services performed by these
<PAGE>
accountants, and reviews and evaluates the Company's accounting system and
its system of internal accounting controls.
The Compensation Committee is comprised of Michael D. Dunham and
Kevin E. Moley. This committee reviews and administers the compensation of
the officers of the Company.
The Stock Option Committee is comprised of Messrs. Michael D. Dunham
and Kevin E. Moley. This committee reviews and administers the granting of
stock options under the Employee Plan. The Stock Option Committee met once
in 1997.
The Nominating Committee is comprised of William C. Mortimore and
Robert T. Geras. This committee nominates candidates for the Board, and
will consider nominees recommended by Shareholders.
For a discussion of Directors' compensation, as well as additional
information regarding the management of the Company, see "Management--
Compensation of Directors and Executive Officers."
RECOMMENDATION OF THE BOARD: The Board hereby recommends and
nominates Messrs. Mortimore, Geras, Barish, Brown, Dunham, Harrington, and
Moley for election as Directors of the Company by the Shareholders at the
Annual Meeting to serve until the next annual meeting of Shareholders or as
otherwise provided in the By-Laws.
VOTE REQUIRED: The seven nominees receiving the highest vote totals
will be elected as Directors of the Company.
PROPOSAL NUMBER TWO: CONCUR IN THE SELECTION OF KPMG PEAT MARWICK LLP AS
THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1998;
The Company's financial statements, including those for the fiscal
year ended December 31, 1997, are included in the Annual Report furnished
to all Shareholders and included with this Proxy Statement. The year-end
statements have been audited by the independent firm of KPMG Peat Marwick
LLP which has served as the Company's independent accountants since the
fiscal year ended December 31, 1995. The Board believes that KPMG Peat
Marwick LLP is knowledgeable about the Company's operations and accounting
practices and is well qualified to act in the capacity of independent
accountants. Therefore, the Board has selected KPMG Peat Marwick LLP as
the Company's independent accountants to examine its financial statements
for the fiscal year ending December 31, 1998. Although this selection does
not require Shareholder approval, the Board believes it is desirable to
obtain the concurrence of the Shareholders to this selection. Due to the
difficulty and expense involved in retaining another independent firm on
short notice, the Board does not contemplate appointing another firm to act
as the Company's independent accountants for fiscal year 1998 if the
Shareholders do not concur in the appointment of KPMG Peat Marwick LLP.
Instead, the Board will consider the vote as advice in making their
selection for the following year.
Representatives of KPMG Peat Marwick LLP are expected to be present
at the Annual Meeting and will have the opportunity to make a statement if
they so desire and will be available to respond to appropriate questions
from Shareholders.
RECOMMENDATION OF THE BOARD: That the Shareholders concur in the
following resolution which will be presented for a vote of the Shareholders
at the Annual Meeting:
RESOLVED, that the Shareholders concur in the
appointment of KPMG Peat Marwick LLP to serve as the Company's independent
accountants for the fiscal year ending December 31, 1998.
<PAGE>
VOTE REQUIRED: The affirmative vote of a majority of the votes cast
by the Shareholders present in person or by proxy and eligible to vote at
the Annual Meeting, a quorum being present, is required to adopt the
foregoing resolution.
PROPOSAL NUMBER THREE: AMEND THE COMPANY'S ARTICLES BY ADDING A PROVISION
EXPRESSLY ELECTING NOT TO BE GOVERNED BY SECTIONS 180.1131 THROUGH 180.1133
OF THE WBCL.
PROPOSAL NUMBER FOUR: AMEND THE COMPANY'S ARTICLES BY ADDING A PROVISION
EXPRESSLY ELECTING NOT TO BE GOVERNED BY SECTION 180.1150 OF THE WBCL.
THE WISCONSIN BUSINESS CORPORATION LAW.
To register the Common Shares for sale in certain states, prior to
the initial public offering ("IPO") of the Common Shares, the Board of
Directors on January 28, 1998, approved a resolution that the Company
would, at the Annual Meeting, propose to take all actions that are legally
necessary or permitted for the Company to "opt-out" of Section 180.1140
through 180.1144, Sections 180.1130 through 180.1133 and Section 180.1150
of the WBCL. The Directors also agreed to vote shares held by them as of
the date of this resolution, totaling 1,239,887 Common Shares, in favor of
such proposals and to recommend that Shareholders adopt these proposals.
Sections 180.1140 through 180.1144, however, do not permit Wisconsin
corporations to "opt-out" of their governance. Thus, the Company has not
proposed a resolution regarding Sections 180.1140 through 180.1144.
The WBCL provides authority for the Company to amend its Articles at
any time to add or change a provision that is required or permitted to be
included in the Articles or to delete a provision that is not required to
be included in the Articles. Under the WBCL, the Company's Board of
Directors may propose one or more amendments to the Company's Articles for
submission to Shareholders and may condition its submission of the proposed
amendment on any basis if the Board of Directors notifies each Shareholder,
whether or not entitled to vote, of the Shareholders' meeting at which the
proposed amendment will be voted upon.
The WBCL contains a number of provisions intended to protect the
interests of shareholders of Wisconsin corporations. Among these
provisions are Sections 180.1131 through 180.1133 and Section 180.1150.
The following discussion of these provisions should be read carefully.
Sections 180.1131 through 180.1133 and Section 180.1150 of the WBCL
may delay or make more difficult acquisitions or changes of control of
Wisconsin corporations not approved by the corporation's Board of
Directors. These provisions could have the effect of discouraging third
parties from making proposals involving an acquisition or change of control
of the corporation, even though such proposals, if made, might be
considered desirable by a majority of the corporation's shareholders.
These provisions may also have the effect of making it more difficult for
third parties to cause the replacement of the current management of the
Company without the concurrence of the Board of Directors.
The WBCL provides in Sections 180.1130 through 180.1133, that
Business Combinations involving a "Significant Shareholder" and a "Resident
Domestic Corporation" (such as the Company) are subject to a two-thirds
supermajority vote of shareholders (the "Wisconsin Fair Price Statute"), in
addition to any approval otherwise required. The WBCL defines a Business
Combination as a merger or share exchange, or a sale, lease, exchange,
mortgage, pledge, transfer or other disposition of assets equal to at least
<PAGE>
5% of the market value of the stock or assets of the corporation or 10% of
its earning power, or the issuance of stock or rights to purchase stock
with a market value equal to at least 5% of the outstanding stock, the
adoption of a plan of liquidation or dissolution and certain other
transactions involving an Interested Stockholder, defined as a person who
beneficially owns 10% of the voting power of the outstanding voting stock
of the corporation or who is an affiliate or associate of the corporation
and beneficially owned 10% of the voting power of the then outstanding
voting stock within the last three years. A Significant Shareholder, with
respect to a Resident Domestic Corporation, is defined in Section 180.1130
of the WBCL as a person who beneficially owns, directly or indirectly, 10%
or more of the voting stock of the corporation, or an affiliate of the
corporation which beneficially owned, directly or indirectly, 10% or more
of the voting stock of the corporation within the last two years. Robert
T. Geras, Chairman of the Board of Directors, is the only Shareholder
currently deemed a Significant Shareholder under Section 180.1130 of the
WBCL. Under Section 180.1131 and Section 180.1132 of the WBCL, Business
Combinations between a Resident Domestic Corporation and a Significant
Shareholder must be approved by 80% of the voting power of the
corporation's stock and at least two-thirds of the voting power of the
corporation's stock not beneficially held by the Significant Shareholder
who is party to the relevant transaction or any of its affiliates or
associates, in each case voting together as a single group, unless the
following fair price standards have been met: (i) the aggregate value of
the per share consideration is equal to the higher of (a) the highest price
paid for any common stock of the corporation by the Significant Shareholder
in the transaction in which it became a Significant Shareholder of within
two years before the date of the Business Combination, (b) the market value
of the corporation's shares on the date of commencement of any tender offer
by the Significant Shareholder, the date on which the person became a
Significant Shareholder or the date of the first public announcement of the
proposed Business Combination, whichever is highest, or (c) the highest
liquidation or dissolution distribution to which holders of the shares
would be entitled, and (ii) either cash, or the form of consideration used
by the Significant Shareholder to acquire the largest number of shares, is
offered. This provision could have the effect of discouraging third
parties from making proposals involving an acquisition or change of control
of the Company, even though such proposals, if made, might be considered
desirable by a majority of the Company's shareholders and may prevent such
a transaction from being completed, even if approved by a majority of the
Common Shares.
Section 180.1150 of the WBCL provides that, in the election of
directors, the voting power of shares of public Wisconsin corporations
(such as the Company) held by any person (or persons acting as a group) in
excess of 20% of the voting power is limited to 10% of the full voting
power of those shares. This statutory voting restriction does not apply to
shares acquired directly from the Company or in certain specified
transactions or shares for which full voting power has been restored
pursuant to a vote of shareholders. This provision may have the effect of
making it more difficult for third parties to cause the replacement of the
current management of the Company without the concurrence of the Board of
Directors.
In addition to Sections 180.1130 through 180.1133 and Section
180.1150, the WBCL contains other provisions intended to protect the
interests of shareholders of Wisconsin corporations. The Board of
Directors believes that the provisions discussed below will adequately
protect the interests of Shareholders in the event of a proposed
acquisition or change of control of the Company not approved by the
Company's Board.
<PAGE>
Section 180.1134 of the WBCL (the "Wisconsin Defensive Action
Restrictions") provides that, in addition to the vote otherwise required by
law or a Wisconsin corporation's articles of incorporation, the approval of
the holders of a majority of the shares entitled to vote is required before
an issuing public corporation (such as the Company) can take certain action
while a takeover offer is being made or after a takeover offer has been
publicly announced and before it is concluded. Under the Wisconsin
Defensive Action Restrictions, shareholder approval is required for an
issuing public corporation to (i) acquire more than 5% of the outstanding
voting shares at a price above the market price from any individual who or
organization which owns more than 3% of the outstanding voting shares and
has held such shares for less than two years, unless a similar offer is
made to acquire all voting shares, or (ii) sell or option assets of the
corporation which amount to at least 10% of the market value of the
corporation, unless the corporation has at least three independent
directors (directors who are not officers or employees) and a majority of
the independent directors vote not to have this provision apply to the
corporation. The restrictions described in clause (i) above may have the
effect of deterring a shareholder from acquiring Common Shares of the
Company with the goal of seeking to have the Company repurchase such shares
at a premium over the market price.
The WBCL statutory provisions referenced above are intended to
encourage persons seeking to acquire control of the Company to initiate
such an acquisition through arms-length negotiations with the Company's
Board of Directors, and to ensure that sufficient time for consideration of
such a proposal, and any alternatives, is available. Such measures are also
designed to discourage investors from attempting to accumulate a
significant minority position in the Company and then use the threat of a
proxy contest as a means to pressure the Company to repurchase Common
Shares at a premium over the market value. To the extent that such measures
make it more difficult for, or discourage, a proxy contest or the
assumption of control by a holder of a substantial block of the Common
Shares, they could increase the likelihood that incumbent Directors will
retain their positions, and may also have the effect of discouraging a
tender offer or other attempt to obtain control of the Company, even though
such attempt might be beneficial to the Company and its shareholders.
Sections 180.1140 through 180.1144 of the WBCL regulate a broad range
of Business Combinations between a Resident Domestic Corporation and an
Interested Stockholder. Section 180.1141 of the WBCL prohibits a
corporation from engaging in a Business Combination (other than a business
combination of a type specifically excluded from the coverage of the
statute) with an Interested Stockholder for a period of three years
following the date such person becomes an Interested Stockholder, unless
the board of directors approved the Business Combination or the acquisition
of the stock that resulted in a person becoming an Interested Stockholder
before such acquisition. Accordingly, the WBCL's prohibition on Business
Combinations cannot be avoided during the three-year period by subsequent
action of the board of directors or shareholders. Business Combinations
after the three-year period following the stock acquisition date are
permitted only if (i) the board of directors approved the acquisition of
the stock by the Interested Stockholder prior to the acquisition date, (ii)
the Business Combination is approved by a majority of the outstanding
voting stock not beneficially owned by the Interested Stockholder, or (iii)
the consideration to be received by shareholders meets certain requirements
of the statute with respect to form and amount.
A copy of the Articles reflecting the proposed amendments is attached
as Annex A to this Proxy Statement.
<PAGE>
PROPOSAL NUMBER THREE:
RECOMMENDATION OF THE BOARD: The Board recommends that the
Shareholders approve of and adopt the following resolution which will be
presented for a vote of the Shareholders at the Annual Meeting:
RESOLVED, that Article X of the Restated Articles of
Incorporation of the Company shall read as follows: "The Corporation shall
not be governed by Sections 180.1131 through 180.1133 of the Wisconsin
Business Corporation Law, as amended."
VOTE REQUIRED: The affirmative vote of 80% of the Common Shares and
the affirmative vote of two-thirds of the Common Shares that are not held
by Significant Shareholders is required to adopt the foregoing resolution
and to amend the Articles to effect the intent of the resolution.
If Proposal Number Three is adopted, the Company will no longer be
governed by Sections 180.1130 through 180.1133 of the WBCL.
PROPOSAL NUMBER FOUR:
RECOMMENDATION OF THE BOARD: The Board recommends that the
Shareholders approve of and adopt the following resolution which will be
presented for a vote of the Shareholders at the Annual Meeting:
RESOLVED, that Article XI of the Restated Articles of
Incorporation of the Company shall read as follows: "The Corporation shall
not be governed by Section 180.1150 of the Wisconsin Business Corporation
Law, as amended."
VOTE REQUIRED: The affirmative vote of a majority of the outstanding
Common Shares is required to adopt the foregoing resolution and to amend
the Articles to effect the intent of the resolution.
If Proposal Number Four is adopted, the Company will no longer be
governed by Section 180.1150 of the WBCL.
PROPOSAL NUMBER FIVE: AMEND THE COMPANY'S ARTICLES BY INCREASING THE
NUMBER OF AUTHORIZED SHARES OF COMMON STOCK FROM 10,000,000 TO 30,000,000.
Under the Company's Articles, the Board of Directors is authorized to
issue up to 10,000,000 Common Shares, of which 5,778,216 were issued as of
the Record Date. As of the Record Date, an additional 1,015,826 Common
Shares were reserved for issuance under the Employee Plan, 190,000 Common
Shares were reserved for issuance upon exercise of a warrant granted to the
Underwriters in connection with the IPO, and 100,000 were reserved for
issuance under the Directors Plan, leaving only 2,915,958 Common Shares
authorized and available for future issuance. In addition, if the
Shareholders approve Proposal Number Six, an additional 1,000,000 Common
Shares will be reserved for issuance under the Employee Plan, reducing the
number of Common Share authorized and available for future issuance to
1,915,958.
The Board of Directors believes that approval of Proposal Number Five
is necessary to allow the Company sufficient flexibility in making
acquisitions and raising additional capital. Although the Board of
Directors has no current plans to undertake any mergers or acquisitions,
the Board of Directors believes that if, in the future, the Company were to
<PAGE>
undertake a merger or acquisition, the use of Common Shares as
consideration would be beneficial to Shareholders because it would preserve
cash and would not in itself result in the Company incurring indebtedness
and might allow the Company to merge with or acquire another corporation at
a lower price than if the consideration consisted entirely of cash. Any
future issuances of Common Shares would, however, dilute the ownership
interest of existing Shareholders because the Shareholders are not entitled
to pre-emptive rights. If the amendment is approved, the Company would be
authorized to issue 30,000,000 Common Shares. A copy of the Articles
reflecting this proposed amendment is attached as Annex A to this Proxy
Statement.
In addition to potentially diluting the ownership interest of
existing Shareholders, an increase in the number of authorized Common
Shares may, in conjunction with Section 180.1141 of the WBCL (prohibiting
certain Business Combinations between a Wisconsin corporation whose stock
is publicly-traded and an Interested Shareholder) and the lack of
cumulative voting rights of Common Shares, render more difficult or
discourage a merger, tender offer or proxy contest, the assumption of
control by a holder of a large block of the Company's securities and the
removal of incumbent management, even if such actions would be beneficial
to the interests of existing Shareholders.
RECOMMENDATION OF THE BOARD: The Board recommends that the
Shareholders concur in the following resolution which will be presented for
a vote of the Shareholders at the Annual Meeting:
RESOLVED, that the authorized numbers of shares of
Common Stock, par value $0.01 per share, reflected in the table contained
in Article IV of the Company's Restated Articles of Incorporation be and it
is hereby amended by deleting the number "10,000,000" and substituting in
its place the number "30,000,000."
VOTE REQUIRED: The affirmative vote of a majority of the Company's
outstanding Common Shares is required to adopt the foregoing proposal and
to amend the Articles to effect the intent of the resolution.
PROPOSAL NUMBER SIX: TO AMEND THE EMPLOYEE PLAN TO INCREASE THE
NUMBER OF SHARES OF COMMON STOCK AUTHORIZED FOR ISSUANCE UNDER THE PLAN
FROM 1,015,826 TO 2,015,826.
The Employee Plan was initially approved by the Company's
Shareholders in July 1996. Giving effect to the 6.77217-for-one stock
split effected as a stock dividend in connection with the IPO, the Employee
Plan grants the Board of Directors the authority to grant options to the
Company's employees to purchase up to 1,015,826 shares of Common Stock. As
of the Record Date, options to purchase 941,100 Common Shares have been
granted under the Employee Plan and are outstanding. The options granted
under the Employee Plan may be incentive stock options or nonstatutory
stock options. A copy of the Employee Plan is attached as Annex B to this
Proxy Statement.
REASONS FOR INCREASE AND DESCRIPTION OF EMPLOYEE PLAN
The Board believes that the Employee Plan helps the Company to
attract and retain personnel for positions of substantial responsibility,
provides additional incentive to the Company's employees and promotes the
success of the Company's business. The Company is seeking to increase the
number of shares of Common Stock issuable under the Employee Plan in order
<PAGE>
to have a sufficient number of shares of Common Stock available to grant
additional options to current and future employees and executive officers.
Stock options may be granted only to employees, including officers of the
Company and its current and future subsidiaries. The Stock Option Committee
reviews and administers the granting of stock options under the Employee
Plan.
Each option granted under the Employee Plan is evidenced by a written
agreement between the Company and the participant. Options previously
granted by the Board under the Employee Plan have typically vested in equal
increments over a four year period, although the Board has discretion to
establish the vesting rate and terms of exercise of each option granted
under the Employee Plan. The Employee Plan provides for "cashless" exercise
procedures, at the Board's discretion. The exercise price of each incentive
stock option must be not less than 100% of the fair market value of the
Common Stock on the date the option is granted. In the case of a
nonstatutory option, the exercise price must be not less than the lesser
of: (i) 85% of the fair market value of the Common Stock on the date of
the grant; or (ii) the average of the fair market value of the Common Stock
on the five trading days before the date of the grant.
The Employee Plan also contains provisions addressing the ability of
a participant to exercise options in the event of any termination of
employment, including without limitation resignation, discharge, death or
retirement. If the participant's employment is terminated for any reason,
the participant may exercise the option to the extent the option was
exercisable at the date of termination, for a period of three months
following the termination, or such shorter period as the Board established
when the option was granted. To the extent the participant was not entitled
to exercise the option at the date of termination, or if he or she does not
exercise the option within the specified time, the option terminates.
All incentive stock options granted under the Employee Plan expire
not later than ten years after the date of grant. However, incentive stock
options granted to a participant who, immediately before the grant of such
option, owns stock representing more than 10% of the voting power of all
the Company's classes of stock or any subsidiary of the Company expire not
later than five years after the date of grant. Nonstatutory options granted
under the Employee Plan expire not later than fifteen years after the date
of the grant. Options granted under the Employee Plan are not transferable
other than by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order, and are exercisable during the
participant's lifetime only by the participant. Options may not be granted
under the Employee Plan after May 13, 2006, the date ten years after the
Board approved the Employee Plan.
Options granted under the Employee Plan are subject to adjustment to
reflect events such as a stock split or payment of a stock dividend, if
these events increase or decrease the number of outstanding shares of
Common Stock without receipt of consideration by the Company. In the event
of a proposed dissolution or liquidation of the Company, each outstanding
option will terminate immediately prior to the consummation of the proposed
action. If the Company merges with or into another corporation and is not
the surviving corporation, or if the Company sells all or substantially all
of its assets, each option granted under the Employee Plan may be assumed
or an equivalent option may be substituted by the successor corporation or
by a parent or subsidiary of the successor corporation.
The Board may amend, alter, suspend or discontinue the Employee Plan
at any time. The Board may also accelerate any option or waive any
conditions or restrictions pertaining to an option or shares of stock
<PAGE>
relating thereto at any time as well as substitute new options for
previously granted options.
RECOMMENDATION OF THE BOARD: The Board recommends that the
Shareholders concur in the following resolution which will be presented for
a vote of the Shareholders at the Annual Meeting.
RESOLVED, that Section 2.1 of the Stock Option Plan for
Employees of Merge Technologies Incorporated be and it hereby is amended by
deleting the number "200,000" and substituting in its place the number
"2,015,826".
VOTE REQUIRED. The affirmative vote of a majority of the votes cast
by Shareholders present in person or by proxy and eligible to vote at the
Annual Meeting, a quorum being present, is required to adopt the foregoing
resolution.
MANAGEMENT
DIRECTORS
For the names of and biographical information regarding each of the
Directors and a discussion of Board Committees, see "Proposal Number One."
EXECUTIVE OFFICERS
The names of the executive officers of the Company, and their
respective ages and positions with the Company, are as follows:
NAME AGE POSITION
- ---- --- --------
William C. Mortimore . . 52 President and Chief Executive
Officer, Director
William L. Stafford. . . 51 Vice President - Sales, Assistant
Secretary
David M. Noshay. . . . . 37 Vice President - Marketing
Dwight A. Simon. . . . . 52 Vice President - Engineering
Michael J. Franco. . . . 51 Chief Technical Officer
Colleen M. Doan. . . . . 35 Chief Financial Officer, Treasurer
and Secretary
WILLIAM C. MORTIMORE, Founder of the Company, has served as President
and Chief Executive Officer and a member of the Board of Directors of the
Company since its inception in 1987. Mr. Mortimore has served as co-
founder and a senior manager of several businesses in the fields of
information communications technology, healthcare services and real estate,
and has been responsible for securing public and private financing for
these organizations. Mr. Mortimore is an original member of the American
College of Radiology/National Association of Electrical Manufacturers
("ACR/NEMA") committee responsible for establishing and maintaining the
DICOM medical imaging standard. Mr. Mortimore is also Chair of the Medical
Imaging Information Section, and a member of the Board of Directors, of the
Diagnostic Imaging Division of NEMA. Mr. Mortimore received a B.S. in
Electrical Engineering from Michigan State University, an M.E.E. from the
University of Minnesota, and pursued doctoral studies in Electrical
Engineering at the University of Minnesota.
<PAGE>
WILLIAM L. STAFFORD has served as Vice President, Sales of the
Company since June 1994. From February 1993 until May 1994, Mr. Stafford
served as the Company's Director of Sales. From June 1983 until February
1993, Mr. Stafford was employed by Marquette Medical Systems, Inc., a
manufacturer of patient monitoring systems. Previously, he was employed by
GE Medical Systems, a manufacturer of medical diagnostic imaging equipment,
and Baxter Laboratories, a drug manufacturer. Mr. Stafford holds a B.A. in
Economics from Yale College and an M.B.A. from Harvard.
DAVID M. NOSHAY has served as Vice President, Marketing of the
Company since August 1997. From September 1995 until July 1997, Mr. Noshay
served as the Company's Eastern Regional Sales Manager. From July 1994
until August 1995, Mr. Noshay was Sales Manager of Scitex Medical Systems,
a manufacturer of medical image printing equipment. From February 1989
until June 1994, he was Marketing Manager for Konica Medical Corporation, a
manufacturer of medical film and image printing equipment. Previously, he
was employed by Matrix Instruments, a manufacturer of medical imaging
printing equipment, and Siemens Medical Systems, a manufacturer of medical
diagnostic imaging equipment. Mr. Noshay holds a B.S. in Electrical
Engineering and an M.S. in Biomedical Engineering from Rutgers University.
DWIGHT A. SIMON has served as Vice President, Engineering of the
Company since October 1992. From August 1990 until September 1992, Mr.
Simon served as Manager of Engineering Services of the Company. Mr. Simon
has over 30 years of experience in the information technology industry,
with over 22 years of upper management experience with companies in
manufacturing automation, communications and medical software applications.
Mr. Simon has served as chair of several working groups and subcommittees
of the DICOM committee responsible for the creation of the DICOM standard.
MICHAEL J. FRANCO has served as Chief Technical Officer of the
Company since September 1996. From May 1995 until September 1996, Mr.
Franco served as the Company's Director of Technical Services. Mr. Franco
was the founder, and from 1993 to April 1995 was the President and Chief
Technical Officer of Signal Stream Technologies, Inc., a manufacturer of
medical imaging interfacing equipment which was merged into a subsidiary of
the Company in May 1995. Previously, he was a co-founder and served as
President and Chief Executive Officer of Adaptive Video, Inc., a
manufacturer of medical imaging interfacing equipment for teleradiology and
medical image printing. Prior to Adaptive Video, Mr. Franco was employed
by Diasonics, Inc., a manufacturer of medical diagnostic imaging devices,
and by Compression Labs, a manufacturer of video teleconferencing
equipment.
COLLEEN M. DOAN has served as Chief Financial Officer of the Company
since September 1996, Treasurer since June 1994 and as Secretary since
September 1997. Ms. Doan also served as Business Manager from
September 1989 through July 1995, and Controller from August 1995 through
August 1996. Ms. Doan holds a B.A. in Business and Management from Alverno
College.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS' COMPENSATION
Directors who are employees of the Company do not receive any cash
compensation for their service as members of the Board of Directors,
although they are reimbursed for certain expenses incurred in connection
with attendance at Board meetings. The Board of Directors may, in its
discretion, alter this policy in the future.
<PAGE>
Directors who are not employees of the Company receive $1,000 for
each Board meeting, and $500 for each committee meeting, which they attend
in person, and one-half of these amounts for meetings in which they
participate by telephone and which exceed two hours in length. Directors
also are reimbursed for certain expenses incurred in connection with
attendance at Board meetings. The Board of Directors may, in its
discretion, alter this policy in the future. Each Director, other than any
Director who is also an employee of the Company, on February 4, 1998,
received, pursuant to the Company's 1998 Stock Option Plan for Directors
(the "Director Plan"), options to acquire 10,000 Common Shares at an
exercise price equal to the IPO price of the Common Shares of $6.00.
The Company is currently authorized to issue up to an additional
40,000 Common Shares under the Director Plan, which the Board of Directors
approved in January 1998. Each of the six non-employee Directors of the
Company was granted an option to purchase 10,000 Common Shares as of
February 4, 1998. One-third of the Directors' options will vest on each of
the first, second and third anniversaries of the date of the grant. The
purposes of the Director Plan are to attract and retain the best available
personnel for service as Directors, to provide additional incentive to
individuals to serve as Directors, to motivate Directors to achieve
superior performance for the benefit of the Company's shareholders, and to
encourage Directors' continued service on the Board. Each option granted
under the Director Plan is evidenced by a written agreement between the
Company and the participant.
<PAGE>
<TABLE>
EXECUTIVE COMPENSATION
Set forth below is information concerning the compensation for 1997 and 1996 for the Company's President and
Chief Executive Officer, and each other executive officer of the Company whose salary and bonus exceeded $100,000:
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------- AWARDS
------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTION COMPENSATION
- --------------------------- ---- ------ ----- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
William C. Mortimore . . . . . . 1997 $136,667 $ -- -- -- $2,733(1)
President and CEO 1996 $130,001 -- -- 67,721 2,400(1)
Michael J. Franco. . . . . . . . 1997 110,000 -- -- -- 2,168(1)
Chief Technical Officer 1996 102,391 -- -- 150,518(2) 546(1)
William L. Stafford. . . . . . . 1997 110,000 -- -- -- 1,587(1)
Vice President - Sales 1996 -- (3) -- (3) -- (3) 67,721 -- (3)
Assistant Secretary
David M. Noshay. . . . . . . . . 1997 100,500 12,184(4) 43,620(5) 50,791 2,416(1)
Vice President - Marketing 1996 -- (3) -- (3) -- (3) 16,930 -- (3)
Dwight S. Simon. . . . . . . . . 1997 110,000 -- -- -- 1,626(1)
Vice President - Engineering 1996 $ -- (3) $ -- (3) $ -- (3) 67,721 -- (3)
<FN>
(1) Represents the Company's contributions to its 401(k) plan for the benefit of its employees.
(2) Includes 82,797 options granted pursuant to an employment agreement entered into in 1995 in connection with
the Company's purchase of Signal Stream Technologies, Inc.
(3) Annual Salary and bonus received by Messrs. Stafford, Noshay and Simon in 1996 was less than $100,000.
(4) In 1997 Mr. Noshay received a quarterly incentive sales bonus.
(5) Mr. Noshay received a relocation allowance of $41,620 and an automobile reimbursement of $2,000 in 1997.
</TABLE>
<PAGE>
<TABLE>
OPTION/SAR GRANTS IN 1997 FISCAL YEAR
POTENTIAL REALIZED
VALUE AT ASSUMED
NUMBER OF $ OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERMS (1)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION --------------------
NAME GRANTED FISCAL YEAR PRICE DATE 5% 10%
- ---- ----------- ----------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
David M. Noshay. . . . . 50,791 20% $6.75(2) 07/31/2003 $116,819 $264,621
<FN>
(1) The dollar amounts under these columns are the result of calculations at the 5% and 10% rates of
appreciation set by the SEC and therefore do not necessarily predict the future appreciation, if any, of the
Common Shares.
(2) Options were granted at an exercise price equal to the estimated fair market of the Common Shares on the
date of the grant.
</TABLE>
AGGREGATED 1997 FISCAL YEAR END OPTION VALUES
<TABLE>
NUMBER OF SECURITIES VALUES OF UNEXERCISABLE
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY-OPTIONS AT
SHARES AT FISCAL YEAR END FISCAL YEAR END
ACQUIRED ----------------------------- -----------------------------
ON EXERCISE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
William C. Mortimore . . . . . 0 33,860 33,861 $ 153,047 $ 153,052
Michael J. Franco. . . . . . . 0 116,657 33,861 527,290 153,052
William L. Stafford. . . . . . 0 33,860 33,861 153,047 153,052
David M. Noshay. . . . . . . . 0 8,465 59,256 38,262 38,262
Dwight A. Simon. . . . . . . . 0 33,860 33,861 $ 153,047 $153,052
</TABLE>
<PAGE>
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement dated as of September 1,
1997 with William C. Mortimore, which is in effect for an initial term of
three years, followed by one-year extensions unless terminated by either
party and provides for the Company to pay Mr. Mortimore a minimum annual
salary of $160,000. The employment agreement requires Mr. Mortimore to
devote his full time and attention to the Company. The employment
agreement also includes confidentiality provisions, restricts
Mr. Mortimore's ability to compete with the Company for a period of two
years after termination of his employment and awards Mr. Mortimore three
months' severance pay following termination of his employment under certain
conditions. Under Wisconsin law, a non-compete clause in an employment
agreement may be voided if the court determines that the non-compete clause
if unfairly restrictive.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Common Shares as of April __, 1998, by (i) each
person that is known by the Company to beneficially own or exercise the
voting or dispositive control over 5% or more of the outstanding Common
Shares; (ii) each Director; and (iii) all Directors and executive officers
of the Company as a group. Except as otherwise indicated in the footnotes
to the table, the persons named below have sole voting and investment power
with respect to the shares beneficially owned by such persons. In general,
a person is deemed to be a "beneficial owner" of a security if that person
has or shares the power to vote or direct the voting of such security, or
the power to dispose of or to direct the disposition of such security. A
person is also deemed to be a beneficial owner of any securities of which
the person has the right to acquire the beneficial ownership within 60
days. See "Certain Relationships and Related Transactions."
SHARES BENEFICIALLY
OWNED (1)
--------------------
NAME NUMBER PERCENT
- ---------------------------------------------- -------- --------
Robert T. Geras (2)(3) . . . . . . . . . . . . 738,589 13%
William C. Mortimore (2)(4). . . . . . . . . . 562,088 10%
Robert A. Barish, M.D. (2) . . . . . . . . . . -- (*)
Dennis Brown (2) . . . . . . . . . . . . . . . -- (*)
Michael D. Dunham (2). . . . . . . . . . . . . -- (*)
Douglas S. Harrington, M.D. (2). . . . . . . . -- (*)
Kevin E. Moley (2) . . . . . . . . . . . . . . -- (*)
All Directors, Nominees and Executive
Officers as a group (11 persons) . . . . . . 1,624,924 28%
(*) Less than 1% of outstanding Common Stock.
(1) Except pursuant to applicable marital property laws or as indicated
in the footnotes to this table, to the Company's knowledge, each
shareholder identified in the table possesses sole voting and investment
power with respect to all Common Stock shown as beneficially owned by such
shareholder.
(2) The business address for each of Messrs. Geras, Mortimore, Barish,
Brown, Dunham, Harrington and Moley is Merge Technologies Incorporated,
1126 South 70th Street, Suite S107B, Milwaukee, WI 53214-3151.
(3) Reflects 203,164 shares held by trusts for the benefit of Mr. Geras'
adult children, the beneficial ownership of which Mr. Geras disclaims.
(4) Includes vested options held by Mr. Mortimore to acquire 50,790
shares.
The Company is not aware of any arrangements, the operation of which
may at a subsequent date result in a change of control of the Company.
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers and Directors, and persons who own more
than ten percent of a registered class of the Company's equity securities,
to file initial statements of beneficial ownership (Form 3), and statements
of changes in beneficial ownership (Forms 4 or 5), of Beneficial Interest
and other equity securities of the Company with the Securities and Exchange
Commission (the "SEC") and the National Association of Securities Dealers,
Inc. (the "NASD"). The SEC requires officers, Directors and greater than
ten percent Shareholders to furnish the Company with copies of all these
forms filed with the SEC or the NASD.
To the Company's knowledge, based solely upon its review of the
copies of these forms received by it, or written representations from
certain reporting persons that no additional forms were required for those
persons, the Company believes that all filing requirements applicable to
its officers, Directors, and greater than ten percent beneficial owners
have been complied with during 1997.
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On June 30, 1997, the Company borrowed $2,000,000 from Sirrom Capital
Corporation ("Sirrom"), a third-party institutional "mezzanine" lender,
pursuant to a note (the "Sirrom Note") and related security agreement. The
Sirrom Note required payments of interest only, computed at 13.5% per
annum, payable monthly in arrears through maturity (June 30, 2002).
Approximately $1,007,000 of the proceeds of the Sirrom Note were applied by
the Company in June 1997 toward the repayment of the bank indebtedness and
the balance toward working capital. No principal payments were required
prior to maturity. Prepayment in whole or part was permitted without
penalty. The Sirrom Note was secured by a first lien on all of the
Company's assets, subject to Sirrom's agreement to subordinate its lien to
a senior revolving credit facility in an amount not to exceed $2,500,000
provided that initially permitted borrowings under such facility was not to
exceed $1,500,000, subject to increase if the Company achieved certain
income targets.
As a condition to issuance of the Sirrom Note, the Company issued a
warrant, which granted Sirrom the right to acquire for nominal
consideration a base amount of 145,256 Common Shares (the "Sirrom
Warrant"). The base amount of Common Shares purchasable under the Sirrom
Warrant was determined through arms-length negotiations between Sirrom and
the Company. Under the terms of the Sirrom Warrant, in the event the loan
was outstanding in whole or in part on the third, fourth and fifth
anniversaries of the initial loan funding, additional Shares could be
purchased pursuant to the Sirrom Warrant for nominal consideration. The
Sirrom Warrant prohibited the sale of shares by the Company to third
parties at below fair market value without concomitant antidilution
protection to Sirrom, but expressly permitted the issuance of up to
1,354,434 shares pursuant to the Employee Plan.
The Sirrom Warrant granted Sirrom the right to attend (but not vote
at) Directors' meetings until such time as the Sirrom Note was paid in
full. The Sirrom Warrant granted Sirrom a put right for a period of 30 days
immediately prior to its expiration at "Fair Market Value," which was to be
determined by agreement of the parties or, in the absence of agreement, by
two independent appraisers. Sirrom was granted piggyback registration
rights in connection with certain registered offerings of the Common Shares
and rights of co-sale to participate in sales of the Common Shares by
Robert T. Geras or William C. Mortimore.
By agreement dated October 30, 1997, the Company and Sirrom agreed
that upon the expected closing of the IPO: (i) the Sirrom Note would be
paid in full; (ii) the Sirrom Warrant would be exercised as to 75%
(108,942) of the original number of shares issuable under it; (iii) Sirrom
would not offer, pledge, sell, contract to sell, grant any option for the
sale of, or otherwise dispose of, directly or indirectly, any securities of
the Company for a period of 180 days following the date of the IPO without
the prior written consent of the Representative; (iv) Sirrom's right to
purchase 25% (36,314) of the original number of shares issuable under the
Sirrom Warrant would be terminated; (v) the put option in favor of Sirrom
would be canceled; (vi) a termination fee (which ultimately totaled
$196,095.60) would be paid to Sirrom; and (vii) the Company agreed to file
a registration statement to register shares issued to Sirrom pursuant to
the Sirrom Warrant within 120 days of the Closing of the IPO, provided in
no event would such registration statement be declared effective until at
least 180 days following the initial closing of an initial public offering
of the Common Shares. The amount of the Sirrom Termination Fee was
determined through arm's length negotiations between the Company and Sirrom
based on factors including the Company's interest in eliminating
uncertainty with respect to its future equity-related liabilities and
Sirrom's interest in receiving cash in return for relinquishing its put
option. Upon the closing of the IPO the Sirrom Warrant was exercised under
the terms of the October 30, 1997 agreement.
<PAGE>
On June 1, 1996 the Company entered into a three-year consulting
agreement with Robert T. Geras calling for the payment to Mr. Geras of: (i)
$160,000 on January 1, 1997 (the "$160,000 Obligation") in consideration of
financial consulting services provided by Mr. Geras to the Company through
June 30, 1996; and (ii) the sum of $3,500 per month plus reimbursement for
approved out-of-pocket expenses. Because the IPO has been completed, the
Company no longer requires the same type of financial consulting services
that Mr. Geras previously provided. Mr. Geras and the Company therefore
have terminated this consulting agreement effective as of February 3, 1998.
In 1995 and 1996, the Company issued an aggregate of 1,229,148 Common
Shares in a private placement at $1.48 per share. The Company received
consideration in connection with this private placement of $205,000 in
fiscal 1995 and $1,610,000 in fiscal 1996. In connection with this private
placement, Mr. Geras, a Director of the Company, purchased 182,848 Common
Shares at the same price offered to other investors. Warren B. Cozzens, a
former Director, also purchased 257,342 shares in this private offering.
All Common Shares were paid for with cash, except for (i) 47,405 shares
purchased by Mr. Geras with a $70,000 note bearing interest at 10% per
annum, which note was paid in full within two months; and (ii) 135,443
shares purchased by Mr. Geras with a fully-secured, three-year,
non-interest bearing $200,000 note. The Company subsequently approached Mr.
Geras with a proposal to offset the $200,000 note against the $160,000
Obligation, based on its belief that the $200,000 note had an approximately
equal net present value to the $160,000 Obligation. Mr. Geras agreed to
such set-off in full satisfaction of the purchase price obligation for the
135,443 shares.
Pursuant to a Stock Redemption Agreement between the Company and
Alpha Capital Venture Partners, Limited ("Alpha"), a third-party
institutional investor, dated May 5, 1995, and amended March 1, 1997, on
February 3, 1998 the Company exercised its call rights and used $806,592 of
the net proceeds of the IPO to redeem 424,757 Common Shares held by Alpha
at a call price of $1.90 per share.
Effective May 1996, the Company discharged $463,352 owing to Alpha
under two subordinated notes by issuing 33,861 Common Shares, and making a
cash payment of $375,000, to Alpha. The notes were in the original
principal amounts of $88,134 and $375,218, required monthly payments, had
no specified maturity date and bore interest at an annual rate equal to the
prime rate plus 3% and the prime rate plus 4%, respectively. The interest
rate, repayment schedule and other terms of these notes were substantially
identical to those in other subordinated notes issued to unaffiliated third
parties.
In connection with the IPO, the Company granted H.C. Wainwright &
Co., Inc., as Representative of the Underwriters of the IPO, the right to
nominate one Director to the Company's Board of Directors. H.C. Wainwright
& Co., Inc. nominated Robert A. Barish, M.D. as an independent director.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company incorporates by reference herein the following documents
filed pursuant to the Exchange Act under the Company's Exchange Act File
No. 0-29486: the Company's annual report on Form 10-KSB for the fiscal year
ended December 31, 1997. All reports and other documents filed by the
Company pursuant to Section 13(a)(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Proxy Statement also shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of
filing these reports and documents. Any statement incorporated or deemed
to be incorporated herein shall be deemed to be modified or superseded for
purposes of this Proxy Statement to the extent that any statement contained
herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes this
statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Proxy
Statement. The Company will not update this Proxy Statement for events
occurring subsequent to the date of this Proxy Statement.
<PAGE>
The Company hereby undertakes to provide without charge to each
person to whom a copy of this Proxy Statement has been delivered, upon
written or oral request of the person, a copy of any or all of the
foregoing documents incorporated herein by reference (other than exhibits
to documents, unless these exhibits are specifically incorporated by
reference into the document). Requests for these documents should be made
to the Investor Relations Department at the Company's principal executive
offices located at 1126 South 70th Street, Suite S107B, Milwaukee,
Wisconsin 53214-3151; telephone number (414) 475-4300. A copy of the
Company's annual report on Form 10-KSB for the fiscal year ended December
31, 1997 is included with this Proxy Statement.
YOUR VOTE IS IMPORTANT. THE PROMPT RETURN OF PROXIES WILL SAVE THE
COMPANY THE EXPENSE OF FURTHER REQUESTS FOR PROXIES. PLEASE PROMPTLY MARK,
SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE.
<PAGE>
ANNEX A
RESTATED ARTICLES OF INCORPORATION
OF
MERGE TECHNOLOGIES INCORPORATED
The following Restated Articles of Incorporation, duly adopted
pursuant to the authority and provisions of the Wisconsin Business
Corporation Law, supersede and take the place of the existing Articles of
Incorporation and amendments thereto:
ARTICLE I
The name of the Corporation is MERGE TECHNOLOGIES INCORPORATED.
ARTICLE II
The period of existence shall be perpetual.
ARTICLE III
The purposes shall be to engage in any lawful activity within the
purposes for which Corporations may be organized under the Wisconsin
Business Corporation Law.
ARTICLE IV
The distinguishing designation of each class of shares, the number of
shares of each class which the Corporation shall have authority to issue,
the distinguishing designation of each series within a class, if any, and
the par value are:
SERIES NO. OF PAR VALUE
CLASS (IF ANY) SHARES PER SHARE
----- -------- ------- ---------
Common None 30,000,000 $.01
Preferred None 5,000,000 $.01
ARTICLE V
The preferences, limitations, and relative rights of each class of
shares are:
(a) The Preferred Shares may be issued from time to time in one or
more series. The Board of Directors is hereby authorized, by filing
Articles of Amendment to the Corporation's Articles of Incorporation,
without vote of shareholders and in accordance with Section 180.0602 of the
Wisconsin Business Corporation Law, to fix or alter from time to time, the
designation, powers, preferences and rights of the shares of each such
series, and the qualifications, limitations or restrictions thereof,
including without limitation the dividend rights, dividend rate, conversion
rights, voting rights, rights and terms of redemption (including sinking
fund provisions), redemption price or prices, and the liquidation
preferences of any wholly unissued series of Preferred Shares, and to
establish from time to time the number of shares constituting any such
series and the designation thereof, or any of them (a "Preferred Share
Amendment") and to increase or decrease the number of shares of any series
subsequent to the issuance of shares of that series, but not below the
number of shares of such series then outstanding. In case the number of
<PAGE>
shares of any series shall be decreased in accordance with the foregoing
sentence, the shares constituting such decrease shall resume the status
that they had prior to the adoption of the Preferred Share Amendment
originally fixing the number of shares of such series. No share or shares
of any class or series of Preferred Shares acquired by the Corporation by
reason of redemption, purchase, conversion or otherwise shall be re-issued
as part of such class or series and the Board of Directors is authorized to
retire any such share or shares. The retirement of any such share or shares
shall not reduce the total authorized number of Preferred Shares.
The holders of the Preferred Shares of each series shall be entitled
to receive dividends, when and as declared by the Board of Directors from
the funds legally therefor, as they may be entitled to in accordance with
the Preferred Share Amendment adopted by the Board of Directors providing
for the issuance of such series, payable on such dates as may be fixed in
such Amendment. So long as there shall be outstanding any Preferred Shares
of any series entitled to cumulative dividends pursuant to any such
Preferred Share Amendment providing for the issue of such series, no
dividend, whether in cash or property, shall be paid or declared, nor shall
any distribution be made on the Common Shares nor shall any Common Shares
be purchased, redeemed or otherwise acquired for value by the Corporation
if at the time of making such payment, declaration, distribution, purchase,
redemption or acquisition, the Corporation shall be in default with respect
to any dividend payable on or obligation to maintain a purchase, retirement
or sinking fund with respect to or to redeem shares of Preferred Shares of
any series. The foregoing provisions of this Section (a) shall not,
however, apply to a dividend payable in Common Shares or to the acquisition
of Common Shares in exchange for or through the application of the proceeds
of the sale of Common Shares. Subject to the foregoing and to any further
limitations prescribed in accordance with the provisions of this Article V,
the Board of Directors may declare, out of any funds legally available
therefor, dividends upon the then outstanding Common Shares and the
Preferred Shares of any series shall not be entitled to participate
therein.
(b) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of the Preferred
Shares of each series shall be entitled to receive, out of the assets of
the Corporation available for distribution to its shareholders before any
distribution of assets shall be made to the holders of the Common Shares,
the amount per share, if any, fixed by the Board of Directors in the
Preferred Share Amendment, plus in each such case an amount equal to any
cumulative dividends thereon to the date of final distribution to the
holders of the Preferred Shares, and the holders of the Common Shares shall
be entitled, to the exclusion of the holders of the Preferred Shares of any
and all series, to participate ratably in all the assets of the Corporation
then remaining in accordance with their respective rights and preferences.
If upon any liquidation, dissolution or winding up of the Corporation the
assets available for distribution shall be insufficient to pay the holders
of all outstanding Preferred Shares the full amounts to which they shall be
entitled, the holders of Preferred Shares of all series shall participate
ratably in any distribution of assets according to the respective amounts
which would be payable in respect of the Preferred Shares held by them upon
such distribution if all amounts payable in respect of the Preferred Shares
of all series were paid in full.
Neither the statutory merger nor consolidation of the Corporation
into or with any other corporation, nor the statutory merger or
consolidation of any other corporation into or with the Corporation, nor a
sale, transfer or lease of all or any part of the assets of the
Corporation, shall be deemed to be a liquidation, dissolution or winding up
of the corporation within the meaning of this Section.
<PAGE>
(c) The Corporation, at the option of the Board of Directors, may
redeem the whole or any part of the Preferred Shares of any series at the
price or prices and on the terms and conditions provided in the Preferred
Share Amendment adopted by the Board of Directors providing for the issue
of such series.
(d) Anything herein or in any Preferred Share Amendment adopted by
the Board of Directors providing for the issue of any series of Preferred
Shares contained to the contrary notwithstanding, the rights of the holders
of all classes of shares of the Corporation in respect of dividends and
purchase, retirement or sinking funds, if any, shall at all times be
subject to the power of the Board of Directors from time to time to set
aside such reserves and to make such other provisions, if any, as the Board
of Directors shall deem to be necessary or advisable for working capital,
for expansion of the Corporation's business (including the acquisition of
real and personal property for the purpose) and for any other purpose of
the Corporation.
(e) Except as otherwise provided by the statutes of the State of
Wisconsin or by the Preferred Share Amendment adopted by the Board of
Directors providing for the issue of any series of Preferred Shares, the
holders of the Preferred Shares shall have no right to vote. The holders of
the Preferred Shares shall not be entitled to receive notice of any meeting
of shareholders at which they are not entitled to vote or consent.
(f) Except as otherwise provided by the statutes of the State of
Wisconsin or by the Preferred Shares Amendment adopted by the Board of
Directors providing for the issue of any series of Preferred Shares, the
vote of the holders of all or any portion of the Preferred Shares, as a
class, shall not be required for any action whatsoever to be taken or
authorized by the shareholders of the Corporation, including any amendment
of the Articles of Incorporation.
ARTICLE VI
No holder of any of the shares of this Corporation shall be entitled,
as of right, to purchase or subscribe for any unissued stock of any class,
or any additional shares of any class to be issued by reason of any
increase of the authorized shares of the Corporation of any class, or
bonds, certificates of indebtedness, debentures or other securities
convertible into shares of the Corporation, or carrying any right to
purchase any stock of any class and any unissued shares, or such additional
authorized issue of any shares or other securities convertible into shares
or carrying any rights to purchase such shares may be issued and disposed
of, pursuant to resolutions of the Board of Directors, to such persons,
firms, corporations or associations and upon such other terms as may be
deemed advisable by the Board of Directors in the exercise of its
discretion.
ARTICLE VII
The address of the registered office is 1126 South 70th Street,
Milwaukee, Wisconsin, 53214.
ARTICLE VIII
The name of the registered agent is WILLIAM C. MORTIMORE.
ARTICLE IX
The Board of Directors of the Corporation is expressly authorized to
make, alter or repeal the By-Laws of the Corporation.
<PAGE>
ARTICLE X
The Corporation shall not be governed by Sections 180.1131 through
180.1133 of the Wisconsin Business Corporation law.
ARTICLE XI
The Corporation shall not be governed by Section 180.1150 of the
Wisconsin Business Corporation law.
The undersigned officers of MERGE TECHNOLOGIES INCORPORATED certify
that the foregoing Restatement of the Articles of Incorporation of said
Corporation was adopted by the shareholders on the 16th day of June, 1998
by the following vote, pursuant to Section 180:1003:
<PAGE>
VOTE ON ADOPTION
No. of
No. of Shares No. of Shares Affirmative Affirmative
Class Outstanding Entitled to Vote Votes Cast Votes Required
- ----- ------------- ---------------- ----------- --------------
Common [ ] [ ] [ ] [ ]
Executed in duplicate and sealed (if any affixed) this 16th day of
June, 1998.
- --------------------- ----------------------
President Assistant Secretary
<PAGE>
ANNEX B
STOCK OPTION PLAN FOR
EMPLOYEES OF
MERGE TECHNOLOGIES INCORPORATED
MERGE TECHNOLOGIES INCORPORATED, a corporation organized under the
laws of the State of Wisconsin, hereby adopts this Stock Option Plan for
Employees of Merge Technologies Incorporated. The purposes of this Plan are
as follows:
1. To further the growth, development and financial success of the
Company by providing additional incentives to certain of its Employees who
have been or will be given responsibility for the management or
administration of the Company's business affairs, by assisting them to
become owners of capital stock of the Company and thus to benefit directly
from its growth, development and financial success.
2. To enable the Company to obtain and retain the services of the
type of professional, technical and managerial employees considered
essential to the long-range success of the Company by providing and
offering them an opportunity to become owners of capital stock of the
Company under options, including options that are intended to qualify as
"incentive stock options" under Section 422(b) of the Internal Revenue Code
of 1986, as amended.
ARTICLE I
DEFINITIONS
Whenever the following terms are used in this Plan, they shall have
the meaning specified below unless the context clearly indicates to the
contrary. The masculine pronoun shall include the feminine and neuter and
the singular shall include the plural, where the context so indicates.
SECTION 1.1 - BOARD
"Board" shall mean the Board of Directors of the Company.
SECTION 1.2 - CODE
"Code" shall mean the Internal Revenue Code of 1986, as amended.
SECTION 1.3 - COMMITTEE
"Committee" shall mean the Stock Option Committee of the Board,
appointed as provided in Section 6.1.
SECTION 1.4 - COMMON STOCK
"Common Stock" shall mean the Common Stock, One Cent ($.01) par
value, of the Company.
SECTION 1.5 - COMPANY
"Company" shall mean MERGE TECHNOLOGIES INCORPORATED.
SECTION 1.6 - DIRECTOR
"Director" shall mean a member of the Board.
SECTION 1.7 - DISABILITY
"Disability" shall have the meaning set forth in Section 2.2(e)(3) of
the Code.
<PAGE>
SECTION 1.8 - EMPLOYEE
"Employee" shall mean any employee (as defined in accordance with the
regulations and revenue rulings then applicable under Section 3401(c) of
the Code) of the Company, or of any corporation which is then a Subsidiary,
whether such employee is so employed at the time this Plan is adopted or
becomes so employed subsequent to the adoption of this Plan.
SECTION 1.9 - EXCHANGE ACT
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
SECTION 1.10 - INCENTIVE STOCK OPTION
"Incentive Stock Option" shall mean an Option which qualifies under
Section 422(b) of the code and which is designated as an Incentive Stock
Option by the Committee.
SECTION 1.11 - NON-QUALIFIED OPTION
"Non-Qualified Option" shall mean an Option which is not an Incentive
Stock Option.
SECTION 1.12 - OFFICER
"Officer" shall mean an officer of the Company or any Subsidiary.
SECTION 1.13 - OPTION
"Option" shall mean an option to purchase Common Stock of the
Company,granted under the Plan. "Options" includes both Incentive Stock
Options and Non-Qualified Options.
SECTION 1.14 - OPTIONEE
"Optionee" shall mean an Employee to whom an Option is granted under
the Plan.
SECTION 1.15 - PLAN
"Plan" shall mean this Stock Option Plan for Employees of MERGE
TECHNOLOGIES INCORPORATED.
SECTION 1.16 - SECRETARY
"Secretary" shall mean the Secretary of the Company.
SECTION 1.17 - SECURITIES ACT
"Securities Act" shall mean the Securities Act of 1933, as amended.
SECTION 1.18 - SUBSIDIARY
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other
than the last corporation in the unbroken chain then owns stock possessing
50% or more of the total combined voting power of all classes of stock in
one of the other corporations in such chain.
Section 1.19 - TERMINATION OF EMPLOYMENT
"Termination of Employment" shall mean the time when the
employee-employer relationship between the Optionee and the Company or a
Subsidiary is terminated for any reason, with or without cause, including,
but not by way of limitation, a termination by resignation, discharge,
death or retirement, but excluding terminations where there is a
simultaneous reemployment of the Optionee by the Company or a Subsidiary.
The Committee, in its absolute discretion, shall determine the effect of
<PAGE>
all other matters and questions relating to Termination of Employment,
including, but not by way of limitation, the question of whether a
Termination of Employment resulted from a discharge for good cause, and all
questions of whether particular leaves of absence constitute Terminations
of Employment; provided, however, that, with respect to Incentive Stock
Options, a leave of absence shall constitute a Termination of Employment
if, and to the extent that, such leave of absence interrupts employment for
the purposes of Section 422(a)(2) of the Code and the then applicable
regulations and revenue rulings under said Section.
ARTICLE II
SHARES SUBJECT TO PLAN
SECTION 2.1 - SHARES SUBJECT TO PLAN
The shares of stock subject to Options shall be shares of the
Company's Common Stock. The aggregate number of such shares which may be
issued upon exercise of Options (including those granted under the Original
Plan) shall not exceed 200,000. For purposes of the foregoing limitation,
any reduction in shares issuable to an Optionee in full or part payment of
the option price in accordance with the provisions of Section 5.3(b) or (c)
shall nevertheless be deemed to have been issued.
SECTION 2.2 - UNEXERCISED OPTIONS
If any Option expires or is cancelled without having been fully
exercised, the number of shares subject to such Option but as to which such
Option was not exercised prior to its expiration or cancellation may again
be optioned hereunder, subject to the limitations of Section 2.1.
SECTION 2.3 - CHANCES IN COMMON STOCK
In the event that the outstanding shares of Common Stock of the
Company are hereafter changed into or exchanged for a different number or
kind of shares or other securities of the Company, or of another
corporation, by reason of reorganization, merger, consolidation,
recapitalization, reclassification, stock split-up, stock dividend,
combination of shares or otherwise, appropriate adjustments shall be made
by the Committee in the number and kind of shares for the purchase of which
Options may be granted, including adjustments of the limitations in Section
2.1 on the maximum number and kind of shares which may be issued on
exercise of Options.
ARTICLE III
GRANTING OF OPTIONS
SECTION 3.1 - ELIGIBILITY
Any Employee of the Company or of any corporation which is then a
Subsidiary shall be eligible to be granted Options, except as provided in
Section 3.2.
SECTION 3.2 - QUALIFICATION OF INCENTIVE STOCK OPTIONS
No Incentive Stock Option shall be granted unless such Option,
when granted, qualifies as an "incentive stock option' under Section 422(b)
of the Code.
SECTION 3.3 - GRANTING OF OPTIONS
(a) The Committee shall from time to time, in its absolute
discretion:
<PAGE>
(i) Determine which Employees are Employees and select
from among the Employees (including those to whom Options have been
previously granted under the Plan) such of them as in its opinion should
be granted Options; and
(ii) Determine the number of shares to be subject to
such Options granted to such selected Employees, and determine whether
such Options are to be Incentive Stock Options or Non-Qualified Options,
provided that in no event may any Employee be granted, during any fiscal
year of the Company, Options hereunder covering more than 10,000 shares
of Common Stock; and
(iii) Determine the terms and conditions of such
Options, consistent with the Plan.
Notwithstanding the above, the Committee may delegate certain
powers relating to the granting of Options as it deems appropriate to
executive officers of the Company including the power to determine the
number of shares to be subject to Options (subject to a maximum amount set
by the Committee), whether such Options are to be Incentive Stock Options
or Non-Qualified Options and to determine the terms and conditions of such
Options including the imposition of one more condition to exercise such as
the execution by the Optionee of a non-competition agreement in favor of
the Company or a Subsidiary; provided, however, that the Committee shall
not delegate any powers that are required to be exercised by the Committee
under Section 16(b) of the Exchange Act or any rules promulgated
thereunder.
(b) Upon the selection of an Employee to be granted an Option,
the Committee shall instruct the Secretary to issue such Option and may
impose such conditions on the grant of such Option as it deems appropriate.
Without limiting the generality of the preceding sentence, the Committee
may, in its discretion and on such terms as it deems appropriate, require
as a condition on the grant of any Option to an Employee that the Employee
surrender for cancellation some or all of the unexercised Options which
have been previously granted to him. An Option, the grant of which is
conditioned upon such surrender, may have an option price lower (or higher)
than the option price of the surrendered Option, may cover the same (or a
lesser or greater) number of shares as the surrendered Option, may contain
such other terms as the Committee deems appropriate and shall
be exercisable in accordance with its terms, without regard to the number
of shares, price, option period or any other term or condition of the
surrendered Option.
ARTICLE IV
TERMS OF OPTIONS
SECTION 4.1 - OPTION AGREEMENT
Each Option shall be evidenced by a written Stock Option Agreement,
which shall be executed by the Optionee and an authorized Officer of the
Company and which shall contain such terms and conditions as the Committee
shall determine, consistent with the Plan. Stock Option Agreements
evidencing Incentive Stock Options shall contain such terms and conditions
as may be necessary to qualify such Options as "incentive stock options"
under Section 422(b) of the Code.
SECTION 4.2 - OPTION PRICE
(a) The price of the shares subject to each Option shall be set by
the Committee; provided, however, that (i) the price per share of a
Non-Qualified Option shall be not less than the lesser of 85% of the fair
market value of such shares on the date such Option is granted or the
average of the fair market values of such shares on the five most recent
trading days prior to the date that such Option is granted, and (ii) the
price per share of an Incentive Stock Option shall not be less than 100% of
the fair market value of such shares on the date such Option is granted.
<PAGE>
(b) For purposes of the Plan, the fair market value of a share of
the Company's stock as of a given date shall be: (i) the closing price of
the Common Stock on the principal national stock exchange on which the
shares are listed on such date or, if shares were not traded on such date,
then on the next preceding trading day during which a sale occurred; or
(ii) if such stock is not listed on an exchange but is quoted on NASDAQ or
a successor quotation system, (1) the last sales price (if the stock is
then listed as a National Market Issue under the NASD National Market
System) or (2) the mean between the closing representative bid and asked
prices (in all other cases) for the stock on such date as reported by
NASDAQ or such successor quotation system; or (iii) if such stock is not
listed on an exchange and not quoted on NASDAQ or a successor quotation
system, the mean between the closing bid and asked prices for the stock, on
such date, as determined in good faith by the Committee; or (iv) if the
Company's stock is not publicly traded, the fair market value established
by the Committee acting in good faith. In determining the fair market value
of the Company's Common Stock under subsection l(b) of this Section 4.2,
the Committee may rely on the closing price as reported in the Wall Street
Journal.
SECTION 4.3 - COMMENCEMENT OF EXERCISABILITY
(a) Subject to the provisions of Sections 4.3(b), 4.3(c) and 7.3,
Options shall become exercisable at such times and in such installments
(which may be cumulative) as the Committee shall provide in the terms of
each individual Option; provided, however, that by a resolution adopted
after an Option is granted the Committee may, on such terms and conditions
as it may determine to be appropriate and subject to Sections 4.3(b),
4.3(c) and 7.3, accelerate the time at which such Option or any portion
thereof may be exercised.
(b) No portion of an Option which is unexercisable at Termination
of Employment shall thereafter become exercisable.
(c) Notwithstanding any other provision of this Plan, in the case of
an Incentive Stock Option, the aggregate fair market value (determined at
the time the Incentive Stock Option is granted) of the shares of the
Company's stock with respect to which "incentive stock options" (within the
meaning of Section 422(b) of the Code) are exercisable for the first time
by the Optionee during any calendar year (under the Plan and all other
incentive stock option plans of the Company and any Subsidiary) shall not
exceed $100,000.
SECTION 4.4 - EXPIRATION OF OPTIONS
(a) No Option may be exercised to any extent by anyone after the
first to occur of the following events:
(i) In the case of an Incentive Stock Option, the expiration of
ten years from the date the Option was granted; or in the case of an
Optionee owning (within the meaning of Section 425(d) of the Code), at the
time the Incentive Stock Option was granted, more than 10% of the total
combined voting power of all classes of stock of the Company or any
Subsidiary, the expiration of five years from the date the Incentive Stock
Option was granted; or
(ii) In the case of a Non-Qualified Option, the expiration of
fifteen years and one day from the date the Option was granted; or
(iii) The expiration of three months from the date of the
Optionee's Termination of Employment; or
(iv) The engagement by the Employee in willful misconduct which
injures the Company or any of its Subsidiaries.
<PAGE>
(b) Subject to the provisions of Section 4.4(a), the Committee
shall provide, in the terms of each individual Option, when such Option
expires and become unexercisable; and (without limiting the generality of
the foregoing) the Committee may provide in the terms of individual Options
that said Options expire immediately upon a Termination of Employment for
any reason.
SECTION 4.5 - TENURE OF EMPLOYMENT
Nothing in this Plan or in any Stock Option Agreement hereunder
shall confer upon any Optionee any right to continue in the employ of the
Company or any Subsidiary or shall interfere with or restrict in any way
the rights of the Company and its Subsidiaries, which are hereby expressly
reserved, to discharge any Optionee at any time for any reason whatsoever,
with or without cause.
SECTION 4.6 - ADJUSTMENTS IN OUTSTANDING OPTIONS
In the event that the outstanding shares of the stock subject to
Options are changed into or exchanged for a different number or kind of
shares of the Company or other securities of the Company by reason of
merger, consolidation, recapitalization, reclassification, stock split-up,
stock dividend, combination of shares or otherwise, the Committee shall
make an appropriate and equitable adjustment in the number and kind of
shares as to which all outstanding Options, or portions thereof then
unexercised, shall be exercisable, to the end that after such event the
Optionee's proportionate interest shall be maintained as before the
occurrence of such event. Such adjustment in an outstanding Option shall be
made without change in the total price applicable to the Option or the
unexercised portion of the Option (except for any change in the aggregate
price resulting from rounding-off of share quantities or prices) and with
any necessary corresponding adjustment in Option price per share; provided,
however, that, in the case of Incentive Stock Options, each such adjustment
shall be made in such manner as not to constitute a "modification" within
the meaning of Section 425(h)(3) of the Code. Any such adjustment made by
the Committee shall be final and binding upon all Optionees, the Company
and all other interested persons.
SECTION 4.7 - MERGER, CONSOLIDATION, ACQUISITION, LIQUIDATION OR
DISSOLUTION
In the event of: (1) a merger or consolidation in which the Company
is not the surviving corporation; or (2) a reverse merger in which the
Company is the surviving corporation but the shares of the Company's common
stock outstanding immediately preceding the merger are converted by virtue
of the merger into other property, whether in the form of securities, cash
or otherwise, then to the extent permitted by applicable law: (i) any
surviving corporation shall assume any of the options outstanding under the
Plan or shall substitute similar options for those outstanding under the
Plan, or (ii) such options shall continue in full force and effect. In the
event any surviving corporation refuses to assume or continue such options,
or to substitute similar options for those outstanding under the Plan,
then, the time at which such options may first be exercised shall
accelerated and the options terminated if not exercised prior to such
event. In the event of a dissolution or liquidation of the Company, any
options outstanding under the Plan shall terminate if not exercised prior
to such event.
<PAGE>
ARTICLE V
EXERCISE OF OPTIONS
SECTION 5.1 - PERSON ELIGIBLE TO EXERCISE
During the lifetime of the Optionee, only he may exercise an
Option granted to him, or any portion thereof. After the death of the
Optionee, any exercisable portion of an Option may, prior to the time when
such portion becomes unexercisable under Section 4.4 or Section 4.7, be
exercised by his personal representative or by any person empowered to do
so under the deceased Optionee's will or under the then applicable laws of
descent and distribution.
SECTION 5.2 - PARTIAL EXERCISE
At any time and from time to time prior to the time when any
exercisable Option or exercisable portion thereof become unexercisable
under Section 4.4 or Section 4.7, such Option or portion thereof may be
exercised in whole or in part; provided, however, that the Company shall
not be required to issue fractional shares and the Committee may, by the
terms of the Option, require any partial exercise to be with respect to a
specified minimum number of shares.
SECTION 5.3 - MANNER OF EXERCISE
An exercisable Option, or any exercisable portion thereof, may
be exercised solely by delivery to the Secretary or his office of all of
the following prior to the time when such Option or such portion
becomes unexercisable under Section 4.4 or Section 4.7:
(a) Notice in writing signed by the Optionee or other person then
entitled to exercise such Option or portion, stating that such Option or
portion is exercised, such notice complying with all applicable rules
established by the Committee; and
(b) (i) Full payment (in cash or by check) for the shares with
respect to which such Option or portion is thereby exercised; or (ii)
Subject to the Committee's consent, shares of Common Stock owned by the
Optionee duly endorsed for transfer to the Company, or issuable to the
Optionee upon exercise of the Option, with a fair market value (as
determinable under Section 4.2(b)) on the date of delivery equal to the
aggregate Option Price of the shares with respect to which such Option or
portion is thereby exercised; or (iii) Subject to the Committee's
consent, full payment in any other form approved by the Committee,
consistent with applicable law and the Plan; or (iv) Any combination of
the consideration provided in the foregoing subsections (i), (ii) and
(iii); and
(c) On or prior to the date the same is required to be withheld:
(i) Full payment (in cash or by check) of any amount that
must be withheld by the Company for federal, state and/or local
tax purposes; or
(ii) Subject to the Committee's consent, full payment by
delivery to the Company of shares of the Common Stock owned by the
Optionee duly endorsed for transfer to the Company by the Optionee or other
person then entitled to exercise such Option or portion with an aggregate
fair market value (as determinable under Section 4.2(b)) equal to the
amount that must be withheld by the Company for federal, state and/or local
tax purposes; or
<PAGE>
(iii) Subject to the Committee's consent, full payment by
retention by the Company of shares of Common Stock to be issued pursuant to
such Option exercise with an aggregate fair market value (as determinable
under Section 4.2(b)) equal to the amount that must be withheld by the
Company for federal, state and/or local tax purposes; or
(iv) Any combination of payments provided for in the
foregoing subsections (i), (ii) or (iii); provided that if the Company is
subject to the reporting requirements under the Exchange Act, if and to the
extent required by Rule 16b-3 promulgated under Section 16 of the Exchange
Act ("Rule 16b-3"), an election to make full payment by the means described
in Section 5.3(c)(ii) or 5.3(c)(iii) shall be made more than six months
after grant of the Option and either (x) made and the Option exercised only
during the period beginning of the third business day following the date of
release of quarterly or annual summary statements of sales and earnings of
the Company and ending on the twelfth business day following such date, or
(y) irrevocably made more than six months prior to the date the amount of
tax to be withheld is determined in the case of Sections 5.3(c)(ii)
and 5.3(iii); and
(d) Such representations and documents as the Committee, in its
absolute discretion, deems necessary or advisable to effect compliance
with all applicable provisions of the Securities Act and any other
federal or state securities laws or regulations. The Committee may, in
its absolute discretion, also take whatever additional actions it deems
appropriate to effect such compliance including, without limitation,
placing legends on share certificates and issuing stop-transfer orders
to transfer agents and registrars; and
(e) In the event that the Option or portion thereof shall be
exercised pursuant to Section 5.1 by any person or persons other than
the Optionee, appropriate proof of the right of such person or persons
to exercise the Option or portion thereof.
SECTION 5.4 - CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES
The shares of stock issuable and deliverable upon the exercise of
an Option, or any portion thereof, may be either previously authorized
but unissued shares or issued shares which have then been reacquired by
the Company. The Company shall not be required to issue or deliver any
certificate or certificates for shares of stock purchased upon the exercise
of any Option or portion thereof prior to fulfillment of all of the
following conditions: (a) The admission of such shares to listing on all
stock exchanges on which such class of stock is then listed; and (b) The
completion of any registration or other qualification of such shares under
any state or federal law or under the rulings or regulations of the
Securities and Exchange Commission or any other governmental regulatory
body, which the Committee shall, in its absolute discretion, deem necessary
or advisable; and (c) The obtaining of any approval or other clearance from
any state or federal governmental agency which the Committee shall, in its
absolute discretion, determine to be necessary or advisable; and (d) The
payment to the Company (or other employer corporation) of all amounts which
it is required to withhold under federal, state or local law in connection
with the exercise of the Option; and (e) The lapse of such reasonable
period of time following the exercise of the Option as the Committee may
establish from time to time for reasons of administrative convenience.
SECTION 5.5 - RIGHTS AS STOCKHOLDERS
The holders of Options shall not be, nor have any of the rights
or privileges of, stockholders of the Company in respect of any shares
purchasable upon the exercise of any part of an Option unless and until
certificates representing such shares have been issued by the Company to
such holders.
<PAGE>
SECTION 5.6 - TRANSFER RESTRICTIONS
The Committee, in its absolute discretion, may impose such
restrictions on the transferability of the shares purchasable upon the
exercise of an Option as it deems appropriate, including a commitment on
behalf of the Optionee to afford the Company first refusal rights upon a
proposed sale of shares of Common Stock or restrictions on transfer
necessary or desirable, as the Committee in its sole discretion may
determine, to preserve the S corporation status of the Company. Any such
restriction shall be set forth in the respective Stock Option Agreement or
in a separate written agreement and may be referred to on the certificates
evidencing such shares. The Committee may require the Employee to give the
Company prompt notice of any disposition of shares of stock acquired by
exercise of an Incentive Stock Option, within two years from the date of
granting such Option or one year after the transfer of such shares to such
Employee. The Committee may direct that the certificates evidencing shares
acquired by exercise of an Incentive Stock Option refer to such requirement
to give prompt notice of disposition.
ARTICLE VI
ADMINISTRATION
SECTION 6.1 - STOCK OPTION COMMITTEE
(a) The Stock Option Committee shall consist of at least two
Directors of the Company (or such smaller number as may be permitted under
Rule 16b-3, if and as such Rule is then in effect) appointed by and holding
office during the pleasure of the Board. No Options may be granted to any
member of the Committee during the term of his membership on the Committee.
No person shall be eligible to serve on the Committee unless he is then a
"disinterested person" within the meaning of paragraph (e)(2)(i) of Rule
16b-3.
(b) Appointment of Committee members shall be effective upon
acceptance of appointment. Committee members may resign at any time by
delivering written notice to the Board. Vacancies in the Committee shall be
filled by the Board.
SECTION 6.2 - DUTIES AND POWERS OF COMMITTEE
It shall be the duty of the Committee to conduct the
general administration of the Plan in accordance with its provisions. The
Committee shall have the power to interpret the Plan and the Options and to
adopt such rules for the administration, interpretation and application of
the Plan as are consistent therewith and to interpret, amend or revoke any
such rules. Any such interpretations and rules in regard to Incentive Stock
Options shall be consistent with the basic purpose of the Plan to grant
"incentive stock options" within the meaning of Section 422(b) of the Code.
In its absolute discretion, the Board may at any time and from time to time
exercise any and all rights and duties of the Committee under the Plan.
SECTION 6.3 - MAJORITY RULE
The Committee shall act by a majority of its members in office.
The Committee may act either by vote at a meeting or by a memorandum or
other written instrument signed by a majority of the Committee.
SECTION 6.4 - COMPENSATION: PROFESSIONAL ASSISTANCE: GOOD FAITH ACTIONS
Members of the Committee shall receive such compensation for
their services as members as may be determined by the Board. All expenses
and liabilities incurred by members of the Committee in connection with
the administration of the Plan shall be borne by the Company. The Committee
may, with the approval of the Board, employ attorneys, consultants,
accountants, appraisers, brokers or other persons. The Committee, the
Company and its Officers and Directors shall be entitled to rely upon the
<PAGE>
advice, opinions or valuations of any such persons. All actions taken and
all interpretations and determinations made by the Committee in good faith
shall be final and binding upon all Optionees, the Company and all other
interested persons. No member of the Committee shall be personally liable
for any action, determination or interpretation made in good faith with
respect to the Plan or the Options, and all members of the Committee shall
be fully protected by the Company in respect to any such action,
determination or interpretation.
ARTICLE VII
OTHER PROVISIONS
SECTION 7.1 - OPTIONS NOT TRANSFERABLE
No Option or interest or right therein or part thereof shall be
liable for the debts, contracts or engagements of the Optionee or his
successors in interest or shall be subject to disposition by transfer,
alienation, pledge, encumbrance, assignment or any other means whether such
disposition be voluntary or involuntary or by operation of law by judgment,
levy, attachment, garnishment or any other legal or equitable proceedings
(including bankruptcy), and any attempted disposition thereof shall be null
and void and of no effect; provided, however, that nothing in this Section
7.1 shall prevent transfers by will or by the applicable laws of descent
and distribution.
SECTION 7.2 - AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN
The Plan may be wholly or partially amended or otherwise
modified, suspended or terminated at any time or from time to time by the
Board. However, to the extent required by Rule 16b-3 or the Code, no action
of the Board may, except as provided in Section 2.3, increase any limit
imposed in Section 2.1 on the maximum number of shares which may be issued
on exercise of Options, modify the eligibility requirements of Section 3.1,
reduce the minimum Option price requirements of Section 4.2(a) or extend
the limit imposed in this Section 7.2 on the period during which Options
may be granted without approval of the Company's shareholders given within
12 months before or after the action by the Board. Neither the amendment,
suspension nor termination of the Plan shall, without the consent of the
holder of the Option, impair any rights or obligations under any Option
theretofore granted. No Option may be granted during any period of
suspension nor after termination of the Plan, and in no event may any
Option be granted under this Plan after the first to occur of the following
events:
(a) The expiration of ten years from the date the Plan is adopted by
the Board; or
(b) The expiration of ten years from the date the Plan is approved
by the Company's shareholders under Section 7.4.
SECTION 7.3 - COMPLIANCE WITH SECTION 16 OF THE EXCHANGE ACT
With respect to persons subject to Section 16 of the Exchange
Act, transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successors under the Exchange
Act. To the extent any provision of this Plan or action by the Committee
fails to so comply at such time that the Company is subject to the
reporting requirements of the Exchange Act, it shall be deemed null and
void to the extent permitted by law and deemed advisable by
the Committee.
<PAGE>
SECTION 7.4 - APPROVAL OF PLAN BY SHAREHOLDERS
This Plan will be submitted for the approval of the
Company's shareholders within 12 months after the date of the Board's
adoption of this Plan. Options may be granted prior to such shareholder
approval, provided, however, that Options granted after the adoption of
this Plan by the Board but prior to such shareholder approval shall not be
exercisable prior to the time when this Plan is approved by the
shareholders; provided, further, that if such approval has not been
obtained at the end of said 12-month period, all such Options granted
hereunder following adoption of this Plan by the Board shall thereupon be
canceled and become null and void.
SECTION 7.5 - EFFECT OF PLAN UPON OTHER OPTION AND COMPENSATION PLANS
The adoption of this Plan shall not affect any other compensation
or incentive plans in effect for the Company or any Subsidiary or modify
the rights of any person holding options issued pursuant to the Original
Plan. Nothing in this Plan shall be construed to limit the right of the
Company or any Subsidiary (a) to establish any other forms of incentives or
compensation for employees of the Company or any Subsidiary or (b) to grant
or assume options otherwise than under this Plan in connection with any
proper corporate purpose, including, but not by way of limitation, the
grant or assumption of options in connection with the acquisition by
purchase, lease, merger, consolidation or otherwise, of the business, stock
or assets of any corporation, firm or association.
SECTION 7.6 - TITLES
Titles are provided herein for convenience only and are not to serve
as a basis for interpretation or construction of the Plan.
