<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Summit Medical Systems, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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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Notes:
<PAGE>
SUMMIT MEDICAL
SYSTEMS, INC.
10900 Red Circle Drive
Minnetonka, Minnesota 55343-9106
Dear Shareholder:
You are cordially invited to attend the 1997 Annual Meeting of Shareholders
of Summit Medical Systems, Inc. (the "Company") to be held at the Company's
offices, 10900 Red Circle Drive, Minnetonka, Minnesota, on June 12, 1997, 3:00
p.m. (Minneapolis time).
The attached Notice of Annual Meeting and Proxy Statement describe the
formal business to be transacted at the meeting. Following the formal business
portion of the Annual Meeting, there will be a report on the operations of the
Company and shareholders will be given the opportunity to ask questions. At
your earliest convenience, please mark, sign and return the accompanying proxy
card in the enclosed postage pre-paid envelope. We hope you will be able to
attend the Annual Meeting.
Whether or not you plan to attend the Annual Meeting, please complete,
sign, date and mail the enclosed proxy card promptly. If you attend the Annual
Meeting, you may revoke such proxy and vote in person if you wish, even if you
have previously returned your proxy card. If you do not attend the Annual
Meeting, you may still revoke such proxy at any time prior to the Annual Meeting
by providing written notice of such revocation to Kevin R. Green, President and
Chief Executive Officer of the Company. Your prompt cooperation will be greatly
appreciated.
Sincerely,
Minnetonka, Minnesota Kevin R. Green
May 23, 1997 President and Chief Executive Officer
<PAGE>
SUMMIT MEDICAL
SYSTEMS, INC.
10900 Red Circle Drive
Minnetonka, Minnesota 55343-9106
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 12, 1997
TO THE SHAREHOLDERS OF SUMMIT MEDICAL SYSTEMS, INC.:
Notice is hereby given that the Annual Meeting of Shareholders of Summit
Medical Systems, Inc., a Minnesota corporation (the "Company"), will be held at
the Company's offices, 10900 Red Circle Drive, Minnetonka, Minnesota, on June
12, 1997, 3:00 p.m., (Minneapolis time).
The Annual Meeting is being held for the following purposes:
1. To elect five directors, each to serve for a one-year term or until
his or her respective successor is duly elected and qualified.
2. To consider and act upon a proposal to amend the Company's Stock
Option Plan of 1993 (as amended) to increase the number of shares of the
Company's common stock, $.01 par value, available for issuance
thereunder.
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only shareholders of record at the close of business on May 9, 1997, will
be entitled to notice of and to vote at the meeting and any adjournment thereof.
Whether or not you plan to be present at the Annual Meeting, please sign and
return the accompanying form of proxy in the enclosed postage prepaid envelope
at your earliest convenience. If you attend the Annual Meeting, you may revoke
such proxy and vote in person if you wish, even if you have previously returned
your proxy card. If you do not attend the Annual Meeting, you may still revoke
such proxy at any time prior to the Annual Meeting by providing written notice
of such revocation to Kevin R. Green, President and Chief Executive Officer of
the Company. Your prompt cooperation will be greatly appreciated.
BY ORDER OF THE
BOARD OF DIRECTORS,
Minnetonka, Minnesota Kevin R. Green
May 23, 1997 President and Chief Executive Officer
<PAGE>
SUMMIT MEDICAL SYSTEMS, INC.
10900 Red Circle Drive
Minnetonka, Minnesota 55343-9106
Proxy Statement
For
Annual Meeting Of Shareholders
June 12, 1997
___________
SOLICITATION OF PROXIES
This Proxy Statement is furnished to shareholders of Summit Medical
Systems, Inc. (the "Company"), in connection with the solicitation of proxies
for use at the Annual Meeting of Shareholders (or any adjournment thereof) to be
held at the Company's principal executive offices, 10900 Red Circle Drive,
Minnetonka, Minnesota, at 3:00 p.m. (Minnesota time), on June 12, 1997 (the
"Annual Meeting"), for the purposes set forth in the accompanying Notice of
Annual Meeting. The accompanying proxy is being solicited by the Board of
Directors of the Company. This Proxy Statement and the accompanying form of
proxy are being mailed to shareholders commencing on or about May 23, 1997.
The cost of preparing, assembling and mailing the Notice of Annual Meeting,
this Proxy Statement and the form of proxy, including the reimbursement of
banks, brokers and other nominees for forwarding proxy materials to beneficial
owners, will be borne by the Company. Proxies may also be solicited personally
or by telephone by directors, officers and employees of the Company who will
receive no additional compensation.
VOTING, EXECUTION AND REVOCATION OF PROXIES
Only shareholders of record at the close of business on May 9, 1997, the
record date, will be entitled to notice of and to vote at the Annual Meeting.
On May 9, 1997, the Company had 10,353,994 shares of common stock, $.01 par
value (the "Common Stock"), outstanding and entitled to vote at the Annual
Meeting. Each share of Common Stock entitles the holder to one vote on all
matters to come before the Annual Meeting. There is no cumulative voting.
Shares represented by a proxy will be voted in the manner directed by the
shareholder. If no direction is made, the proxy will be voted (i) for the
election of the nominees for director named in this Proxy Statement, (ii) for
the proposal to amend the Company's Stock Option Plan of 1993, and (iii) in
accordance with the judgment of the persons named in the proxy as to such other
matters as may properly come before the Annual Meeting. If a shareholder
returns a proxy and abstains from voting on any matter, or, in the case of the
election of directors withholds authority to vote with respect to any or all
nominees, the shares represented by such proxy will be considered present for
purposes of determining the presence of a quorum at the Annual Meeting and as
unvoted, although present
<PAGE>
and entitled to vote, for purposes of determining the approval of each matter as
to which the shareholder has abstained or withheld authority. If a broker
submits a proxy which indicates that the broker does not have discretionary
authority as to certain shares to vote on one or more matters, those shares will
be counted as shares that are present for purposes of determining the presence
of a quorum at the Annual Meeting, but will not be considered as present and
entitled to vote with respect to such matters.
Whether or not you plan to attend the Annual Meeting, please complete,
sign, date and mail the enclosed proxy card promptly. If you attend the Annual
Meeting, you may revoke such proxy and vote in person if you wish, even if you
have previously returned your proxy card. If you do not attend the Annual
Meeting, you may still revoke such proxy at any time prior to the Annual Meeting
by providing written notice of such revocation to the Company. Any such written
notice of revocation or subsequently dated proxy should be mailed or delivered
to Kevin R. Green, President and Chief Executive Officer, Summit Medical
Systems, Inc., 10900 Red Circle Drive, Minnetonka, Minnesota 55343-9106. Your
prompt consideration will be greatly appreciated.
A copy of the Company's 1996 Annual Report to Shareholders, which includes
the Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission for the year ended December 31, 1996, accompanies this Proxy
Statement.
PROPOSAL 1:
ELECTION OF DIRECTORS
The Board of Directors recommends that the number of directors to be
elected for the coming year be set at five and that shareholders elect the
nominees named below as directors of the Company for the ensuing year and until
their respective successors are elected and qualified. Unless authority to vote
for one or more nominees is withheld as specified in the proxy card, the persons
named in the enclosed form of proxy intend to vote FOR the election of the five
nominees listed below. All of the nominees are members of the present Board of
Directors. Each of the nominees has consented to serve as director, if elected.
If for any reason any nominee shall be unavailable for election to the Board of
Directors, votes will be cast pursuant to authority granted by the enclosed
proxy for such other candidate or candidates as may be nominated by the Board of
Directors. The Board of Directors has no reason to believe that any of the
nominees listed below will be unable to serve if elected to office. The Board
of Directors recommends a vote FOR each of the nominees. The affirmative vote
of a majority of the shares of Common Stock entitled to vote and present in
person or by proxy at the Annual Meeting is required for election of each
nominee.
-2-
<PAGE>
Nominees for Election at the Annual Meeting
Certain biographical information regarding the nominees for election as
directors, including the nominee's name, age, principal occupation, business
experience and period of service as a director of the Company is set forth
below.
W. Hudson Connery, Jr. (age 47) - Mr. Connery has served as Interim Chairman of
the Board since March 1997 and a director of the Company since October 1996.
Since June 1995, Mr. Connery has been the Chairman of the Board, President and
Chief Executive Officer of Arcon HealthCare Inc. From August 1991 to April
1995, Mr. Connery was Senior Vice President and Chief Operating Officer and a
director of Health Trust, the Hospital Company.
Edward F. Sweeney (age 57) - Since the formation of the Company in January
1996, Mr. Sweeney has been a director of the Company, and served as Chairman of
the Board from the formation of the Company to March 1997. Since the formation
of the Company in January 1996, Mr. Sweeney also served as President and Chief
Executive Officer of the Company.
Kevin R. Green (age 42) - Mr. Green has served as President, Chief Executive
Officer and a director of the Company since joining the Company in January 1996.
From September 1991 to December 1995, Mr. Green was employed by Integrated
Medical Systems, Inc., a provider of physician-focused electronic communication
networks and services, where during part of this period, he served as President
and Chief Executive Officer.
John M. Nehra (age 48) - Mr. Nehra has served as a director of the Company since
November 1992. Since 1989, Mr. Nehra has been the managing general partner of
Catalyst Ventures, Limited Partnership ("Catalyst"), a venture capital limited
partnership. Since December 1993, Mr. Nehra has also been a general partner of
the general partner of New Enterprise Associates VI, Limited Partnership ("NEA
VI"), a venture capital limited partnership. Mr. Nehra also serves as a
director of VIVRA Incorporated ("Vivra"), a specialty healthcare company, Iridex
Corporation, a medical instrumentation company and Optical Sensors, Inc., a
medical instrumentation company.
Kent J. Thiry (age 41) - Mr. Thiry has served as a director of the Company since
May 1994. Since September 1992, Mr. Thiry has served as President, Chief
Executive Officer and a director of Vivra. From April 1992 to August 1992, Mr.
Thiry served as President and Co-Chief Executive Officer of Vivra, and from
September 1991 to March 1992, Mr. Thiry served as President and Chief Operating
Officer of Vivra.
Certain Information Regarding the Board of Directors
The Board of Directors has established Audit and Compensation Committees.
The Company does not have a nominating committee.
The Audit Committee supervises and reviews the Company's accounting and
financial practices, makes recommendations to the Board of Directors as to the
-3-
<PAGE>
nomination of independent auditors, confers with the independent auditors
regarding the scope of their proposed audits and their audit findings, reports
and recommendations, reviews the Company's financial controls, procedures and
practices, and approves all non-audit services by independent auditors. The
current members of the Company's Audit Committee are Messrs. Nehra and Thiry.
The Audit Committee met once during the year ended December 31, 1996.
The Compensation Committee determines the compensation for the President,
Chairman of the Board and other executive officers of the Company, and the
incentive compensation for all employees of the Company, subject to ratification
by the Board of Directors. The Compensation Committee also administers the
Company's Stock Option Plan of 1993 (the "1993 Stock Option Plan"), the 1995
Employee Stock Purchase Plan, the 1995 Non-Employee Director Stock Option Plan
(the "1995 Director Plan") and any other stock option plans implemented by the
Company. The current members of the Company's Compensation Committee are
Messrs. Nehra and Thiry. The Compensation Committee met once during the year
ended December 31, 1996.
During the year ended December 31, 1996, the Board of Directors of the
Company held four regular meetings and two special meetings. No director
attended fewer than 75 percent of the meetings of the Board of Directors and
committees upon which such director served during the year ended December 31,
1996. The Board of Directors and committees also acted from time to time by
written consent in lieu of meetings.
Director Compensation
Non-employee directors receive an annual retainer of $24,000 for membership
on the Board of Directors, which amount includes compensation for membership on
committees of the Board. Directors employed by the Company receive no fees
solely for their service to the Company as director. Under the 1995 Director
Plan, upon first being elected to the Board of Directors, all new directors who
are not full-time employees receive an option to purchase 6,666 shares of Common
Stock, and each then-current non-employee director automatically receives a
stock option to purchase an additional 2,000 shares of Common Stock on the day
after each annual meeting of the Company's shareholders. Stock options are
granted under the 1995 Director Plan with an exercise price equal to the fair
market value of the Common Stock at the grant date, vest over a one-year period
and expire after ten years. In addition, the Company reimburses reasonable
travel, lodging and other incidental expenses incurred by the directors in
attending meetings of the Board of Directors and committees.
-4-
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Compensation Policy
The Compensation Committee sets the compensation policies for all executive
officers of the Company, sets the actual compensation for the President,
Chairman of the Board of Directors and executive officers of the Company, and
reviews the recommendations of the President and Chairman of the Board of
Directors regarding compensation for other employees and determines the
incentive compensation for all employees of the Company. The Compensation
Committee's goal is to establish compensation policies and programs that will
attract and retain highly qualified executives and that closely align the
financial interests of these executives with long-term shareholder interests.
The Compensation Committee is composed entirely of directors who constitute
"non-employee directors" as defined in Rule 16b-3 promulgated under the
Securities Exchange Act of 1934.
The Compensation Committee intends to make the Company's executive
compensation program competitive with the marketplace, with an emphasis on
compensation in the form of equity ownership, the value of which is contingent
on the long-term market performance of the Company's Common Stock. The
Compensation Committee also seeks to control the Company's fixed salary costs
and to enhance the Company's annual performance by providing executive officers
with opportunities to earn annual cash bonuses for achieving Company and
individual performance goals. In establishing the Company's compensation
policies, the Compensation Committee also considers information regarding
compensation levels and practices at other companies in the medical and software
industries, which the Compensation Committee regards as comparable to the
Company. Although the Compensation Committee does not establish specific targets
for compensation of the Company's executive officers relative to executive
officers at comparable companies, the Compensation Committee believes that the
compensation for the Company's executive officers generally falls in the median
range of executive compensation for such comparable companies.
Executive Officer Compensation
The annual compensation package of executive officers of the Company
provides for base salaries, as well as for the opportunity to receive annual
bonuses that are related, among other factors, to Company performance and
individual performance. The Company also provides long-term equity based
compensation generally through participation in the 1993 Stock Option Plan.
This assures that key management employees have a meaningful stake in the
Company, the ultimate value of which is dependent on the Company's long-term
stock price appreciation, and that the interests of executive officers are
aligned with those of the Company's shareholders.
Base Salary. The Company competes for talented executives with a wide
variety of companies. Executive officers' base salaries reflect their positions
and experience, as well as the compensation package required to attract them to
the
-5-
<PAGE>
Company in light of relevant market factors. Annual base salary increases
for executive officers are established as a result of the Compensation
Committee's analysis of each executive's individual performance during the prior
year, the overall performance of the Company during the prior year and his or
her level of responsibility, prior experience and breadth of knowledge. In
1996, annual salary increases for certain executive officers ranged up to 25%.
Although the Company believes executive officer salaries fall within the lower
level of the range of executive base salaries offered by comparable companies,
the Company nevertheless believes that current executive officer salaries are
competitive with comparable companies.
Annual Bonus. To control fixed salary costs and reward annual performance,
the Company pays annual bonuses to executive officers for achieving Company and
individual performance goals. In setting annual bonus awards, the Compensation
Committee considers, among other factors, the Company's revenue growth, the
development and expansion of its business, improvement of management structures
and general management objectives. Actual awards are determined by the
Compensation Committee based on its assessment of each executive's individual
performance and responsibility for the Company's financial and business
condition. Except for bonuses paid to Lisa Olsen, the Company's Vice President,
Professional Client Services, and Bruce Maller, the Company's Vice President and
President of The BSM Consulting Group, the Compensation Committee did not award
any bonuses in 1996 to executive officers due to the Company's failure to
achieve certain revenue growth and profitability goals. The Company awarded a
bonus based on 1996 performance to Ms. Olsen based on her individual
contributions to the Company and to Mr. Maller based on the overall financial
performance of The BSM Consulting Group.
Stock Options. The 1993 Stock Option Plan permits grants of incentive stock
options and non-qualified stock options. The incentive stock options are granted
with an exercise price at the fair market value on the grant date, vest over a
five year period, and expire after 5 years. Non-qualified stock options are
granted with an exercise price established by the Board of Directors, vest over
a five year period and expire after five years. Accordingly, stock options have
value only if the stock price appreciates from the date such options are
granted. This component of executive compensation focuses executives on long-
term creation of shareholder value and encourages equity ownership in the
Company. In determining the actual size of stock option awards under the 1993
Stock Option Plan, the Compensation Committee considers the value of the stock
on the date of grant, competitive practices, the executive's stock holdings, the
amount of options previously granted to the executive, individual performance
and the Company's performance.
1997 Compensation Strategy. The Compensation Committee is currently
evaluating the Company's compensation program for 1997. The goals of the
compensation program are to enable the Company to attract management and
employees who are necessary to rebuild the Company's business and to retain key
management and other employees of the Company as the Company attempts to
establish market acceptance of its new products. The 1997 compensation program
under consideration would include an amendment to the 1993 Stock Option Plan (as
discussed below) to increase the number of authorized shares of Common Stock
issuable under such plan, an employee retention/change-of-control program and an
employee bonus plan.
The Compensation Committee believes an employee retention/change-of-control
program would foster loyalty among the Company's management and employees and
act as an inducement to retain the services of such persons during a
change-of-control by providing cash bonus payments to such persons upon and
following the occurrence of a change-of-control event. Bonus payments would
equal a certain percentage of such person's annual base salary based on
performance and other factors as determined by the Compensation Committee and
senior management of the Company, and would be payable over time following a
change-of-control event. Furthermore, bonuses for eligible persons would be
reduced by any realized gain arising from outstanding options to purchase Common
Stock held by such persons.
The Compensation Committee is considering an employee benefit bonus plan to
define the criteria under which executive officers and other employees of the
Company would be rewarded in 1997 for their contributions to the Company's
financial performance. Eligible persons under the proposed plan would be
entitled to receive cash bonus payments equal to a certain percentage of such
persons' annual base salary. The bonus percentage would be determined by the
Compensation Committee and senior management of the Company based on such
persons' contribution to the attainment of certain Company performance goals
including, among others, Crescendo! orders, registry revenues, Crescendo!
installations, total revenues cost containment and net operating results for the
Company.
Tax Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), limits the tax deduction of $1 million per year for compensation paid
to
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<PAGE>
executive officers named in the "Summary Compensation Table" unless certain
requirements are met. The Compensation Committee has carefully considered these
requirements and the regulations and has structured its programs so that bonus
compensation and gains from exercises of Company stock options will be exempt
from deduction limitations. Section 162(m) did not affect the deductibility of
compensation paid to the Company's executive officers in 1996. The Compensation
Committee will continue to monitor this matter and may propose changes to the
Company's executive compensation program to comply with Section 162(m) if
warranted.
This report of the Compensation Committee shall not be deemed incorporated
by reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such acts.
JOHN M. NEHRA
KENT J. THIRY
The Members of the Compensation
Committee
-7-
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the cash and non-cash compensation for each
of the Company's last two fiscal years ended December 31, 1996 and 1995 awarded
to or earned by the Chief Executive Officer of the Company and the four highest
paid executive officers of the Company whose salary and bonus earned in 1996
exceeded $100,000 (collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Annual Compensation Compensation
------------------------------------------ -----------------
Commissions Other Annual Securities Under- All Other
Year Salary and Compensation -lying Options Compensation
Name and Principal Position ($) Bonuses ($)(1) (#) ($)(2)
- --------------------------- ---- ------ ------- ------------ ----------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Edward F. Sweeney............... 1996 178,862 40,000(5) --- 18,750(6) 156
President, Chief Executive 1995 152,000 --- --- --- 180
Officer and Chairman of
the Board of Directors(3)
Kevin R. Green.................. 1996 168,816 --- 62,981(8) 347,500(7) 156
President and Chief Executive 1995 --- --- --- --- ---
Officer
Dennis H. Powers................ 1996 138,858 30,000(5) --- 18,750(6) 156
Vice President, Marketing(4) 1995 110,000 --- --- 180
Bruce S. Maller................. 1996 150,000 19,359 --- --- 156
Vice President and 1995 54,627 67,560 --- --- 45
President, The BSM Consulting
Group
Lisa K. Olsen................... 1996 99,239 55,000(5) --- 18,750(6) 156
Vice President, 1995 66,960 --- --- 16,666 120
Professional Client Services
</TABLE>
- -------------
(1) In accordance with the rules of the Securities and Exchange Commission,
other compensation in the form of perquisites and other personal benefits
has been omitted in those cases where the aggregate amount of such
perquisites and other personal benefits constituted less than the lesser of
$50,000 or 10% of the total annual salary and bonus for the applicable
Named Executive Officer for such year.
(2) Represents the dollar value of premiums paid by the Company for life
insurance policies for the benefit of the applicable Named Executive
Officer.
(3) Effective January 15, 1996, Mr. Sweeney resigned as President and Chief
Executive Officer of the Company, while remaining Chairman of the Board of
Directors and Kevin R. Green became President and Chief Executive Officer.
In March 1997, Mr. Sweeney resigned as Chairman of the Board of Directors
of the Company, while remaining a director.
(4) Effective December 31, 1996, Mr. Powers resigned as Vice President,
Marketing of the Company.
(5) Represents advances made at the end of the fiscal year ended December 31,
1995 to be repaid by such persons in 1996 contingent on the Company's
financial performance in 1996. Ms. Olsen received an advance of $25,000
at the end of the fiscal year ended December 31, 1995. As a result of the
Company's performance in 1996, such advances were deemed to be unearned.
However, such repayment obligation was subsequently forgiven by the Company
and expensed as a bonus in 1996.
(6) In December 1996, options previously granted were canceled and replacement
options to purchase 18,750 shares of Common Stock were repriced and issued
to each of the three officers. See "-Report on Option Repricing."
(7) In December 1996, options previously granted were canceled and replacement
options to purchase 347,500 shares of Common Stock were repriced and issued
to Mr. Green. See "-Report on Option Repricing."
-8-
<PAGE>
(8) Includes moving expenses incurred by the Company relating to Mr. Green's
relocation and costs incurred by the Company to provide Mr. Green with
temporary lodging in connection with such relocation.
The Company did not make any restricted stock awards, grant any stock
appreciation rights or make any long-term incentive plan payouts during the
fiscal year ended December 31, 1996.
Stock Options, Awards, Exercises and Holdings
The following table sets forth certain information in connection with stock
option grants during the year ended December 31, 1996 to each of the Named
Executive Officers.
Option Grants in the Year Ended December 31, 1996
<TABLE>
<CAPTION>
Individual Grants Potential Realized
---------------------------------------------------------- Value at Assumed
Number of Percentage of Annual Rates of
Securities Total Options Exercise or Stock Price
Underlying Granted to Base Price Appreciation for
Options Employees in Per Share Expiration Option Term (3)
Name Granted Fiscal Year% ($)(1)(2) Date 5%($) 10%($)
- ---- ---------- ------------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Edward F. Sweeney.. 18,750 1.4 6.75 3/25/02 34,967 77,268
Kevin R. Green..... 347,500 25.5 6.75 3/25/02 684,961 1,478,602
Dennis H. Powers... 18,750 1.4 6.75 3/25/02 36,958 79,781
Bruce S. Maller.... --- --- --- --- --- ---
Lisa K. Olsen...... 18,750 1.4 6.75 3/25/02 36,958 79,781
</TABLE>
- ---------------
(1) All options were granted under the 1993 Stock Option Plan during the fiscal
year ended December 31, 1996 were granted at an exercise price equal to the
fair market value of the Common Stock on the date of grant.
(2) On December 24, 1996, the Company repriced outstanding options from the
original exercise price for such options ranging from $13.00 to $17.00 per
share to a new exercise price of $6.75 per share, which represented the
closing price of the Common Stock as reported on the Nasdaq National Market
on December 24, 1997.
(3) The 5% and 10% assumed annual compound rates of stock price appreciation
are mandated by the rules of the Securities and Exchange Commission and do
not represent the Company's estimate or projection of future Common Stock
prices.
Option Exercises and Holdings
The following table provides information concerning the exercise of options
by the Named Executive Officers during the fiscal year ended December 31, 1996
and unexercised options held by the Named Executive Officers as of the end of
the fiscal year ended December 31, 1996.
-9-
<PAGE>
Option Values at December 31, 1996
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised In-
Options at the-Money Options a
December 31, 1996 (#) December 31, 1996 ($)(1)
Shares Acquired on Value -------------------------------- ----------------------------
Name Exercise (#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Edward F. Sweeney --- --- 26,666 58,750 103,331 171,406
Kevin R. Green --- --- 132,250 215,250 115,719 188,344
Dennis H. Powers --- --- 55,998 72,750 297,988 279,656
Bruce S. Maller --- --- --- --- --- ---
Lisa K. Olsen --- --- 3,333 32,083 12,915 68,072
- ----------------------------
</TABLE>
(1) The value of unexercised in-the-money options represents the aggregate
difference between the market value on December 31, 1996, based on the
closing price of the Common Stock as reported on the Nasdaq National Market
and the applicable exercise prices for such options.
Report on Option Repricing
In October 1996, after a significant decrease in the price of the
Common Stock, the Compensation Committee determined that options to purchase an
aggregate of 1,133,942 shares of Common Stock granted pursuant to the 1993 Stock
Option Plan, between October 5, 1995 and October 4, 1996, no longer provided a
perceived meaningful incentive to employees as initially intended. In light of
the Company's financial performance in 1996 and the Compensation Committee's
desire to provide meaningful incentives to employees, on October 4, 1996,
options to purchase 409,250 shares of Common Stock granted to non-officer
employees, were canceled and regranted to the same individuals in an amount
equal to the same amount of shares previously held by such employees, at an
exercise price based on the Common Stock's closing price on the Nasdaq National
Market on October 4, 1996 of $6.9375 per share.
For the foregoing reasons, on December 24, 1996, options to purchase
724,692 shares of Common Stock previously granted to executive officers of the
Company under the 1993 Stock Option Plan were canceled and options to purchase
572,442 shares of Common Stock were regranted to the same executive officers,
(except with respect to a portion of Mr. Green's and a portion of another
officer's options, such portions were regranted in an amount equal to the same
amount previously held) in an amount equal to 75% of the shares previously held
by such officers, at an exercise price based on the Common Stock's closing price
on the Nasdaq National Market on December 24, 1997 of $6.75 per share.
On January 6, 1997, the Compensation Committee canceled options to
purchase 130,000 shares of Common Stock issued to an executive officer of the
Company under the 1993 Stock Option Plan and regranted options to purchase
97,000 shares of Common Stock to the same executive officer at an exercise price
based on the Common Stock's closing price on the Nasdaq National Market on
January 6, 1997 of $7.00 per share.
-10-
<PAGE>
The following table provides information concerning the repricing of
options on December 24, 1996.
<TABLE>
<CAPTION>
Five-Year Option Repricings
Length of
Number of Market Price Original
Securities of Common Exercise Price Option Term
Underlying Stock at Time at Time of New Remaining at
Options Repriced of Repricing Repricing or Exercise Date of
Date of or Amended or Amendment Amendment Price Repricing or
Name and Position Repricing (#) ($) ($) ($) Amendment
- ------------------- ----------- ---------------- ------------- -------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Edward F. Sweeney......... December 24, 1996 18,750 6.75 17.00 6.75 49 months
Director
Kevin R. Green............ December 24, 1996 40,000 6.75 15.50 6.75 46 months
President and Chief December 24, 1996 307,500 6.75 17.00 6.75 49 months
Executive Officer
Dennis H. Powers.......... December 24, 1996 18,750 6.75 17.00 6.75 49 months
Vice President, Marketing
Bruce S. Maller........... December 24, 1996 --- --- --- --- ---
Vice President and
President, The BSM
Consulting Group
Lisa K. Olsen............. December 24, 1996 18,750 6.75 17.00 6.75 49 months
Vice President,
Professional Client
Services
</TABLE>
JOHN M. NEHRA
KENT J. THIRY
The Members of the Compensation Committee
-11-
<PAGE>
Employment Contracts and Termination of Employment Arrangements
In October 1992, the Company entered into an employment agreement with Mr.
Sweeney. Mr. Sweeney agreed to provide services to the Company for an initial
annual salary of $120,000; the agreement is terminable by the Company or Mr.
Sweeney upon thirty days written notice. The Board of Directors approved
increases in Mr. Sweeney's annual salary to $132,000 in 1994, $152,000 in 1995
and $180,000 in 1996. Under the agreement, Mr. Sweeney has agreed that the
Company has rights to all inventions conceived or produced by Mr. Sweeney during
the period of his employment. Mr. Sweeney also is subject to a confidentiality
provision and a two-year noncompetition provision, each of which is included in
the agreement.
The Company entered into a similar agreement with Mr. Powers, in October
1992. Under this agreement, Mr. Powers' annual initial salary was $90,000, and
the Board of Directors approved an increase in Mr. Powers' annual salary to
$110,000 in 1994, and $140,000 in 1996. Under the agreement, Mr. Powers agreed
that the Company has rights to all inventions conceived or produced by Mr.
Powers during the period of his employment. Mr. Powers is also subject to a
confidentiality provision and a two-year non-competition provision, each of
which is included in the agreement.
In October 1995, the Company entered into an employment agreement with
Mr. Maller, Vice President of the Company and President of The BSM Consulting
Group, a wholly owned subsidiary of the Company. Mr. Maller agreed to provide
services to the Company for an annual salary of $150,000, for a four-year term.
Under the agreement, Mr. Maller has agreed that the Company has rights to all
inventions, including intellectual property, conceived or produced by Mr. Maller
during the period of his employment. Mr. Maller is also subject to a
confidentiality provision and a one-year noncompetition provision, each of which
is included in the agreement.
In December 1995, the Company entered into an employment agreement with Mr.
Green, as the Company's President and Chief Executive Officer, pursuant to which
he agreed to provide services to the Company for an annual salary of $175,000,
together with a bonus as determined by the Compensation Committee. The Company
also granted Mr. Green options to purchase 410,000 shares of Common Stock at an
exercise price of $17.01 per share (prior to repricing), contingent upon
shareholder approval of an increase in the authorized shares of the 1993 Stock
Option Plan. The Company previously granted Mr. Green an option to purchase
40,000 shares of Common Stock at an exercise price of $15.50 per share (prior to
repricing) for consulting services in connection with the formation of the
Company's joint venture with Duke University. The foregoing options were
repriced as a result of a significant decrease in the Common Stock's fair market
value. See "EXECUTIVE COMPENSATION - Report on Option Repricing." The employment
agreement (as amended) also provides for a grant of an option to purchase
100,000 additional shares of Common Stock at an exercise price that exceeds the
market value of the Common Stock as of May 20, 1997 that vests over a five-year
period (subject to accelerated vesting during such five year period if the
Company achieves certain Common Stock price goals for those years as set by the
Board of Directors) which options remain in effect as long as Mr. Green remains
as President and Chief Executive Officer of the Company. In connection with the
grant of the option to purchase 100,000 shares of Common Stock, Mr. Green agreed
to forfeit and cancel outstanding options held by him to purchase 75,000 shares
of Common Stock in each of 1996, 1997 and 1998 which were previously granted to
Mr. Green pursuant to the terms of Mr. Green's employment agreement. In the
event of a change of control of the Company, the employment agreement guarantees
Mr. Green's compensation for two years and provides for the immediate vesting of
all options held by Mr. Green.
In February 1995, the Company entered into an employment agreement with Ms.
Olsen, as Vice President, Professional Client Services. Ms. Olsen agreed to
provide services
-12-
<PAGE>
to the Company for an annual salary of $80,000, a $10,000 bonus payable upon the
start of her employment, and stock options to purchase a total of 50,000 shares,
of which 25,000 were granted at the start of her employment and 25,000 were to
be granted upon the first anniversary of her employment. The number of shares
exercisable under such options were reduced as part of the reverse stock split
on June 15, 1995 and an option repricing on December 24, 1996. See "EXECUTIVE
COMPENSATION - Report on Option Repricing." In addition, under her employment
agreement, Ms. Olsen is eligible for additional executive bonuses. In connection
with her employment, Ms. Olsen signed a confidentiality agreement and a one-year
noncompetition agreement.
Stock Price Performance Graph and Table
The following graph and table compare the cumulative total shareholder
return on the Company's Common Stock with the cumulative total return on each of
the Standard & Poor's 500 Stock Index and the Standard & Poor's Healthcare Index
over the same period for the period since the Company's initial public offering
of Common Stock on August 4, 1995. Each of the component Standard & Poor's
indices represent each of the Company's separate lines of business. The
comparison assumes $100 was invested on August 4, 1995 in the Company's Common
Stock and in each of the foregoing indices and assumes reinvestment of
dividends.
Comparison of Cumulative Total Return Since
August 4, 1995 among
Summit Medical Systems, Inc.,
S&P 500 Stock Index and S&P Healthcare Index
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Summit Medical S&P 500 Stock S&P Healthcare
Measurement Period Systems, Inc. Index Index
- ------------------ -------------- ------------- --------------
<S> <C> <C> <C>
Measurement Pt - $100.00 $100.00 $100.00
8/4/95
FYE 12/31/95 $159.26 $111.08 $124.32
FYE 12/31/96 $ 56.48 $136.58 $150.12
</TABLE>
-13-
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth as of April 10, 1997 (unless otherwise
indicated), information regarding the beneficial ownership of the Company's
Common Stock by (i) each person known by the Company to beneficially own 5% or
more of the outstanding shares of Common Stock, (ii) each of the Company's
directors, (iii) each of the Company's Named Executive Officers and (iv) all
directors and executive officers as a group. Except as otherwise indicated, all
persons listed below have sole voting and investment powers with respect to the
shares indicated:
<TABLE>
<CAPTION>
Name and Address of Beneficial Owner Number Percent(1)
------------------------------------ ------ ----------
<S> <C> <C>
Edward F. Sweeney(2)....................... 709,965 6.8%
Summit Medical Systems, Inc.
10900 Red Circle Drive
Minnetonka, MN 55343
Kevin R. Green (3)......................... 142,250 1.4
Dennis H. Powers(4)........................ 119,316 1.1
John M. Nehra(5)(6)........................ 1,321,725 12.7
1119 St. Paul Street
Baltimore, MD 21202
Bruce S. Maller............................ 137,524 1.3
Lisa K. Olsen (7).......................... 10,612 *
Kent J. Thiry (8).......................... 226,666 2.2
1850 Gateway Drive
San Mateo, CA 94404
W. Hudson Connery, Jr...................... 4,000 *
5520 S. Stanford Dr.
Nashville, TN 37215
Catalyst Ventures, Limited Partnership
and New Enterprise Associates VI,
Limited Partnership (9)................... 1,065,414 10.3
1119 St. Paul Street
Baltimore, MD 21202
Charles L. McIntosh........................ 683,517 6.6
Waddel & Reed, Inc., et. al. (10).......... 578,500 5.6
6300 Lamar
P.O. Box 29217
Shawnee Mission, KS 66201
Smith Barney Inc., Smith Barney............ 1,213,355 11.7
Holdings Inc. and Travelers Group, Inc. (11)
388 Greenwich Street
New York, NY 10013
All executive officers and directors as a
group (12)................................ 3,200,575 30.0
</TABLE>
- -------------------
*Represents beneficial ownership of less than 1%.
-14-
<PAGE>
(1) Shares of Common Stock subject to options exercisable on or before April
10, 1997 ("Currently Exercisable Options") are deemed outstanding for
computing the percentage of the person holding such options but are not
deemed outstanding for computing the percentage of any other person.
(2) Includes 26,666 shares issuable pursuant to Currently Exercisable Options.
(3) Includes 132,250 shares issuable pursuant to Currently Exercisable Options.
(4) Includes 55,998 shares issuable pursuant to Currently Exercisable Options.
(5) Includes 34,664 shares issuable pursuant to Currently Exercisable Options.
(6) Includes shares owned by Catalyst, NEA VI and Vivra. Mr. Nehra, a director
of the Company, is managing general partner of Catalyst. He is also a
general partner of the general partner of NEA VI and a director of Vivra.
By virtue of these positions, Mr. Nehra may be deemed to share voting and
investment control over the shares owned by Catalyst, NEA VI and Vivra.
Therefore, Mr. Nehra may be deemed a beneficial owner of those shares. Mr.
Nehra disclaims any beneficial ownership of such shares.
(7) Includes 6,666 shares issuable pursuant to Currently Exercisable Options.
(8) Mr. Thiry, a director of the Company, is President, Chief Executive Officer
and a director of Vivra. By virtue of these positions, Mr. Thiry may be
deemed to share voting and investment control over the shares owned by
Vivra. Therefore, Mr. Thiry may be deemed a beneficial owner of those
shares. Mr. Thiry disclaims any beneficial ownership of such shares. Also
includes 6,666 shares issuable pursuant to Currently Exercisable Options.
(9) Based on a Schedule 13G, dated February 14, 1997, Catalyst is record holder
of 653,333 shares and NEA VI is record holder of 412,081 shares. By virtue
of their relationship as affiliated partnerships, Catalyst and NEA VI may
be deemed to share voting and investment control over such shares.
Therefore, each of Catalyst and NEA VI may be deemed to beneficially own
all of such shares. Each of Catalyst and NEA VI disclaims beneficial
ownership of any shares which it does not hold of record.
(10) Waddel & Reed, Inc., Waddel & Reed Financial Services, Inc., Torchmark
Corporation, United Investors Management Company and Liberty National Life
Insurance Company each hold sole voting and dispositive power over 578,500
shares. Waddel & Reed Investment Management Company holds sole voting and
dispositive power over 566,000 shares.
(11) Based on a Schedule 13G, dated April 9, 1997, Smith Barney, Inc. ("SB")
holds shared voting power to 1,203,155 shares. Smith Barney Holdings, Inc.
("SB Holdings"), as the sole common shareholder of SB, holds shared voting
power to the shares owned by SB and 10,000 owned in its name. Travelers
Group ("TRV"), as the sole common shareholder of SB Holdings, holds shared
voting power to the shares owned by SB and 10,000 owned by SB Holdings.
(12) Includes 317,910 shares issuable pursuant to Currently Exercisable Options.
-15-
<PAGE>
PROPOSAL 2:
AMENDMENT TO THE COMPANY'S 1993 STOCK OPTION PLAN
The 1993 Stock Option Plan (the "Plan") was initially approved by the
shareholders in 1993. In 1995, the Plan was amended upon shareholder approval
to provide that a total of 820,000 shares of Common Stock (subject to
proportional adjustments to reflect certain subsequent stock changes, such as
stock dividends or splits, recapitalizations, reclassifications, or other
similar corporate changes) was authorized for issuance upon the exercise of
options granted under the Plan. In 1996, the Plan was further amended to
provide that a total of 2,126,666 shares of Common Stock are authorized for
issuance under the Plan. On May 12, 1997, the Board of Directors approved an
amendment to the Company's 1993 Stock Option Plan, subject to shareholder
approval that provides for the issuance of an additional 500,000 shares of
Common Stock upon the exercise of options granted pursuant to the Plan.
As of March 31, 1997, the Company had 200,306 shares of Common Stock
available for issuance upon the exercise of options granted under the Plan. The
Company believes that stock options are an important element of compensation in
attracting skilled executives, other key employees and in motivating and
retaining these individuals by providing them with a means to acquire a
proprietary interest in the Company. Without an increase in the number of
shares available for issuance under the Plan, the Company would be unable to
continue to offer executives and other key employees stock options to motivate
maximum efforts for the success of the Company's business. The Board of
Directors recommends a vote FOR the above proposal to approve the amendment to
the 1993 Stock Option Plan. The affirmative vote of a majority of the shares of
Common Stock entitled to vote and present in person or by proxy at the Annual
Meeting will be necessary for approval.
Description of the 1993 Stock Option Plan
The Plan provides for the grant of options to purchase shares of Common
Stock to any full or part-time employee of or any consultant to the Company.
Options granted under the Plan to full or part-time employees may qualify as
incentive stock options under Section 422A of the Code or may be non-qualified
stock options. Options granted to persons who are not full or part-time
employees of the Company may not qualify as incentive stock options. The Plan
is administered by the Board of Directors, which has delegated all authority
under the Plan to the Compensation Committee, which is solely comprised of "non-
employee directors" (as defined in Rule 16b-3 promulgated under the Securities
Exchange Act of 1934) selected by the Board of Directors. The Compensation
Committee has the authority: (i) to interpret the Plan, (ii) to prescribe, amend
and rescind rules and regulations relating to the Plan, (iii) to provide for
conditions and assurances deemed necessary or advisable to protect the interest
of the Company, and (iv) to make all other determinations necessary or advisable
for the administration of the Plan, subject to the exclusive authority of the
Board of Directors to amend or terminate the Plan. Determinations and
interpretations with respect to the Plan are in the sole discretion of the
Compensation Committee, whose determinations and interpretations will be final
and conclusive. The Plan terminates in 2003 or at an earlier date, if all
shares subject to the
-16-
<PAGE>
Plan have been purchased pursuant to the exercise of then outstanding options.
After termination of the Plan, no options may be granted, but options
outstanding at the time of termination shall remain in effect in accordance with
their terms.
The exercise price of an incentive stock option granted under the Plan may
not be less than the fair market value of the Common Stock on the date the
option is granted (in the event that a proposed optionee owns more than 10% of
the Company's Common Stock, any incentive stock option granted to such optionee
must have an exercise price not less than 110% of the then fair market value).
The exercise price of any non-incentive stock option granted under the Plan is
determined by the Compensation Committee and is not subject to the restrictions
applicable to incentive stock options. The incentive stock options vest over a
five year period and expire after five years. Non-qualified stock options also
vest over a five year period and expire after five years. A person who has been
granted an option under the Plan may be granted additional options, but to the
extent the aggregate fair market value (determined at the time the option is
granted) of the Common Stock for which all incentive stock options held by an
optionee are exercisable exceeds $100,000, such options will be treated as
options that do not qualify as incentive stock options.
No option granted under the Plan may be transferred, other than by will or
by the laws of descent and distribution. Each option is exercisable, during
such individual's lifetime, only by such individual.
In the event of the death of an employee or consultant, all options held by
such person may be exercised at any time prior to the expiration date or twelve
months after the date of death, whichever period is shorter, by the persons
entitled to such options by will or the laws of descent and disposition. If an
option holder's employment is terminated for cause, as defined in the Plan, any
options held by such employee, not yet exercised, shall terminate. If an option
holder's employment is terminated other than for cause or due to death, the
option holder may exercise such portion of the options that were exercisable at
the date of termination at any time within three months of the date of
termination; provided, however, that where the option holder is an employee and
termination is due to disability, as defined in the Code, the time period during
which options may be exercised is extended to one year.
If an option under the Plan expires, or for any reason is terminated or
unexercised with respect to any shares, such shares shall again be available for
options thereafter granted during the term of the Plan. If there shall be any
change in the Common Stock through a stock dividend or split, recapitalization,
reclassification or other similar change in the corporate structure, appropriate
adjustments in the Plan and outstanding options shall be made by the
Compensation Committee. In the event of any such changes, adjustments shall
include, where appropriate, changes in the aggregate number of shares subject to
the Plan and the number of shares and the price per share subject to outstanding
options, in order to prevent dilution or enlargement of option rights.
-17-
<PAGE>
In the event of an acquisition of the Company, the Company will cancel all
outstanding options, whether or not such options are then exercisable, in return
for payment to the option holders of an amount equal to the difference between
the net amount payable per share in the acquisition, less the exercise price of
the option. If the Company is the surviving corporation in any merger or
consolidation, any option granted under the Plan shall pertain to and apply to
the securities to which the holder of the number of shares of stock subject to
the option would have been entitled in such merger of consolidation. In the
event of a dissolution or liquidation of the Company or a merger or
consolidation in which the Company is not the surviving corporation, every
option granted under the Plan shall terminate and the option holder either (i)
shall be offered a firm commitment whereby the surviving corporation will tender
to the option holder an option to purchase its shares on terms and conditions
which will substantially preserve the rights and benefits of the options
outstanding prior to such an event or (ii) shall have the right immediately
prior to such an event to exercise all outstanding options granted pursuant to
the Plan.
The Plan is subject to amendment by the Compensation Committee, subject to
the restriction that the Compensation Committee may not increase the number of
shares that may be issued under the Plan or change the class of employees or
consultants eligible to receive options under the Plan without the approval of
the shareholders of the Company. Further, no amendment, modification or
termination of the Plan shall in any manner adversely affect any outstanding
option under the Plan without the consent of the optionee holding the option.
Tax Treatment
The grant of a stock option pursuant to the Plan will result in no tax
consequences for the optionee or the Company. The holder of an incentive stock
option generally will have no taxable income upon exercising the incentive stock
option (except that the alternative minimum tax may apply), and the Company
generally will receive no tax deduction when an incentive stock option is
exercised. Upon exercise of a non-incentive stock option, the optionee must
recognize ordinary income equal to the excess of the fair market value of the
shares acquired on the date of exercise over the option price, and the Company
will then be entitled to a tax deduction for the same amount. The tax
consequences to an optionee of a disposition of shares acquired through the
exercise of an option will depend on how long the shares have been held and upon
whether such shares were acquired by exercising an incentive stock option or a
non-incentive stock option. Generally, there will be no tax consequence to the
Company in connection with a disposition of shares acquired under an option
except that the Company may be entitled to a tax deduction in the case of a
disposition of shares acquired under an incentive stock option before the
applicable incentive stock option holding period has been satisfied.
Special rules apply in the case of individuals subject to Section 16(b) of
the Securities Exchange Act of 1934. In particular, under current law, shares
received pursuant to the exercise of a stock option may be treated as restricted
as to transferability and subject to a substantial risk of forfeiture for a
period of up to six months after the date of exercise. Accordingly, unless a
special tax election is made, the amount of ordinary income recognized and the
amount of the employer's deduction may be determined as of such later date.
-18-
<PAGE>
APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has not selected a firm to serve as independent
auditors for the fiscal year ended December 31, 1997. The Board of Directors is
evaluating independent auditors and will make its selection as soon as is
practicable after the Annual Meeting. Ernst & Young LLP has served as
independent auditors of the Company for the fiscal year ended December 31, 1996.
The Board of Directors has invited representatives of Ernst & Young LLP to
attend the Annual Meeting , to have the opportunity to make a statement if he or
she desires, and to respond to appropriate questions.
-19-
<PAGE>
ARRANGEMENTS AND TRANSACTIONS WITH RELATED PARTIES
In December 1996, the Company acquired all the outstanding shares of common
stock of C. L. McIntosh & Associates, Inc. ("CLMA") in exchange for 976,453
shares of the Company's Common Stock. In connection with the transaction,
Charles L. McIntosh, a Vice President of the Company and President of CLMA,
exchanged the 70 shares of common stock of CLMA owned by him for 683,517 shares
of the Company's Common Stock.
Brian Sweeney, the son of Edward F. Sweeney, one of the Company's
directors, is employed by the Company as a Field Sales Manager. Brian Sweeney's
compensation from salary and commissions was $ 130,635 in 1996.
SHAREHOLDER PROPOSALS FOR THE
1998 ANNUAL MEETING OF SHAREHOLDERS
Any shareholder who wishes to present a proposal for action at the next
annual meeting of shareholders and who wishes to have it set forth in the Proxy
Statement and identified in the form of proxy prepared by the Company must
notify the Company at the Company's principal executive offices, 10900 Red
Circle Drive, Minnetonka, Minnesota 56343-9106, in such manner so that such
notice is received by the Company by January 14, 1998. Any such proposal must
be in the form required under the rules and regulations promulgated by the
Securities and Exchange Commission.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under federal securities laws, the Company's directors and officers, and
any beneficial owner of more than 10% of a class of equity securities of the
Company, are required to report their ownership of the Company's equity
securities and any changes in such ownership to the Securities and Exchange
Commission (the "Commission"). Specific due dates for these reports have been
established by the Commission, and the Company is required to disclose in this
Proxy Statement any delinquent filing of such reports and any failure to file
such reports during the fiscal year ended December 31, 1996.
The Company believes that all Section 16(a) filing requirements applicable
to its executive officers, directors and 10% shareholders were satisfied, with
the exception of a failure by Anthony W. Rees, the Company's former Chief
Financial Officer, to report, on a Form 4 filed with the Commission on November
11, 1996, the exercise of an option to purchase 6,666 shares of Common Stock on
June 13, 1996. The exercise of such option was subsequently reported on a Form
5 filed with the Commission on February 14, 1997.
OTHER MATTERS
The Board of Directors of the Company knows of no other matters that are
intended to be brought before the Annual Meeting. If other matters, of which
the Board of Directors
-20-
<PAGE>
is not aware, are presented for action, it is the intention of the persons named
in the enclosed form of proxy to vote on such matters in their sole discretion.
By Order of the Board of Directors,
Kevin R. Green
President and Chief Executive Officer
May 23, 1997
-21-
<PAGE>
SUMMIT MEDICAL SYSTEMS, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 12, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Kevin R. Green and W. Hudson Connery, Jr. as
proxies, each with the power to appoint a substitute, and hereby authorizes them
to present and to vote, as designated below, all shares of capital stock of
Summit Medical Systems, Inc. (the "Company") the undersigned is entitled to vote
at the Annual Meeting of Shareholders of the Company, to be held on June 12,
1997, and at all adjournments thereof:
1. Election of Directors
[_] FOR all nominees listed below (except as marked to the contrary below)
[_] WITHHOLD AUTHORITY to vote for all nominees listed below
To withhold authority to vote for any nominee, strike a line through the
name in the list below:
W. Hudson Connery, Jr.
Kevin R. Green
John M. Nehra
Kent J. Thiry
Edward F. Sweeney
2. Proposal to amend the Company's Stock Option Plan of 1993 to increase the
number of shares of the Company's common stock, par value $.01, available
for issuance thereunder
[_] FOR [_] AGAINST [_] ABSTAIN
(continued, and to be signed and dated, on other side)
<PAGE>
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 all of the above items.
INSTRUCTIONS: Please sign exactly as your name appears on the label affixed
hereto. When shares are held by joint tenants, both should sign. When signing
as attorney, executor, administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in the full corporate name by an
authorized officer. If a partnership, please sign in partnership name by
authorized person.
- ----------------------------------- -----------------------------------
Signature Signature if held jointly
-------------------------------- --------------------------------
Please print name Please print name
Dated: , 1997
--------------------------
Please mark, sign, date and return this Proxy promptly.
A return envelope is enclosed for your convenience.
<PAGE>
Exhibit 99
SUMMIT MEDICAL SYSTEMS, INC.
----------------------------
STOCK OPTION PLAN
-----------------
OF 1993
-------
Article I. Establishment and Purpose
-------------------------------------
1.1 Establishment. Summit Medical Systems, Inc., a Minnesota corporation
-------------
("Company"), hereby establishes a stock option plan for Employees and others
providing services to the Company, as described herein, which shall be known as
the "STOCK OPTION PLAN OF 1993" (the "Plan"). It is intended that certain of
the options issued pursuant to the Plan to Employees of the Company may
constitute incentive stock options within the meaning of section 422 of the
Internal Revenue Code, and that other options issued pursuant to the Plan shall
constitute nonstatutory options. The Board shall determine which options are to
be incentive stock options and which are to be nonstatutory options and shall
enter into option agreements with recipients accordingly.
1.2 Purpose. The purpose of this Plan is to enhance stockholder
-------
investment by attracting, retaining, motivating and rewarding key Employees and
Consultants of the Company, and to encourage stock ownership by such Employees
and Consultants by providing them with a means to acquire a proprietary interest
in the Company's success.
Article II. Definitions
------------------------
2.1 Definitions. Whenever used herein, the following terms shall have the
-----------
respective meanings set forth below, unless the context clearly requires
otherwise, and when said meaning is intended, the term shall be capitalized.
(a) "Board" means the Board of Directors of the Company.
-----
(b) "Code" means the Internal Revenue Code of 1986, as amended.
----
(c) "Company" means Summit Medical Systems, Inc., a Minnesota corporation.
-------
(d) "Consultant" means any person or entity, including an officer or
----------
director of the Company, who provides services (other than as an
Employee) to the Company.
(e) "Date of Exercise" means the date the Company receives notice, by an
----------------
Optionee, of the exercise of an Option pursuant to section 8.1 of this
Plan. Such notice shall indicate the number of shares of Stock the
Optionee intends to exercise and shall be accompanied by payment
therefor.
<PAGE>
(f) "Employee" means any person, including an officer or director of the
--------
Company, who is employed by the Company in a full or part-time
capacity.
(g) "Fair Market Value" means the fair market value of Stock upon which an
-----------------
option is granted under this Plan.
(h) "Incentive Stock Option" means an Option granted under this Plan which
----------------------
is intended to qualify as an "incentive stock option" within the
meaning of Section 422 of the Code.
(i) "Nonstatutory Option" means an Option granted under this Plan which is
-------------------
not intended to qualify as an incentive stock option within the
meaning of Section 422 of the Code. Nonstatutory Options may be
granted at such times and subject to such restrictions as the Board
shall determine without conforming to the statutory rules of Section
422 of the Code applicable to incentive stock options.
(j) "Option" means the right, granted under this Plan, to purchase Stock
------
of the Company at the option price for a specified period of time.
For purposes of this Plan, an Option may be either an Incentive Stock
Option or a Nonstatutory Option.
(k) "Optionee" means an Employee or Consultant holding an Option under the
--------
Plan.
(l) "Parent Corporation" shall have the meaning set forth in Section
------------------
424(e) of the Code, with the Company being treated as the employer
corporation for purposes of this definition.
(m) "Subsidiary Corporation" shall have the meaning set forth in Section
----------------------
424(f) of the Code, with the Company being treated as the employer
corporation for purposes of this definition.
(n) "Significant Shareholder" means an individual who, within the meaning
-----------------------
of Section 422(b)(6) of the Code, owns stock possessing more than ten
percent (108) of the total combined voting power of all classes of
stock of the Company or of any Parent Corporation or Subsidiary
Corporation of the Company. In determining whether an individual is a
Significant Shareholder, an individual shall be treated as owning
stock owned by certain relatives of the individual and certain stock
owned by corporations in which the individual is a shareholder,
partnerships in which the individual is a partner, and estates or
trusts
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<PAGE>
of which the individual is a beneficiary, all as provided in Section
424(d) of the Code.
(o) "Stock" means the $.01 par value common stock of the Company.
-----
2.2 Gender and Number. Except when otherwise indicated by the context,
-----------------
any masculine terminology when used in this Plan also shall include the feminine
gender, and the definition of any term herein in the singular also shall include
the plural.
Article III. Eligibility and Participation
-------------------------------------------
3.1 Eligibility and Participation. All Employees are eligible to
-----------------------------
participate in this Plan and receive Incentive Stock Options and/or Nonstatutory
Options hereunder. All Consultants are eligible to participate in this Plan and
receive Nonstatutory Options hereunder. Optionees in the Plan shall be selected
by the Board from among those Employees and Consultants who, in the opinion of
the Board, have contributed or are in a position to contribute materially to the
Company's continued growth and development and to its long-term financial
success.
Article IV. Administration
---------------------------
4.1 Administration.
--------------
The Board shall administer the Plan. The Board is authorized to interpret
the Plan; to prescribe, amend, and rescind rules and regulations relating to the
Plan; to provide for conditions and assurances deemed necessary or advisable to
protect the interests of the Company; and to make all determinations necessary
or advisable for the administration of those portions of the Plan that it
administers, but only to the extent not contrary to the express provisions of
the Plan. Determinations, interpretations, or other actions made or taken by
the Board, pursuant to the provisions of this Plans shall be final, binding, and
conclusive for all purposes and upon all persons.
No member of the Board shall be liable for any action or determination made
in good faith with respect to the Plan or any Option granted under it.
Article V. Stock Subject to the Plan
-------------------------------------
5.1 Number. The number of shares of Stock hereby made available and
------
reserved for issuance under the Plan is 220,000. The aggregate number of shares
of Stock available under this Plan shall be subject to adjustment as provided in
Section 5.3. The total number of shares of Stock may be authorized but unissued
shares of
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<PAGE>
Stock, or shares acquired by purchase as directed by the Board from time to time
in its discretion, to be used for issuance upon exercise of Options granted
hereunder.
5.2 Unused Stock. If an Option shall expire or terminate for any reason
------------
without having been exercised in full, the unpurchased shares of Stock subject
thereto shall (unless the Plan shall have terminated) become available for other
Options under the Plan.
5.3 Adjustment in Capitalization. In the event of any change in the
----------------------------
outstanding shares of Stock by reason of a stock dividend or split,
recapitalization, reclassification, or other similar corporate change, the
aggregate number of shares of Stock set forth in Section 5.1 shall be
appropriately adjusted by the Board, whose determination shall be conclusive;
provided, however, that fractional shares shall be rounded to the nearest whole
share. In any such case, the number and kind of shares that are subject to any
Option (including any Option outstanding after termination of employment) and
the Option price per share shall be proportionately and appropriately adjusted
without any change in the aggregate Option price to be paid therefor upon
exercise of the Option.
Article VI. Duration of the Plan
---------------------------------
6.1 Duration of the Plan. The Plan shall be in effect for ten (10) years
--------------------
from the date of its adoption by the Company. Any Options outstanding at the
end of said period shall remain in effect in accordance with their terms. The
Plan shall terminate before the end of said period, if all Stock subject to it
has been purchased pursuant to the exercise of Options granted under the Plan.
Article VII. Terms of Stock Options
------------------------------------
7.1 Grant of Options. Subject to section 5.1, Options may be granted to
----------------
Employees or Consultants at any time and from time to time as determined by the
Board; provided, however, that Consultants may receive only Nonstatutory
Options, and may not receive Incentive Stock Options. The Board shall have
complete discretion in determining the number of Options granted to each
Optionee. In making such determination, the Board may take into account the
nature of services rendered by such Employees or Consultants, their present and
potential contributions to the Company, and such other factors as the Board in
its discretion shall deem relevant. The Board also shall determine whether an
Option is to be an Incentive Stock Option or a Nonstatutory Option.
In the case of Incentive Stock Options, the total Fair Market Value
(determined at the date of grant) of shares of Stock with respect to which
incentive stock options granted after December 31, 1986 are exercisable for the
first time by the Optionee during any calendar year under all plans of the
Company under which
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<PAGE>
incentive stock options may be granted (and all such plans of any Parent
Corporations and any Subsidiary Corporations) shall not exceed $100,000.
(Hereinafter, this requirement is sometimes referred to as the "$100,000
Limitation".)
Nothing in this Article VII of the Plan shall be deemed to prevent the
grant of Options permitting exercise in excess of the maximums established by
the preceding paragraph where such excess amount is treated as a Nonstatutory
Option.
The Board is expressly given the authority to issue amended or replacement
Options with respect to shares of Stock subject to an Option previously granted
hereunder. An amended Option amends the terms of an Option previously granted
and thereby supersedes the previous Option. A replacement Option is similar to
a new Option granted hereunder except that it provides that it shall be
forfeited to the extent that a previously granted Option is exercised, or except
that its issuance is conditioned upon the termination of a previously granted
Option.
7.2 No Tandem Options. Where an Option granted under this Plan is
-----------------
intended to be an Incentive Stock Option, the Option shall not contain terms
pursuant to which the exercise of the Option would affect the Optionee's right
to exercise another Option, or vice versa, such that the Option intended to be
an Incentive Stock Option would be deemed a tandem stock option within the
meaning of the regulations under Section 422 of the Code.
7.3 Option Agreement; Terms and Conditions to Apply Unless Otherwise
----------------------------------------------------------------
Specified. As determined by the Board on the date of grant, each Option shall
- ---------
be evidenced by an Option agreement (the "Option Agreement") that includes the
nontransferability provisions required by Section 10.2 hereof and specifies:
whether the Option is an Incentive Stock Option or a Nonstatutory Option; the
Option price; the duration of the Option; the number of shares of Stock to which
the Option applies; any vesting or exercisability restrictions which the Board
may impose; in the case of an Incentive Stock Option, a provision setting forth
the $100,000 Limitation; and any other terms or conditions which the Board may
impose. All such terms and conditions shall be determined by the Board at the
time of grant of the Option.
If not otherwise specified by the Board, the following terms and conditions
shall apply to Options granted under the Plan:
(a) Term. The duration of the Option shall be five (5) years and ninety
----
(90) days (five (5) years in the case of an Incentive Stock Option
granted to a Significant Shareholder) from the date of grant.
(b) Exercise of Option. Unless an Option is terminated as provided
------------------
hereunder, an Optionee may exercise his Option for up to, but not in
-5-
<PAGE>
excess of, the amount of shares subject to the Option specified below,
based on the Optionee's number of years of continuous service with the
Company or a Subsidiary Corporation or Parent Corporation of the
Company from the date on which the Option is granted. In the case of
an Optionee who is an Employee, continuous service shall mean
continuous employment; in the case of an Optionee who is a Consultant,
continuous service shall mean the continuous provision of consulting
services. In applying said limitations, the amount of shares, if any,
previously purchased by the Optionee under the Option shall be counted
in determining the amount of shares the Optionee may purchase at any
time. The Optionee may exercise his Option in the following amounts:
(i) After one (l) year of such continuous services for up to but
not in excess of twenty percent (20%) of the shares originally
subject to the Option;
(ii) After two (2) years of such continuous service, for up to but
not in excess of forty percent (40%) of the shares originally
subject to the Option;
(iii) After three (3) years of such continuous service, for up to but
not in excess of sixty percent (60%) of the shares originally
subject to the Option;
(iv) After four (4) years of such continuous service, for up to but
not in excess of eighty percent (80%) of the shares originally
subject to the Option;
(v) At the expiration of the fifth (5th) year of such continuous
service or upon the earlier retirement of an Optionee at the
normal retirement age of sixty-five (65) or early retirement of
the Optionee with the consent of the Company, the Option may be
exercised at any time and from time to time within its terms in
whole or in part, but it shall not be exercisable after the
expiration of five (5) years and ninety (90) days (five (5)
years in the case of an Incentive Stock Option granted to a
Significant Shareholder) from the date on which it was granted.
The Board shall be free to specify terms and conditions other than those set
forth above, in its discretion.
-6-
<PAGE>
All Option Agreements shall incorporate the provisions of this Plan by
reference, with certain provisions to apply depending upon whether the Option
Agreement applies to an Incentive Stock Option or to a Nonstatutory Option.
7.4 Option Price. No Incentive Stock Option granted pursuant to this Plan
------------
shall have an Option price that is less than the Fair Market Value of Stock on
the date the Option is granted. Incentive Stock Options granted to Significant
Shareholders shall have an Option price of not less than 110 percent of the Fair
Market Value of Stock on the date of grant. The Option price for Nonstatutory
Options shall be established by the Board and shall not be subject to the
restrictions applicable to Incentive Stock Options.
7.5 Term of Options. Each Option shall expire at such time as the Board
---------------
shall determine when it is granted, provided however that no Option shall be
exercisable later than the tenth (10th) anniversary date of its grant. By its
terms, an Incentive Stock Option granted to a Significant Shareholder shall not
be exercisable after five (5) years from the date of grant.
7.6 Exercise of Options. Options granted under the Plan shall be
-------------------
exercisable at such times and be subject to such restrictions and conditions as
the Board shall in each instance approve, which need not be the same for all
Optionees.
7.7 Payment. Payment for all shares of Stock shall be made at the time
-------
that an Option, or any part thereof, is exercised, and no shares shall be issued
until full payment therefor has been made. Payment shall be made (a) in cash,
or (b) if acceptable to the Board, in Stock or in some other form; provided,
however, in the case of an Incentive Stock Option, that said other form of
payment does not prevent the Option from qualifying for treatment as an
"incentive stock option" within the meaning of the Code.
Article VIII. Written Notice, Issuance of Stock Certificates, Stockholder
--------------------------------------------------------------------------
Privileges
----------
8.1 Written Notice. An Optionee wishing to exercise an Option shall give
--------------
written notice to the Company, in the form and manner prescribed by the Board.
Full payment for the shares exercised pursuant to the Option must accompany the
written notice.
8.2 Issuance of Stock Certificates. As soon as practicable after the
------------------------------
receipt of written notice and payment, the Company shall deliver to the Optionee
or to a nominee of the Optionee a certificate or certificates for the requisite
number of shares of Stock.
8.3 Privileges of a Stockholder. An Optionee or any other person entitled
---------------------------
to exercise an Option under this Plan shall not have stockholder privileges with
-7-
<PAGE>
respect to any Stock covered by the Option until the date of issuance of a stock
certificate for such stock.
Article IX. Termination of Employment or Services
--------------------------------------------------
9.1 Death. If an Optionee's employment in the case of an Employee, or
-----
provision of services as a Consultant, in the case of a Consultant, terminates
by reason of death, the Option may thereafter be exercised at any time prior to
the expiration date of the Option or within 12 months after the date of such
death, whichever period is the shorter, by the person or persons entitled to do
so under the Optionee's will or, if the Optionee shall fail to make a
testamentary disposition of an Option or shall die intestate, the Optionee's
legal representative or representatives. The Option shall be exercisable only
to the extent that such Option was exercisable as of the date of death.
9.2 Termination Other Than For Cause Or Due to Death. In the event of an
------------------------------------------------
Optionee's termination of employment, in the case of an Employee, or termination
of the provision of services as a Consultant, in the case of a Consultant, other
than for cause or by reason of death, the Optionee may exercise such portion of
his Option as was exercisable by him at the date of such termination (the
"Termination Date") at any time within three (3) months of the Termination Date;
provided, however, that where the Optionee is an Employee, and is terminated due
to disability within the meaning of Code (S) 422, he may exercise such portion
of his Option as was exercisable by him on his Termination Date within one year
of his Termination Date. In the case of Nonstatutory Options, the Board may
extend the three (3) month exercise period; provided that, in any event, the
Option cannot be exercised after the expiration of the term of the Option.
Options not exercised within the applicable period specified above shall
terminate.
In the case of an Employee, a change of duties or position within the
Company or an assignment of employment in a Subsidiary Corporation or Parent
Corporation of the Company, if any, or from such a Corporation to the Company,
shall not be considered a termination of employment for purposes of this Plan.
The Option Agreements may contain such provisions as the Board shall approve
with reference to the effect of approved leaves of absence upon termination of
employment.
9.3 Termination for Cause. In the event of an Optionee's termination of
---------------------
employment, in the case of an Employee, or termination of the provision of
services as a Consultant, in the case of a Consultant, which termination is by
the Company for cause, any Option or Options held by him under the Plan, to the
extent not exercised before such termination, shall forthwith terminate.
-8-
<PAGE>
Article X. Rights of Optionees
-------------------------------
10.1 Service. Nothing in this Plan shall interfere with or limit in any
-------
way the right of the Company to terminate any Employee's employment, or any
Consultant's services, at any time, nor confer upon any Employee any right to
continue in the employ of the Company, or upon any Consultant any right to
continue to provide services to the Company.
10.2 Nontransferability. All Options granted under this Plan shall be
------------------
nontransferable by the Optionee, other than by will or the laws of descent and
distribution, and shall be exercisable during the Optionee's lifetime only by
the Optionee.
Article XI. Optionee-Employee's Transfer or Leave of Absence
-------------------------------------------------------------
11.1 Optionee-Employee's Transfer or Leave of Absence. For Plan purposes-
------------------------------------------------
(a) A transfer of an Optionee who is an Employee from the Company to a
Subsidiary Corporation or Parent Corporation, or from one such
Corporation to another, or
(b) a leave of absence for such an Optionee (i) which is duly authorized
in writing by the Company, and (ii) if the Optionee holds an Incentive
Stock Option, which qualifies under the applicable regulations under
the Code which apply in the case of incentive stock options,
shall not be deemed a termination of-employment. However, under no
circumstances may an Optionee exercise an-Option during any leave of absence,
unless authorized by the Board.
Article XII. Amendment, Modification, and Termination of the Plan
------------------------------------------------------------------
12.1 Amendment, Modification, and Termination of the Plan. The Board may
----------------------------------------------------
at any time terminate, and from time to time may amend or modify the Plan,
provided, however, that no action of the Board, without approval of the
stockholders shall:
(a) increase the total amount of Stock which may be purchased through
Options granted under the Plan, except as provided in Article V; or
(b) change the class of Employees or Consultants eligible to receive
Options.
-9-
<PAGE>
No amendment, modification, or termination of the Plan shall in any manner
adversely affect any outstanding Option under the Plan without the consent of
the Optionee holding the Option.
Article XIII. Acquisition, Merger, or Liquidation
--------------------------------------------------
13.1 Acquisition. In the event that an Acquisition occurs with respect to
-----------
the Company, the Company shall have the option, but not the obligation, to
cancel Options outstanding as of the effective date of Acquisition, whether or
not such Options are then exercisable, in return for payment to the Optionees of
an amount equal to a reasonable estimate of an amount (hereinafter the "Spread")
equal to the difference between the net amount per share payable in the
Acquisition, or as a result of the Acquisition, less the exercise price of the
Option. In estimating the Spread, appropriate adjustments to give effect to the
existence of the Options shall be made, such as deeming the Options to have been
exercised, with the Company receiving the exercise price payable thereunder, and
treating the shares receivable upon exercise of the Options as being outstanding
in determining the net amount per share. For purposes of this section, an
"Acquisition" shall mean any transaction in which substantially all of the
Company's assets are acquired or in which a controlling amount of the Company's
outstanding shares are acquired, in each case by a single person or entity or an
affiliated group of persons and/or entities. For purposes of this Section a
controlling amount shall mean more than fifty percent (50%) of the issued and
outstanding shares of Stock of the Company. The Company shall have such an
option regardless of how the Acquisition is effectuated, whether by direct
purchase, through a merger or similar corporate transaction, or otherwise. In
cases where the acquisition consists of the acquisition of assets of the
Company, the net amount per share shall be calculated on the basis of the net
amount receivable with respect to shares upon a distribution and liquidation by
the Company after giving effect to expenses and charges, including but not
limited to taxes, payable by the Company before the liquidation can be
completed.
Where the Company does not exercise its option under this Section 13.1 the
remaining provisions of this Article XIII shall apply, to the extent applicable.
13.2 Merger or Consolidation. Subject to any required action by the
-----------------------
stockholders, if the Company shall be the surviving corporation in any merger or
consolidation, any Option granted hereunder shall pertain to and apply to the
securities to which a holder of the number of shares of Stock subject to the
Option would have been entitled in such merger or consolidation.
13.3 Other Transactions. A dissolution or a liquidation of the Company or
------------------
a merger and consolidation in which the Company is not the surviving corporation
shall cause every Option outstanding hereunder to terminate as of the effective
date of such dissolution, liquidation, merger or consolidation. However, the
Optionee
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<PAGE>
either (i) shall be offered a firm commitment whereby the resulting or surviving
corporation in a merger or consolidation will tender to the Optionee an option
(the "Substitute Option") to purchase its shares on terms and conditions both as
to number of shares and otherwise, which will substantially preserve to the
Optionee the rights and benefits of the Option outstanding hereunder granted by
the Company, or (ii) shall have the right immediately prior to such dissolution,
liquidation, merger, or consolidation to exercise any unexercised Options
whether or not then exercisable, subject to the provisions of this Plan. The
Board shall have absolute and uncontrolled discretion to determine whether the
Optionee has been offered a firm commitment and whether the tendered Substitute
Option will substantially preserve to the Optionee the rights and benefits of
the Option outstanding hereunder. In any event, any Substitute Option for an
Incentive Stock Option shall comply with the requirements of Section 424(a) of
the Code.
Article XIV. Securities Registration
-------------------------------------
14.1 Securities Registration. In the event that the Company shall deem it
-----------------------
necessary or desirable to register under the Securities Act of 1933, as amended,
or any other applicable statute, any Options or any Stock with respect to which
an Option may be or shall have been granted or exercised, or to qualify any such
Options or Stock under the Securities Act of 1933, as amended, or any other
statute, then the Optionee shall cooperate with the Company and take such action
as is necessary to permit registration or qualification of such Options or
Stock.
Unless the Company has determined that the following representation is
unnecessary, each person exercising an Option under the Plan may be required by
the Company, as a condition to the issuance of the shares pursuant to exercise
of the Option, to make a representation in writing (a) that he is acquiring such
shares for his own account for investment and not with a view to, or for sale in
connection with, the distribution of any part thereof, (b) that before any
transfer in connection with the resale of such shares, he will obtain the
written opinion of counsel for the Company, or other counsel acceptable to the
Company, that such shares may be transferred. The Company may also require that
the certificates representing such shares contain legends reflecting the
foregoing.
Article XV. Tax Withholding
----------------------------
15.1 Tax Withholding. Whenever shares of Stock are to be issued in
---------------
satisfaction of Options exercised under this Plan, the Company shall have the
power to require the recipient of the Stock to remit to the Company an amount
sufficient to satisfy federal, state, and local withholding tax requirements.
-11-
<PAGE>
Article XVI. Indemnification
-----------------------------
16.1 Indemnification. To the extent permitted by law, each person who is
---------------
or shall have been a member of the Board shall be indemnified and held harmless
by the Company against and from any loss, cost, liability, or expense that may
be imposed upon or reasonably incurred by him in connection with or resulting
from any claim, action, suit, or proceeding to which he may be a party or in
which he may be involved by reason of any action taken or failure to act under
the Plan and against and from any and all amounts paid by him in settlement
thereof, with the Company's approval, or paid by him in satisfaction of judgment
in any such action, suit, or proceeding against him, provided he shall give the
Company an opportunity, at its own expense, to handle and defend the same before
he undertakes to handle and defend it on his own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification to
which such persons may be entitled under the Company's articles of incorporation
or bylaws, as a matter of law, or otherwise, or any power that the Company may
have to indemnify them or hold them harmless.
Article XVII. Requirements of Law
----------------------------------
17.1 Requirements of Law. The granting of Options and the issuance of
-------------------
shares of Stock upon the exercise of an Option shall be subject to all
applicable laws, rules, and regulations, and to such approvals by any
governmental agencies or securities exchanges as may be required.
17.2 Governing Law. The Plan, and all agreements hereunder, shall be
-------------
construed in accordance with and governed by the laws of the State of Minnesota.
Article XVIII. Effective Date of Plan
--------------------------------------
18.1 Effective Date. The Plan shall be effective on the date of its
--------------
adoption by the Board.
Article XIX. Compliance with Code.
-----------------------------------
19.1 Compliance with Code. Incentive Stock Options granted hereunder are
--------------------
intended to qualify as "incentive stock options" under the Code. If any
provision of this Plan is susceptible to more than one interpretation, such
interpretation shall be given thereto as is consistent with Incentive Stock
Options granted under this Plan being treated as incentive stack options under
the Code.
-12-
<PAGE>
Article XX. No Obligation to Exercise Option.
----------------------------------------------
20.1 No Obligation to Exercise. The granting of an Option shall impose no
-------------------------
obligation upon the holder thereof to exercise such Option.
SUMMIT MEDICAL SYSTEMS, INC.
By______________________________________
Its President
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<PAGE>
AMENDMENTS TO 1993 STOCK OPTION PLAN
April 28, 1995
The shareholders of Summit Medical Systems, Inc. (the "Company") adopted the
following amendments to the Company's Stock Option Plan of 1993 (the "Plan") at
their annual meeting held on April 28, 1995:
1. The first amendment adopted was to replace in its entirety Section 5.1 of
the Plan with the following text:
5.1 Number. The number of shares of Stock hereby made available and
------
reserved for issuance under the Plan is 820,000. The aggregate number of shares
of Stock available under this Plan shall be subject to adjustment as provided in
Section 5.3. The total number of shares of Stock may be authorized but unissued
shares of Stock, or shares acquired by purchase as directed by the Board from
time to time in its discretion, to be used for issuance upon exercise of Options
granted hereunder.
2. The second amendment adopted was to replace in its entirety Section 13.1 of
the Plan with the following text:
13.1 Acquisition. In the event that an Acquisition occurs with respect to
-----------
the Company, the Company shall cancel Options outstanding as of the effective
date of Acquisition, whether or not such Options are then exercisable, in return
for payment to the Optionees of an amount equal to a reasonable estimate of an
amount (hereinafter the "Spread") equal to the difference between the net amount
per share payable in the Acquisition, or as a result of the Acquisition, less
the exercise price of the Option. In estimating the Spread, appropriate
adjustments to give effect to the existence of the Options shall be made, such
as deeming the Options to have been exercised, with the Company receiving the
exercise price payable thereunder, and treating the shares receivable upon
exercise of the Options as being outstanding in determining the net amount per
share. For purposes of this section, an "Acquisition" shall mean any
transaction in which substantially all of the Company's assets are acquired or
in which a controlling amount of the Company's outstanding shares are acquired,
in each case by a single person or entity or an affiliated group of persons
and/or entities. For purposes of this Section a controlling amount shall mean
more than fifty percent (50%) of the issued and outstanding shares of Stock of
the Company. The Company shall have such an obligation regardless of how the
Acquisition is effectuated, whether by direct purchase, through a merger or
similar corporate transaction, or otherwise. In cases where the acquisition
consists of the acquisition of assets of the Company, the net amount per share
shall be calculated on the basis of the net amount receivable with respect to
shares upon a distribution and liquidation by the Company after giving effect to
expenses and charges, including but not limited to taxes, payable by the Company
before the liquidation can be completed.
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<PAGE>
If the Company has no obligations under this Section 13.1 the remaining
provisions of this Article XIII shall apply, to the extent applicable.
-15-
<PAGE>
SUMMIT MEDICAL SYSTEMS, INC.
SECOND AMENDMENT TO THE 1993 STOCK OPTION PLAN
APRIL 25, 1996
I, Dennis H. Powers, Secretary of Summit Medical Systems, Inc., a Minnesota
corporation (the "Company"), hereby certify on behalf of the Company that in
March of 1996, pursuant to Section 12.1 of the Company's Stock Option Plan of
1993, as amended (the "Plan"), the Board of Directors approved a second
amendment to the Plan providing for the issuance of an additional 1,300,000
shares of common stock under the Plan (the "Second Amendment"). The shareholders
of the Company adopted the Second Amendment at their Annual Meeting held on
April 25, 1996. Accordingly, Section 5.1 of the Plan is hereby amended and
restated as follows:
5.1 Number. The number of shares of Stock hereby made available and
------
reserved for issuance under the Plan is 2,126,666. The aggregate number of
shares of Stock available under this Plan shall be subject to adjustment as
provided in Section 5.3. The total number of shares of Stock may be
authorized but unissued shares of Stock, or shares acquired by purchase as
directed by the Board from time to time in its discretion, to be used for
issuance upon exercise of Options granted hereunder.
IN WITNESS WHEREOF, I have hereto signed my name.
________________________________________
Dennis H. Powers
Secretary
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