UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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STEREOTAXIS, INC.
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[Stereotaxis Logo]
STEREOTAXIS, INC.
4320 Forest Park Avenue
Suite 100
St. Louis, Missouri 63108
(314) 678-6100
April 23, 2007
Dear Stockholder:
You are cordially invited to attend the Company's Annual Meeting of
Stockholders on May 24, 2007. We will hold the meeting at 9:00 a.m. Central
Daylight Time at 4320 Forest Park Avenue, Suite 100, St. Louis, Missouri
63108. In connection with the meeting, we enclose a notice of the meeting,
a proxy statement and a proxy card. Detailed information relating to the
Company's activities and operating performance is contained in our 2006
Annual Report to Stockholders and Form 10-K, which are also enclosed.
At the meeting you will be asked to elect four directors, approve an
amendment to our 2002 Stock Incentive Plan to increase the number of shares
reserved for issuance thereunder by 1,000,000 shares and approve the plan
for IRS Section 162(m) purposes, ratify the appointment of Ernst & Young
LLP as the Company's independent registered public accounting firm for the
Company's current fiscal year, and transact such other business as may
properly come before the meeting.
Whether or not you plan to attend the Annual Meeting of
Stockholders, we encourage you to vote your shares. If your shares are held
in the name of a bank, broker or other holder of record, you must present
proof of your ownership, such as a bank or brokerage account statement, to
be admitted to the meeting. All stockholders must also present a form of
personal identification in order to be admitted to the meeting. You may
vote by mail, Internet, telephone, or in person at the meeting.
On behalf of the entire board, we look forward to seeing you at the
meeting.
Sincerely,
/s/ Fred A. Middleton
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Fred A. Middleton
Chairman of the Board of Directors
[Stereotaxis Logo]
STEREOTAXIS, INC.
4320 Forest Park Avenue
Suite 100
St. Louis, Missouri
63108
(314) 678-6100
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 24, 2007
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The Annual Meeting of Stockholders of Stereotaxis, Inc. will be held
at 4320 Forest Park Avenue, Suite 100, St. Louis, Missouri, on Thursday,
May 24, 2007, at 9:00 a.m., Central Daylight Time, for the following
purposes:
1. To elect four directors to serve until our 2010 Annual Meeting;
2. To approve an amendment to the our 2002 Stock Incentive Plan to
increase the number of shares reserved for issuance thereunder by
1,000,000 shares and approve the plan for IRS Rule 162(m) purposes;
3. To ratify the appointment of Ernst & Young LLP as the Company's
independent registered public accounting firm for fiscal year 2007;
and
4. To transact such other business as may properly come before the
meeting.
We first began delivering to all stockholders of record this proxy
statement and the accompanying form of proxy on April 23, 2007. We sent our
Annual Report for the fiscal year ended December 31, 2006, including Form
10-K, but excluding exhibits, to stockholders at the same time.
By Order of the Board of Directors,
STEREOTAXIS, INC.
/s/ James L. Nouss, Jr.
-----------------------
James L. Nouss, Jr.
Secretary
St. Louis, Missouri
April 23, 2007
IMPORTANT NOTICE
PLEASE VOTE YOUR SHARES PROMPTLY
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TABLE OF CONTENTS
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Page
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I. QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING.......................1
II. PROPOSAL I: ELECTION OF DIRECTORS....................................3
III. DIRECTORS AND EXECUTIVE OFFICERS.....................................4
IV. DIRECTOR AND EXECUTIVE COMPENSATION.................................11
V. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......23
VI. AUDIT COMMITTEE.....................................................28
VII. PROPOSAL II: AMENDMENT OF THE 2002 STOCK INCENTIVE PLAN.............29
VIII. PROPOSAL III: RATIFICATION OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTANTS.........................................................35
IX. PRINCIPAL ACCOUNTING FEES AND SERVICES..............................36
X. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS................36
XI. STOCK PRICE PERFORMANCE GRAPH.......................................38
XII. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.............39
XIII. GENERAL INFORMATION.................................................39
I. QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
Q. WHY AM I RECEIVING THESE MATERIALS?
The Board of Directors of Stereotaxis, Inc. (the "Company") is soliciting
proxies from the Company's stockholders in connection with its 2007 Annual
Meeting of Stockholders to be held on Thursday, May 24, 2007, and any and
all adjournments thereof. These materials were first sent to our
stockholders on or about April 23, 2007. You are encouraged to vote on the
proposals presented in these proxy materials. You are invited to attend the
annual meeting, but you do not have to attend to vote.
Q. WHEN AND WHERE IS THE ANNUAL MEETING?
We will hold the annual meeting of stockholders on Thursday, May 24, 2007,
at 9:00 a.m., Central Daylight Time, at 4320 Forest Park Avenue, Suite 100,
St. Louis, Missouri 63108.
Q. WHO IS ENTITLED TO VOTE AT THE MEETING?
You are entitled to vote (in person or by proxy) if you were a stockholder
of record of shares of our common stock at the close of business on March
27, 2007, the record date for the meeting. On March 27, 2007, there were
36,806,643 shares of our common stock outstanding and entitled to vote and
no shares of our preferred stock outstanding.
Q. WHAT AM I BEING ASKED TO VOTE ON AT THE MEETING?
We are asking our stockholders to (1) elect four Class III directors to
serve until our 2010 Annual Meeting of Stockholders (2) approve an
amendment to our 2002 Stock Incentive Plan to increase the number of shares
reserved for issuance thereunder by 1,000,000 shares and approve the plan
for IRS Rule 162(m) purposes and (3) ratify the appointment of Ernst &
Young LLP as our independent registered public accounting firm for the 2007
fiscal year.
Q. HOW DO I VOTE?
Whether or not you expect to be present in person at the annual meeting,
you are requested to vote your shares. Most stockholders will be able to
choose whether they wish to vote using the Internet, by telephone or mail.
The availability of Internet voting or telephone voting for stockholders
whose shares are held in street name by a bank or a broker may depend on
the voting processes of that organization. If you vote using the Internet,
you may incur costs such as telephone and Internet access charges for which
you will be responsible. Internet and telephone voting facilities will be
available 24 hours a day and will close at 5:00 p.m., Central Daylight
Time, on May 23, 2007. If you vote using the Internet or by telephone, you
do not need to return your proxy card.
* Internet - The website for Internet voting is
https://www.proxypush.com/stxs. Please have your proxy card available and
follow the simple instructions on the screen.
* Telephone - The toll-free telephone number for telephone voting is
866-813-1449. Please have your proxy card available and follow the simple
recorded instructions.
* Mail - Please complete, sign, date, and return the enclosed form of
proxy. The shares represented thereby will be voted in accordance with
your instructions.
* In-person - You may vote by ballot.
If you do not attend the meeting, your shares of common stock may be voted
only when represented by a properly executed proxy. If you hold your shares
in street name through a bank or broker, your bank or broker will send you
a separate package describing the procedures and options for voting your
shares.
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Q. WHAT IF I WANT TO CHANGE MY VOTE?
If you are a stockholder of record, you can revoke your proxy at any time
before it is exercised by:
* timely delivery of a properly executed, later-dated proxy;
* submission of a later vote by Internet or telephone any time prior to
5:00 p.m., Central Daylight Time, on May 23, 2007;
* delivery of a written revocation of your proxy to our Secretary; or
* voting by ballot at the meeting.
If your shares are held in the name of a bank or brokerage firm, you may
change your vote by submitting new voting instructions to your bank or
broker. If your bank or broker permits you to vote by Internet or
telephone, you may also be permitted to change your vote by Internet or
telephone, depending on the processes of that organization.
Q. WHAT VOTE OF THE STOCKHOLDERS IS NEEDED?
No business can be conducted at the annual meeting unless a majority of the
outstanding shares of common stock entitled to vote is present in person or
represented by proxy at the meeting. Each share of our common stock is
entitled to one vote with respect to each matter on which it is entitled to
vote. A plurality of the shares entitled to vote and present in person or
by proxy at the meeting must be voted "FOR" a director nominee. A majority
of shares entitled to vote and present in person or by proxy at the meeting
must be voted "FOR" the approvals relating to the 2002 Stock Incentive
Plan, "FOR" the ratification of Ernst & Young LLP as our independent
registered public accounting firm for the 2007 fiscal year and "FOR" such
other business as may properly come before the meeting.
Q. WHAT DO I DO IF MY SHARES OF COMMON STOCK ARE HELD IN "STREET NAME" AT A
BANK OR BROKERAGE FIRM?
If your shares are held in street name by a bank or brokerage firm as your
nominee, your bank or broker will send you a separate package describing
the procedure for voting your shares. You should follow the instructions
provided by your bank or brokerage firm.
Q. WHAT HAPPENS IF I RETURN MY SIGNED PROXY CARD BUT FORGET TO INDICATE HOW
I WANT MY SHARES OF COMMON STOCK VOTED?
If you sign, date and return your proxy and do not mark how you want to
vote, your proxy will be counted as a vote "FOR" all of the nominees for
directors, "FOR" the approvals relating to the 2002 Stock Incentive Plan
and "FOR" the ratification of our independent registered public accounting
firm, and in the discretion of the proxy holders for such other business as
may properly come before the meeting.
Q. WHAT HAPPENS IF I DO NOT INSTRUCT MY BROKER HOW TO VOTE OR IF I MARK
"ABSTAIN" ON THE PROXY?
If you mark your proxy "abstain," your vote will have the same effect as a
vote against the proposal or the election of the applicable director. If
you do not instruct your broker how to vote, your broker will vote your
shares for you at his or her discretion on routine matters such as the
election of directors and ratification of the independent registered public
accounting firm. Broker non-votes with respect to a matter will not be
considered as present and entitled to vote with respect to that matter and
thus will have no effect on the vote for that matter.
The approval of the amendment to the 2002 Stock Incentive Plan is a
non-routine matter. Therefore, unless you give specific instructions to
your broker regarding voting on the approval of the amendment, your broker
will be unable to vote your shares on that matter. Non-voted shares on
non-routine matters are "broker non-votes".
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Q. WHAT DO I NEED TO DO IF I PLAN TO ATTEND THE MEETING IN PERSON?
If your shares are held in the name of a bank, broker or other holder of
record, you must present proof of your ownership, such as a bank or
brokerage account statement, to be admitted to the meeting. All
stockholders must also present a form of personal identification in order
to be admitted to the meeting.
II. PROPOSAL I: ELECTION OF DIRECTORS
Under the Company's restated certificate of incorporation, the
number of directors shall be fixed by the board of directors in the manner
provided in the Company's bylaws. Under the Company's restated bylaws,
subject to the rights of the holders of any series of preferred stock, the
number of directors of the Company may be fixed or changed from time to
time by resolution of a majority of the board of directors; provided the
number shall be no less than three (3) and no more than fifteen (15), or,
if the number is not fixed, the number shall be ten (10). Currently, we
have authorized a thirteen (13) member board of directors. Under the
Company's restated bylaws, the directors are divided into three (3)
classes, Class I, Class II and Class III, each class to be as nearly equal
in number as possible. The term of office of each director shall be until
the third annual meeting following his or her election and until the
election and qualification of his or her successor.
The nominating and corporate governance committee of the board of
directors has nominated the Class III Directors, Fred A. Middleton, William
M. Kelley, William C. Mills, III and Bevil J. Hogg, to serve as directors
until the 2010 Annual Meeting of Stockholders. Certain information with
respect to the nominees for election and the other directors whose terms of
office as directors will continue after the Annual Meeting of Stockholders
is set forth under the heading "Directors and Officers" below. Proxies
cannot be voted for a greater number of persons than the number of nominees
named in each Class.
The board of directors does not contemplate that any of the nominees
will be unable to stand for election, but should any nominee become unable
to serve or for good cause will not serve, all proxies (except proxies
marked to the contrary) will be voted for the election of a substitute
nominee as our board may recommend.
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THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF
THE NAMED NOMINEES AS DIRECTORS
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III. DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is the name, age, position and a brief account of
the business experience of each of the executive officers, directors,
nominees and key employees of the Company. There are no family
relationships between any of our directors and executive officers.
NAME AGE POSITION(S)
Bevil J. Hogg 58 Chief Executive Officer, Director
Michael P. Kaminski 47 President and Chief Operating Officer
James M. Stolze 63 Chief Financial Officer and Vice President
Douglas M. Bruce 49 Senior Vice President, Research & Development
Melissa C. Walker 50 Senior Vice President, Regulatory, Quality, and Compliance
Ruchir Sehra, M.D. 38 Vice President, Clinical Affairs and Chief Medical Officer
Fred A. Middleton 57 Chairman of the Board of Directors
Abhi Acharya, Ph.D. 66 Director
Christopher Alafi, Ph.D. 43 Director
David W. Benfer 60 Director
Ralph G. Dacey, Jr., M.D. 58 Director
Gregory R. Johnson, Ph.D. 63 Director
William M. Kelley 71 Director
Abhijeet J. Lele 41 Director
Robert J. Messey 61 Director
William C. Mills, III 51 Director
Eric N. Prystowsky, M.D. 59 Director
CLASS III DIRECTORS (TERMS EXPIRING AT THE 2007 ANNUAL MEETING;
NOMINEES FOR REELECTION TO THE BOARD AT THE 2007 MEETING)
Bevil J. Hogg has served as our Chief Executive Officer and a
director since June 1997. Prior to February 2007, he also served as our
President; Mr. Hogg retired from that position concurrent with the
appointment of Michael Kaminski, our Chief Operating Officer, to President
and Chief Operating Officer. From 1994 through 1996, Mr. Hogg served as
President and Chief Executive Officer of Everest & Jennings International
Ltd., a manufacturer of wheelchairs and other hospital, home care and
nursing home products. Prior to Everest & Jennings, he was a founder or
co-founder of three companies, including Trek Bicycle Corporation. Mr. Hogg
received a Diplome Superior d'Etudes Francaises from the Sorbonne
(University of Paris, France).
Fred A. Middleton has served as the Chairman of our board of
directors since June 1990. Mr. Middleton has been a General Partner in
Sanderling Ventures since 1987. Prior to that time, he was an independent
investor in the biomedical field. From 1984 to 1986, Mr. Middleton was
Managing General Partner of Morgan Stanley Ventures. He joined Genentech,
Inc. in 1978 and was a part of the management team in the company's early
formative period, assisting in developing its strategy and holding a
variety of roles including Vice Presidencies of Finance, Administration,
and Corporate Development, and Chief Financial Officer. Mr. Middleton also
served as President of Genentech Development Corporation. Prior to that
time, he served as a consultant with McKinsey & Company and as a Vice
President of Chase Manhattan Bank. Mr. Middleton holds an M.B.A. from
Harvard University and a B.S. degree in Chemistry from the Massachusetts
Institute of Technology.
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William M. Kelley has served as a director since January 2003. Mr.
Kelley has served as the Chairman Emeritus of Hill-Rom Company since July
2005 and prior to that time held the position of Chairman since 1995. He
also currently serves as President of Advisors to Healthcare Suppliers.
While at Hill-Rom, Mr. Kelley also served as President and CEO from 1992 to
1995, Sr. Vice President, Sales and Operations from 1989 to 1992 and Sr.
Vice President, Sales and Marketing from 1980 to 1989. He currently serves
on the board of Barton Medical Corporation and the advisory boards of Emmi
Solutions, LLC and American Healthcare Solutions. He has been honored
numerous times for his contributions to the healthcare industry including
as an Honorary Fellow of the American College of Health Care Executives. He
was educated at Hanover College and George Washington University.
William C. Mills, III has served as a director since June 2000. In
August 2004, Mr. Mills became a managing member of a new management company
being formed by EGS Healthcare Capital Partners to manage EGS Private
Healthcare Partnership III. Before joining EGS, Mr. Mills was a Partner in
the Boston office of Advent International, a venture capital firm, for five
years. At Advent, he was co-responsible for healthcare venture capital
investments and focused on investments in the medical technology and
biopharmaceutical sectors. He has over 26 years of venture capital
experience. Before joining Advent, Mr. Mills spent over 11 years with the
Venture Capital Fund of New England where he was a General Partner. Prior
to that, he spent seven years at PaineWebber Ventures/Ampersand Ventures as
Managing General Partner. Currently, he is a member of the Board of
Managers of Ascension Health Ventures. Mr. Mills received his A.B. in
Chemistry, cum laude, from Princeton University, his S.M. in Chemistry from
the Massachusetts Institute of Technology and his M.S. in Management from
MIT's Sloan School of Management.
CLASS I DIRECTORS (TERMS EXPIRING AT THE 2008 ANNUAL MEETING)
Abhi Acharya, Ph.D. has served as a director since February 2005.
Dr. Acharya is currently self-employed as a consultant in the medical
device industry. From 1994 to 1997, he was the Vice President Regulatory
Affairs, Quality Assurance and Clinical Research at Target Therapeutics and
from 1993 to 1994, he was a Senior Technical Advisor at Biometric Research
Institute. From 1977 to 1993, Dr. Acharya held various positions at the
U.S. Food and Drug Administration including Director of the Division of
Cardiovascular, Respiratory and Neurological Devices. He currently serves
as a director at Neomend, Inc, InfraReDx, Inc. and Regen Biologics after
having previously served as a director of Somnus Medical Technologies, Inc.
Dr. Acharya holds a B. Tech degree in Metallurgical Engineering from the
Indian Institute of Technology (Kharagpur, India) and an M.S. and Ph.D. in
Biomaterials Engineering from Northwestern University.
David W. Benfer has served as a director since February 2005. Since
1999, Mr. Benfer has served as President and Chief Executive Officer of
Saint Raphael Healthcare System and the Hospital of Saint Raphael, New
Haven, Connecticut. Previously, he was the President and Chief Executive
Officer of the Provena-Saint Joseph/Morris Health Network in Joliet,
Illinois from 1992 to 1999. Mr. Benfer served as Senior Vice President for
Hospital and Urban Affairs for the Henry Ford Health System in Detroit and
Chief Executive Officer of the Henry Ford Hospital from 1985 to 1992. He
served as the Chairman of the American College of Healthcare Executives
(ACHE) from 1998 to 1999 and on their Board of Governors from 1992 to 2000.
Mr. Benfer was named a Fellow of ACHE in 1981 and serves on the Board of
the Catholic Health Association. He earned his B.S.B.A. from Wittenburg
University and his M.B.A. from Xavier University.
Gregory R. Johnson, Ph.D., has served as a director since October
1994. Currently, Dr. Johnson is a Managing Director of Prolog Ventures,
LLC, a life sciences focused venture capital management firm based in St.
Louis. Dr. Johnson organized Prolog in 2000 following 13 years as a General
Partner with Gateway Associates. Prior to joining Gateway, Dr. Johnson
served as Vice President of Monsanto Venture Capital Company. Currently,
Dr. Johnson is a director of Akermin, Inc., EraGen Biosciences, Inc.,
Everest Biomedical Instruments Company, Kereos, Inc. and Singulex, Inc. Dr.
Johnson received a Ph.D. and M.A. in Physics from the University of
Rochester and a B.S. in Physics from the Massachusetts Institute of
Technology.
Eric N. Prystowsky, M.D. has served as a director since February
2007. Dr. Prystowsky is currently the Director of the Clinical
Electrophysiology Laboratory at St. Vincent Hospital in Indianapolis,
Indiana, as well as a Consulting Professor of Medicine at Duke University
Medical Center. He chairs the American Board of Internal Medicine's test
writing committee for the Electrophysiology Board Certification Examination
and also serves as
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Editor-in-Chief of the Journal of Cardiovascular Electrophysiology. Dr.
Prystowsky also serves on the Board of Directors of CardioNet, a privately
held cardiac rhythm services company. From 1979 to 1986, Dr. Prystowsky
served as a full time faculty member at the Indiana University School of
Medicine, where he was Director of the Electrophysiology Laboratory. He
graduated from Pennsylvania State University in 1969 and the Mt. Sinai
School of Medicine in 1973. Dr. Prystowsky completed his internal medicine
training at Mt. Sinai Hospital, in New York City, and his training in
cardiology and clinical electrophysiology at Duke University Medical
Center.
CLASS II DIRECTORS (TERMS EXPIRING AT THE 2009 ANNUAL MEETING)
Christopher Alafi, Ph.D., has served as a director since August
2000. Dr. Alafi has been a General Partner of Alafi Capital Company, LLC, a
venture capital firm, since 1995. He was previously a Physiology and
Anatomy teacher at Santa Monica College, a visiting scholar at Stanford
University (Chemistry Department) and a researcher at DNAX. Dr. Alafi
received a B.A. in Biology from Pomona College and a D.Phil. in
Biochemistry from the University of Oxford.
Ralph G. Dacey, Jr., M.D., has served as a director since March
2003. Dr. Dacey has been the Chairman of Neurosurgery at Washington
University in St. Louis since 1989. Prior to joining Washington University,
he was an Assistant Professor of Neurological Surgery at the University of
Washington and a Professor and Chief of the Division of Neurosurgery at the
University of North Carolina at Chapel Hill. Dr. Dacey received his B.A.
from Harvard University and his M.D. from the University of Virginia School
of Medicine. He has served as the Secretary of the American Board of
Neurological Surgeons and is a voting member of the American Board of
Medical Specialties. Dr. Dacey is also the Chairman of our Scientific
Advisory Board and served as Principal Investigator of our first Human
Clinical Trial (frontal lobe biopsy).
Abhijeet J. Lele has served as a director since April 2004. Mr. Lele
is a General Partner of EGS Healthcare Capital Partners, a venture capital
firm based in Rowayton, Connecticut, focusing on investments in medical
device, biopharmaceutical and specialty pharmaceutical companies. He joined
EGS in 1998, after spending four years in the health care practice of
McKinsey & Company. Before McKinsey, Mr. Lele held operating positions with
Lederle Laboratories, Progenics Pharmaceuticals and Clontech Laboratories.
He is currently a director of Medarex, Inc., EP MedSystems, CryoCath
Technologies, OptiScan Biomedical and Ekos Corporation. Mr. Lele received
his M.A. in molecular biology from Cambridge University and his M.B.A. with
distinction from Cornell University.
Robert J. Messey has served as a director since May 2005. Mr. Messey
has served as the Senior Vice President and Chief Financial Officer of Arch
Coal, Inc. since December 2000. Prior to joining Arch Coal, he served as
the Vice President of Financial Services of Jacobs Engineering Group, Inc.
from 1999 to 2000 and as Senior Vice President and Chief Financial Officer
of Sverdrup Corporation from 1992-1999. Mr. Messey was an audit partner at
Ernst & Young from 1981 to 1992. He currently serves as a director and
chairman of the audit committee of Baldor Electric Company. Mr. Messey
earned his B.S.B.A. from Washington University.
EXECUTIVE OFFICERS
Michael P. Kaminski has served as our Chief Operating Officer since
he joined the Company in April 2002. Mr. Kaminski was named President in
February 2007, and will continue to retain the title Chief Operating
Officer. Prior to joining the Company, Mr. Kaminski spent nearly 20 years
with Hill-Rom Company (Hillenbrand Industries). In his last position with
Hill-Rom, Mr. Kaminski served as Senior Vice President of North American
Sales and Service. Prior to that, he served as General Manager of the Acute
Care Hospital Division of Hill-Rom. Mr. Kaminski earned an M.B.A. from
Xavier University and a B.S. in Marketing from Indiana University.
James M. Stolze has served as our Vice President and Chief Financial
Officer since he joined the Company in May 2004. Prior to joining the
Company, Mr. Stolze spent eight years as Executive Vice President and Chief
Financial Officer of MEMC Electronic Materials, Inc., from 1995 to 2003.
Prior to MEMC, Mr. Stolze was an audit partner with KPMG LLP. Mr. Stolze
currently sits on the board of directors and audit committee of ESCO
Technologies, Inc., a public company listed on the New York Stock Exchange.
Mr. Stolze earned an M.B.A. from the University of
6
Michigan and a B.S. in Mechanical Engineering from the University of Notre
Dame and is a certified public accountant.
Douglas M. Bruce has served as our Senior Vice President, Research &
Development since he joined the Company in May 2001. Prior to joining the
Company, Mr. Bruce was Vice President, Product Development and Marketing,
for Intuitive Surgical, a developer and manufacturer of computer-enhanced
minimally invasive surgery systems, from 1997 to 2001. Prior to Intuitive
Surgical, Mr. Bruce was a Vice President of Engineering at Acuson Corp, a
manufacturer of diagnostic ultrasound systems, and has held positions in
mechanical, process and manufacturing engineering at Tandon Corp, ISS
Sperry Univac and IBM. Mr. Bruce received a M.S. in Mechanical Engineering
from Santa Clara University and a B.S. in Mechanical Engineering from the
University of California at Berkeley.
Melissa C. Walker has served as our Senior Vice President,
Regulatory, Quality, and Compliance since March 2006. From 2005 to March
2006 she served as our Vice President, Regulatory Affairs and Quality
Systems, and, since joining the Company in 2001 to 2005 she served as our
Vice President Regulatory, Quality, and Clinical Affairs. Prior to joining
the Company, Ms. Walker led the global regulatory team at Bausch & Lomb
Surgical, Inc., a subsidiary of Bausch & Lomb, Inc. and a leading
manufacturer of surgical instruments for the eye, from 1997 to 2000. Prior
to Bausch & Lomb Surgical, Inc., Ms. Walker was Director of Regulatory
Affairs at Ethicon Endo-Surgery, Inc., a Johnson & Johnson Company and a
recognized leader in the manufacture of surgical instruments used for
minimally invasive surgery, from 1992 to 1997. Ms. Walker served on the
board of directors for the Regulatory Affairs Professionals Society from
1997 to 2002 and was formerly the Board Chairman. Ms. Walker received a
M.S. degree in Zoology and a B.S. in Biology from East Texas State
University.
Ruchir Sehra, M.D., has served as our Vice President and Chief
Medical Officer since joining the Company in 2005. Prior to joining the
Company, Dr. Sehra spent nearly two years as Vice President of Clinical
Affairs and Medical Director for CryoCor, Inc. a privately held cardiac
medical device manufacturer. Prior to his employment at CryoCor, Dr. Sehra
served from 1999 to 2004 as Associate Professor of Pediatrics and Medicine
at Loma Linda University where he practiced full time electrophysiology and
was Director of Business Operations for an 85 physician practice. Dr. Sehra
received his B.A. from Wabash College and his M.D. from Indiana University
School of Medicine. He also received an MBA from the University of
California, Irvine. He is a fellow of the American College of Cardiology.
CORPORATE GOVERNANCE
Our board of directors has determined that each of our directors,
other than Mr. Hogg, and each member of the audit committee, compensation
committee, and nominating and corporate governance committee is independent
under the rules of the Nasdaq Global Market. As a result, our board
currently has a majority of independent directors consistent with the rules
of the Nasdaq Global Market. Our independent directors have regularly
scheduled meetings at which only the independent directors are present.
Our board of directors has established an audit committee, a
compensation committee and a nominating and corporate governance committee
and adopted charters for each of these committees. We believe that the
composition of each of these committees meets the criteria for independence
under, and the functioning of these committees complies with, the
applicable requirements of, the current rules and regulations of the Nasdaq
Global Market and Securities and Exchange Commission ("SEC").
BOARD MEETINGS AND COMMITTEES
During fiscal year 2006, the board of directors met six times.
During fiscal year 2006, all incumbent directors attended 75% or more of
the aggregate meetings of the board and of the board committees on which
they served during the period they held office. Directors are encouraged,
but not required, to attend our annual meetings of stockholders.
7
AUDIT COMMITTEE
Our audit committee currently consists of Messrs. Mills, Messey and
Benfer, all of whom qualify as "independent directors" and as audit
committee members under the Nasdaq Global Market rules, and Mr. Mills
serves as the chair of the audit committee. Mr. Messey qualifies as an
audit committee financial expert under SEC rules and regulations. Our board
of directors has determined that each of our current audit committee
members is financially sophisticated as set forth in Rule 4350(d)(2)(A) of
the Nasdaq Global Market.
The audit committee assists our board of directors in its oversight of:
* the integrity of our financial statements;
* our accounting and financial reporting process, including our
internal controls;
* our compliance with legal and regulatory requirements;
* the independent registered public accountants' qualifications and
independence; and
* the performance of our independent registered public accountants.
The audit committee has direct responsibility for the appointment,
compensation, retention and oversight of our independent registered public
accountants. In addition, the audit committee must approve in advance:
* any related-party transaction that creates a conflict of interest
situation;
* all audit services; and
* all non-audit services, except for de minimis non-audit services,
provided the audit committee has approved such de minimis services
prior to the completion of the audit.
During fiscal year 2006, the audit committee met seven times. Our
written audit committee charter was previously attached as Exhibit A to our
Proxy Statement filed with the SEC on April 14, 2005.
COMPENSATION COMMITTEE
Our compensation committee currently consists of Messrs. Middleton,
Johnson and Kelley, each of whom qualify as "independent directors" under
the Nasdaq Global Market rules and as "outside directors" under the
Internal Revenue Code of 1986. Mr. Middleton serves as the chair of the
compensation committee.
The compensation committee assists management and our board of
directors in:
* defining an executive compensation policy;
* determining the total compensation package for our chief executive
officer and other executive officers; and
* administering each of our equity-based compensation plans and
profit sharing plans, including our 1994 Stock Option Plan, our
2002 Stock Incentive Plan, our 2002 Non-Employee Directors' Stock
Plan and our 2004 Employee Stock Purchase Plan.
During fiscal year 2006, the compensation committee met four times.
Our written compensation committee charter was previously attached as
Exhibit B to our Proxy Statement filed with the SEC on April 14, 2005.
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
Our nominating and corporate governance committee currently consists
of Messrs. Mills, Acharya and Lele, each of whom qualify as "independent
directors" under the Nasdaq Global Market rules. Mr. Mills serves as
8
chairman of the nominating and corporate governance committee. The
nominating and corporate governance committee assists the board of
directors in:
* identifying and evaluating individuals qualified to become board
members;
* reviewing director nominees received from stockholders;
* selecting director nominees for submission to the stockholders at
our annual meeting; and
* selecting director candidates to fill any vacancies on the board
of directors.
The nominating and corporate governance committee is also
responsible for developing and recommending to the board of directors a set
of corporate governance guidelines and principles applicable to us.
During fiscal year 2006, the nominating and corporate governance
committee met four times. Our written nominating and corporate governance
committee charter was attached as Exhibit C to our Proxy Statement filed
with the SEC on April 14, 2005.
DIRECTOR NOMINATIONS
Our restated bylaws provide that stockholders seeking to bring
business before an annual meeting of stockholders, or to nominate
candidates for election as directors at an annual meeting of stockholders,
must provide timely notice in writing. To be timely, a stockholder's notice
must be delivered to or mailed and received at our principal executive
offices not more than 120 days or less than 90 days prior to the
anniversary date of the immediately preceding annual meeting of
stockholders. However, in the event that the annual meeting is called for a
date that is not within 30 days before or after such anniversary date,
notice by the stockholder in order to be timely must be received not later
than the close of business on the 10th day following the date on which
notice of the date of the annual meeting was mailed to stockholders or made
public, whichever first occurs. Our restated bylaws specify requirements as
to the form and content of a stockholder's notice. These provisions may
preclude stockholders from bringing matters before an annual meeting of
stockholders or from making nominations for directors at an annual meeting
of stockholders.
Any stockholder wishing to submit a candidate for consideration
should send the following information to the Corporate Secretary,
Stereotaxis, Inc., 4320 Forest Park Avenue, Suite 100, St. Louis, Missouri
63108:
* Stockholder's name, number of shares owned, length of period held,
and proof of ownership;
* Name, age, business and residential address of candidate;
* A detailed resume describing among other things the candidate's
educational background, occupation, employment history, and
material outside commitments (e.g., memberships on other boards
and committees, charitable foundations);
* A supporting statement which describes the candidate's reasons for
seeking election to the board, and documents his/her ability to
satisfy the director qualifications described herein;
* Any information relating to the candidate that is required to be
disclosed in the solicitation of proxies for election of director;
* The class and number of shares of our capital stock that are
beneficially owned by the candidate;
* A description of any arrangements or understandings between the
stockholder and the candidate; and
* A signed statement from the candidate, confirming his/her
willingness to serve on the board.
Our Corporate Secretary will promptly forward such materials to the
chair of our nominating and corporate governance committee and our Chairman
of the Board. Our Corporate Secretary will also maintain copies of such
materials for future reference by the committee when filling board
positions. Stockholders may submit potential
9
director candidates at any time pursuant to these procedures. The committee
will consider such candidates if a vacancy arises and at such other
appropriate times. Notwithstanding the foregoing, the committee is not
obligated to review any candidate for which the required information is not
provided by the time set forth in our restated bylaws for the nomination of
director candidates by a stockholder that is not approved by the committee or
the board. See also "General Information - Stockholder Proposals."
STOCKHOLDER COMMUNICATIONS POLICY
Any security holder wishing to send communications to our board
should send the written communication and the following information to our
Corporate Secretary, Stereotaxis, Inc., 4320 Forest Park Avenue, Suite 100,
St. Louis, Missouri 63108:
* Security holder's name, number of shares owned, length of period
held, and proof of ownership;
* Name, age, business and residential address of security holder;
and
* Any individual director or committee to whom the security holder
would like to have the written statement and other information
sent.
The Corporate Secretary will forward the information to the Chairman
of the Board, if addressed to the full board, or to the specific director
to which the communication is addressed.
CODE OF BUSINESS CONDUCT AND ETHICS
Our Board of Directors adopted a Code of Business Conduct and Ethics
for all of our directors, officers and employees effective August 1, 2004.
Stockholders may download a free copy of our Code of Business Conduct and
Ethics from our website (www.stereotaxis.com) or by request of our Chief
Financial Officer as follows:
Stereotaxis, Inc.
Attention: James M. Stolze
4320 Forest Park Avenue, Suite 100
St. Louis, MO 63108
314-678-6100
To the extent required by law or the rules of the Nasdaq Global
Market, any amendments to, or waivers from, any provision of the Code of
Business Conduct and Ethics will be promptly disclosed publicly. To the
extent permitted by such requirements, we intend to make such public
disclosure by posting the relevant material on our website
(www.stereotaxis.com) in accordance with SEC rules.
10
IV. DIRECTOR AND EXECUTIVE COMPENSATION
BOARD PROCESSES AND PROCEDURES FOR THE CONSIDERATION AND DETERMINATION OF
EXECUTIVE AND DIRECTOR COMPENSATION
In accordance with the compensation committee charter, the
compensation committee is responsible for establishing and reviewing the
Company's overall management compensation philosophy and policy, and
administering the Company's executive and director compensation programs.
As part of its duties, the compensation committee assists management and
the board of directors in defining an executive composition policy that
supports overall business strategy and objectives, attracts and retains key
executives, links compensation with business objectives and organization
performance in good and bad times, and provides competitive compensation
opportunities. The committee has the authority to determine the total
compensation package, including salaries, bonuses, stock options, stock
award, benefits and other compensation arrangements, for the Chief
Executive Officer and other executive officers of the Company. As part of
that process the committee reviews and approves the performance objectives
of the Chief Executive Officer and other executives and evaluates their
performance to determine whether such objectives have been achieved.
Although the charter delegates this responsibility to the compensation
committee, the committee has historically chosen to consult with the board
of directors on the compensation of the Chief Executive Officer and the
other key executives because the committee believes that the performance
and compensation of that group is so critical to the success of the Company
that Board involvement in such decision is appropriate.
The compensation committee seeks advice from consultants with
respect to compensation policies and programs for Named Executive Officers,
as appropriate. A more detailed discussion of the compensation committee's
past and current consulting relationships is described in the Compensation
Discussion and Analysis section of this proxy statement.
The compensation committee also leverages the Company's management
and human resources professionals to assist the committee in the timely and
cost-effective fulfillment of its duties. The committee solicits input from
the Chief Executive Officer and human resources professionals regarding
compensation policies and levels.
Following the completion of the Company's fiscal year, typically in
February of each year, the compensation committee meets to conduct its
annual review of the Company's compensation programs and packages. The
compensation committee does not permit members of the Company's management
to materially participate in the determination of their particular
compensation, nor does the committee permit members of management,
including the Chief Executive Officer, to be physically present for those
portions of committee meetings during which the particular member of the
management team's performance and compensation are reviewed and determined.
However, these protocols do not prohibit members of management and the
Chief Executive Officer from participating in, and being physically
present, when compensation matters affecting Company employees (such as the
Company's annual bonus incentive plan) are discussed and determined. The
compensation committee believes that it is crucial for members of the
Company's management to be materially involved in, and manage the details
associated with, the compensation programs and policies of the Company in
order for the management to explain and implement the committee's decisions
with respect to executive and employee compensation.
The board of directors has delegated to the nominating and corporate
governance committee responsibility for overseeing the structure,
operations, and composition of the board of directors and its committees.
However, the nominating and corporate governance committee does not have a
direct role in the determination of Board member compensation. Rather, the
compensation committee is tasked in its charter with making changes to the
outside directors' compensation program in respect of competitiveness and
plan design. The compensation committee leverages independent consultants
and the Company's human resources professionals and management, as
appropriate, to assist the compensation committee in making recommendations
to the Board with respect to director compensation. The Board did not
increase its compensation during 2006, but the Board intends to
periodically review Board compensation from time to time.
11
DIRECTOR COMPENSATION
DIRECTOR COMPENSATION POLICIES
In March 2002, we adopted the 2002 Non-Employee Directors' Stock
Option Plan to provide for the automatic grant of options to purchase
shares of common stock to our non-employee directors. Under this Plan, at
each annual stockholder meeting, all non-employee directors receive an
annual option to purchase 7,500 shares of common stock, or 15,000 in the
case of the chairman. Newly elected directors receive an initial option to
purchase 15,000 shares of common stock which vest over a two-year period
with 50% vesting after the first year and the remainder vesting monthly
thereafter. In addition, the Chairman and/or Designated Financial Expert of
the audit committee receive an annual grant of 5,000 shares and the
chairman of the compensation committee and the chairman of the nominating
and corporate governance committee receive an annual grant of 2,500 shares.
Such options are granted at a price equal to the fair market value of the
stock on the date of grant and have a term of 10 years.
In addition, non-employee directors receive cash compensation for
their services as board members. Each non-employee director is entitled to
an $18,000 annual retainer ($24,000 for the chairman) for board membership
and an additional payment of $1,500 per in-person board meeting and $500
per telephonic board meeting. Each member of the audit committee,
compensation committee and nominating and corporate governance committee is
entitled to a $2,500 annual retainer. The chairman/designated financial
expert of the audit committee is entitled to a $7,500 annual retainer and
the chairman of the compensation committee and the chairman of the
nominating and corporate governance committee are each entitled to a $5,000
annual retainer in lieu of the member retainer.
We reimburse our directors for reasonable out-of-pocket expenses
incurred in connection with attendance and participation in Board and
committee meetings.
The following table discloses compensation information of members of
the Company's board of directors for serving as members of the Company's
board in 2006:
------------------------------------------------------------------------------------------------------------------
FEES EARNED OR
PAID IN CASH OPTION AWARDS TOTAL
NAME ($) ($)(1) ($)
------------------------------------------------------------------------------------------------------------------
Fred A. Middleton (2) $36,000 $96,804 $132,804
------------------------------------------------------------------------------------------------------------------
Abhi Acharya (3) $27,500 $86,713 $114,213
------------------------------------------------------------------------------------------------------------------
Christopher Alafi, Ph.D. (4) $23,500 $41,488 $ 64,988
------------------------------------------------------------------------------------------------------------------
David W. Benfer (5) $27,500 $86,713 $114,213
------------------------------------------------------------------------------------------------------------------
Ralph G. Dacey, Jr., M.D. (6) $23,500 $41,488 $ 64,988
------------------------------------------------------------------------------------------------------------------
Bevil J. Hogg (7) -- -- --
------------------------------------------------------------------------------------------------------------------
Gregory R. Johnson, Ph.D. (8) $27,000 $41,488 $ 68,488
------------------------------------------------------------------------------------------------------------------
William M. Kelley (9) $27,500 $41,488 $ 68,988
------------------------------------------------------------------------------------------------------------------
Abhijeet J. Lele (10) $27,000 $41,488 $ 68,488
------------------------------------------------------------------------------------------------------------------
Robert J. Messey (11) $32,000 $88,233 $120,233
------------------------------------------------------------------------------------------------------------------
William C. Mills III (12) $38,500 $82,975 $121,475
------------------------------------------------------------------------------------------------------------------
(1) Amount represents the SFAS 123(R) expense recognized for
financial reporting purposes for options granted in 2006 and
prior years.
(2) 60,000 options were outstanding as of December 31, 2006,
42,500 of which were exercisable as of such date.
(3) 30,000 options were outstanding as of December 31, 2006,
21,250 of which were exercisable as of such date.
12
(4) 27,500 options were outstanding as of December 31, 2006,
20,000 of which were exercisable as of such date.
(5) 30,000 options were outstanding as of December 31, 2006,
21,250 of which were exercisable as of such date.
(6) 27,500 options were outstanding as of December 31, 2006,
20,000 of which were exercisable as of such date.
(7) As a member of management, Bevil J. Hogg, the Company's
Chief Executive Officer, did not receive compensation for
his services as a Directors in 2006. The compensation
received by Mr. Hogg as an employee of the Company is shown
in the Summary Compensation Table.
(8) 27,500 options were outstanding as of December 31, 2006,
20,000 of which were exercisable as of such date.
(9) 61,527 options were outstanding as of December 31, 2006,
54,027 of which were exercisable as of such date.
(10) 23,333 options were outstanding as of December 31, 2006,
15,833 of which were exercisable as of such date.
(11) 32,500 options were outstanding as of December 31, 2006,
16,875 of which were exercisable as of such date.
(12) 42,500 options were outstanding as of December 31, 2006,
27,500 of which were exercisable as of such date.
COMPENSATION DISCUSSION AND ANALYSIS
Overview of Compensation Program
The following Compensation Discussion and Analysis describes our
overall compensation philosophy and the primary components of our
compensation program. Furthermore, the Compensation Discussion and Analysis
explains the process by which the compensation committee determined the
2006 compensation for all Named Executive Officers.
Compensation Philosophy
The fundamental objectives of our compensation program are to
attract and retain highly qualified executive officers, motivate these
executive officers to materially contribute to our long-term business
success, and align the interests of our executive officers and stockholders
by rewarding our executives for individual and corporate performance based
on targets established by the committee.
We believe that achievement of these compensation program objectives
enhances long-term stockholder value. When designing compensation packages
to reflect these objectives, the committee is guided by the following four
principles:
* Alignment with stockholder interests: Compensation should be tied,
in part, to our stock performance through the granting of equity
awards to align the interests of executive officers with those of
our stockholders.
* Recognition for business performance: Compensation should
correlate in large part with our overall financial performance.
* Accountability for individual performance: Compensation should
partially depend on the individual executive's performance, in
order to motivate and acknowledge the key contributors to our
success.
* Competition: Compensation should generally reflect the competitive
marketplace and be consistent with that of other well-managed
companies in our peer group.
In implementing this compensation philosophy, the committee takes
into account the compensation amounts from the previous years for each of
the Named Executive Officers, internal compensation equity between the
Named Executive Officers, and compensation of executive officers in similar
positions at selected companies in the medical device industry.
13
2006 Compensation Determination Process
As in prior years, during 2006 the committee engaged in its annual
review of our executive compensation with the goal of ensuring the
appropriate combination of fixed and variable compensation linked to
individual and corporate performance. In the course of this review, the
committee considered the advice and input of the Company's management in
the manner described on page 11, above. The committee retained the services
of Towers Perrin in mid 2005 in conjunction with an overall review of the
long-term incentive award structure and maintained the award structure from
that review in its 2006 equity grants for all employees.
The Company typically competes for managerial talent with companies
in the medical device industry, including those companies comparable in
size in terms of market capitalization as well as those of significantly
larger size.
In 2006, the committee compared each element of compensation
received by the Company's Named Executive Officers with the levels of each
element of compensation received in the prior year and by selected
executive officers in eleven companies in the medical device industry with
market capitalization generally less than $500 million. This data had been
created in conjunction with the 2005 compensation committee review of
overall Named Executive Officer compensation structure undertaken in mid
2005, and the data was deemed relevant for this review completed in
February 2006.
2006 Base Salary
The Committee reviews base salaries annually and considers the
individual performance of the officer, the competitive forces in the
industry, the responsibilities of the individual and his or her future
potential. Thus, an individual Named Executive Officer might receive
increases related to merit and for any market adjustment deemed necessary.
In 2006 the committee awarded the Named Executive Officers a salary
increase of approximately 5.5%, consistent with the overall salary
adjustment within the Company. In addition, Melissa Walker, Senior Vice
President, Regulatory, Quality, and Compliance was awarded an additional 5%
increase in recognition of her increased responsibilities assumed in March
2006.
2006 Annual Incentive Program
The committee continued the use of a cash bonus plan in 2006 for the
Named Executive Officers, granting potential cash bonuses pursuant to the
2006 bonus incentive plan only if the Company achieved certain identified
financial performance, product development and other strategic measures.
Thus, the committee attempted to align the Named Executive Officers' 2006
cash bonus with the interests of our stockholders.
The annual incentive target for senior management represents up to
25% of total base cash compensation for all of the executive officers,
which excludes items such as, stock option exercises, SARs and restricted
stock vesting and other compensation items. Payment of the incentive bonus
is based on performance of the Company against the pre-established
measures, as determined by the committee. For 2006, the committee
established the following bonus plan objectives for the Named Executive
Officers relating to the following items: revenue and operating expenses,
new orders, clinical utilization, product development, regulatory
accomplishments, clinical validation, and organizational development.
Following a review in February 2007, the committee determined that in each
case 75% of the goals had been achieved. Pursuant to the terms of the 2006
bonus incentive plan, cash bonuses were calculated by multiplying the
maximum bonus payout (25% of the base salary) by 75%.
2006 Long-Term Incentive Program
The objective of the Company's long-term incentive program is to
provide a longer-term retention incentive for the Named Executive Officers
and to align their interests directly with those of our stockholders by way
of stock ownership.
14
Under the 2002 Stock Incentive Plan, the committee has the
discretion to determine whether equity awards will be granted to Named
Executive Officers and if so, the number of shares subject to each award.
The 2002 Stock Incentive Plan allows the committee to grant the following
types of equity awards, in its discretion: options, stock appreciation
rights, cash-based awards or other stock-based awards, such as common
stock, restricted stock and other awards valued in whole or in part by
reference to the fair market value of the stock. In most instances, these
long-term grants vest on a multi-year basis.
The committee meets in February of every year to determine the
recipients of annual long-term incentive awards and to grant such awards by
formal action. The practice of granting long-term incentive awards in
February by committee action applies uniformly to the Named Executive
Officers and other employees of the Company. In addition, equity awards,
either in the form of time based restricted shares or performance based
restricted shares are granted to all employees upon acceptance of
employment with the Company. Grants of awards to new employees are approved
by the compensation committee at its quarterly meeting following the
initiation of employment of the employee, and on, occasion, in advance of
initiation of employment, but effective on the date of initiation of
employment. The committee does, as well, have the discretion to make grants
whenever it deems it appropriate in the best interests of the Company. The
Company does not have any program, plan or practice in place to time equity
award grants with the release of material, non-public information and does
not release such information for the purpose of affecting the value of
executive compensation.
Since the Company's base salaries are always paid in cash, and the
2006 bonus incentive plan described above is a cash plan, the committee
determined that some form of option, stock appreciation rights or other
stock-based award would be appropriate for the long-term incentive
component of executive officer compensation for 2006. Historically, the
Company had granted stock-based compensation in the form stock options.
However, following our initial public offering in 2004, the compensation
committee has also granted stock-based compensation in the form of (1)
restricted stock, (2) stock appreciation rights, or SARs, and (3) a
combination of both restricted stock and SARs.
The committee considered these three choices of equity in 2006. For
the 2006 long-term incentive component of executive compensation, the
committee granted a combination of restricted stock and stock appreciation
rights to the Named Executive Officers.
The committee believes that restricted stock effectively motivates
and retains employees. Unlike stock options, restricted shares do not have
exercise prices. Therefore, the timing of the grant is largely irrelevant
to the employee. The only relevant consideration for the employee is the
stock price at the time of sale, after the restrictions have lapsed.
Accordingly, the committee presently believes that restricted share grants
more fairly and consistently motivate employees to contribute to the
Company's overall success, thereby increasing the share price and the value
of the employees' restricted share grants. The committee will evaluate this
issue on an annual basis.
In addition, restricted shares granted to Named Executive Officers
are performance based, and therefore, will vest only if certain revenue and
profitability goals established by the compensation committee are achieved.
The performance criteria include achievement of minimum levels of annual
revenue, cumulative system placements and achievement of profitability at
defined minimum levels. If the performance criteria are not achieved by
June 16, 2010, these shares will be forfeited by the recipient. All awards
provide for acceleration of vesting upon change in control of the Company,
provided the Named Executive Officer either leaves the employ of the
Company for good cause or is terminated within one year of the change in
control.
In establishing the size of the 2006 equity award pool, the
committee considered the amount of stock and options outstanding, the
expense associated with the grants due to the recent accounting changes and
the potentially dilutive effect on stockholders, in addition to the overall
compensation policy of the Company to place emphasis on incentive
compensation over base salaries. The committee also considered the results
of the 2005 report of the compensation consultant and comparisons of
selected executive officers' awards in the eleven companies discussed
above. The numbers of restricted shares and SARs granted to the Named
Executive Officers in February 2006 are described in the table on page 18.
15
In addition, generally under our 2002 Stock Incentive Plan, in the
event of a change of control (as defined in the plan) and if a
participant's employment is terminated in contemplation of, or within one
year after, the change of control, the option fully vests. The committee
believes that this change in control protection is generally very common
among other companies, and the value of the equity awards as a retention
tool would be severely diminished if this protection were not available.
Other Benefits
The Company's health care and other insurance programs are the same
for all eligible employees, including the Named Executive Officers.
Insurance
All Company employees, including the Named Executive Officers, are
eligible to participate in medical, dental, short and long-term disability
and life insurance plans. The terms of such benefits for the Company's
Named Executive Officers are the same as those for all Company employees.
401(k)
The Company offers employees the opportunity to participate in a
401(k) plan to which the Company matches employee contributions dollar for
dollar up to 3% of the employee's salary during the employee's period of
participation. For the fiscal year 2006, the Company expensed $492,142
related to the plan.
Employee Stock Purchase Plan
All of our employees, including our officers and employee directors,
who do not own 5% or more of our outstanding common stock, who are
customarily employed for at least 20 hours per week and for more than five
months in any calendar year are eligible to participate in our
tax-qualified employee stock purchase plan. This plan allows participants
to buy Company common stock at 85% of market price with up to 15% of their
salaries and incentives (subject to certain limits), with the objective of
allowing employees to profit when the value of the Company increases over
time.
Determination of 2006 Chief Executive Officer Compensation
Mr. Hogg's salary is comprised of a base salary plus an annual
incentive bonus payable based on the achievement of corporate objectives
set by the compensation committee and long-term incentive compensation in
the form of stock appreciation rights and performance based restricted
shares. To determine Mr. Hogg's 2006 compensation package, the compensation
committee considered his performance, competitive compensation data from
similar companies within the medical device industry as well as the other
criteria indicated above. During 2006, the compensation committee increased
Mr. Hogg's base salary to $383,250 and awarded a performance bonus of
$71,859 based on the achievement of 2006 objectives. In addition the
compensation committee granted him 76,900 stock appreciation rights and
38,400 performance-based restricted shares.
FEDERAL INCOME TAX AND ACCOUNTING CONSIDERATIONS
Section 162(m)
Section 162(m) of the Internal Revenue Code limits the tax deduction
allowable for executive compensation to $1.0 million per year for certain
executive officers unless such compensation is performance based. As the
cash compensation paid to our executive officers is below $1.0 million and
the compensation committee believes that the options and performance based
restricted shares granted would meet the requirements for performance based
compensation, the Company believes that these limitations did not impact
the Company in 2006.
16
Accounting Considerations
The committee has taken certain accounting rules and consequences
into consideration when determining the type of equity awards that
executive officers should receive as part of the Company's long-term
incentive plan component of compensation packages. Beginning on January 1,
2006, the Company began accounting for stock-based payments including under
its 2002 Stock Incentive Plan, 2002 Non-Employee Directors' Stock Plan and
2004 Employee Stock Purchase Plan in accordance with the requirements of
SFAS 123(R). Accounting for performance based restricted shares is
generally unchanged by the new accounting rules. However, under SFAS 123(R)
the Company records expense related to the fair value of all equity awards
granted to employees. Beginning in 2005, the Company has granted stock
appreciation rights to Named Executive Officers. These stock appreciation
rights have a term of five years and generally vest over four years,
compared to stock options with a ten year term, granted to Named Executive
Officers in 2004 and prior. The shorter term of the stock appreciation
rights results in less compensation expense than would be recorded for an
instrument with a ten year term.
COMPENSATION COMMITTEE REPORT
The Company's compensation committee has reviewed and discussed the
Compensation Discussion and Analysis with management and, based on such
review and discussions, the compensation committee recommended to the
Company's board of directors that the Compensation Discussion and Analysis
be included in this proxy statement on Schedule 14A.
Submitted by the compensation committee of the board of directors.
Fred A. Middleton, Chairman
Gregory R. Johnson
William M. Kelley
The compensation committee Report and the Report of the audit
committee below will not be deemed incorporated by reference by any general
statement incorporating by reference this proxy statement or portions
thereof into any filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934, except to the extent that the Company specifically
incorporates this information by reference, and will not otherwise be
deemed filed under such Acts.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Middleton served as a member of our compensation committee
during our last fiscal year and as our president from December 1996 through
June 1997. Otherwise, none of our compensation committee members and none
of our executive officers have a relationship that would constitute an
interlocking relationship with executive officers or directors of another
entity or insider participation in compensation decisions.
17
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the annual and
long-term compensation for all services rendered in all capacities to the
Company for the fiscal year ended December 31, 2006.
-----------------------------------------------------------------------------------------------------------------------
STOCK OPTION NON-EQUITY ALL OTHER
SALARY AWARDS AWARDS INCENTIVE PLAN COMPENSATION ($)
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) ($)(2) COMPENSATION ($)(3) (4) TOTAL ($)
-----------------------------------------------------------------------------------------------------------------------
Bevil J. Hogg 2006 383,250 238,785 478,107 71,859 14,728 1,186,729
Chief Executive Officer (5)
-----------------------------------------------------------------------------------------------------------------------
Michael P. Kaminski 2006 302,747 116,330 271,634 56,765 11,943 759,419
President and Chief Operating
Officer
-----------------------------------------------------------------------------------------------------------------------
James M. Stolze 2006 297,413 105,008 255,718 55,765 11,750 725,654
Vice President and Chief
Financial Officer
-----------------------------------------------------------------------------------------------------------------------
Douglas Bruce 2006 283,211 75,422 102,310 53,102 11,309 525,354
Senior Vice President,
Research & Development
-----------------------------------------------------------------------------------------------------------------------
Melissa C. Walker 2006 225,621 63,407 78,522 42,304 9,256 419,110
Senior Vice President,
Regulatory, Quality and
Compliance
-----------------------------------------------------------------------------------------------------------------------
(1) Includes the dollar amount recognized for financial
statement reporting purposes for fiscal year 2006 relating
to restricted share grants awarded in fiscal year 2006 and
in prior years computed in accordance with SFAS 123(R)
applying the same valuation model and assumptions applied
for financial reporting purposes. Restricted share grants
under the 2002 Stock Incentive Plan granted to Named
Executive Officers are performance-based and will be
forfeited if performance criteria are not achieved by June
15, 2010. Restricted shares granted to employees are valued
at the fair market value at the date of grant. See Note 11
of the notes to our consolidated financial statements
contained in our annual reported on Form 10-K for a
discussion of all assumptions made by us in determining the
SFAS 123(R) values of our equity awards. These amounts
reflect the Company's accounting expense for these awards,
and do not correspond to the actual value that will be
recognized by the Named Executive Officers. Please see the
Grants of Plan-Based Awards Table for information on
restricted shares granted in fiscal 2006.
(2) The amounts represent the dollar amount recognized for stock
options and stock appreciation rights for financial
statement reporting purposes with respect to the fiscal year
in accordance with SFAS 123(R). These amounts may include
expense related to options granted in years prior to 2006.
See Note 11 of the notes to our consolidated financial
statements contained in our annual reported on Form 10-K for
a discussion of all assumptions made by us in determining
the SFAS 123(R) values of our equity awards. These amounts
reflect the Company's accounting expense for these awards,
and do not correspond to the actual value that will be
recognized by the Named Executive Officers. Please see the
Grants of Plan-Based Awards Table for information on stock
appreciation rights granted in fiscal 2006.
(3) Represent amounts payable under our 2006 annual incentive
bonus program. Although such amounts were paid in 2007, the
relevant performance period for such awards was fiscal year
2006, and is accordingly being reported as compensation for
fiscal year 2006.
(4) All Other Compensation represents amounts contributed by the
Company to the executive's 401(k) plan and the payment of
group term life insurance premiums. Included in All Other
Compensation are: Company contributions to 401(k) plans as
follows: Bevil Hogg, $12,821 and Michael Kaminski, $10,128.
No other single amounts exceeded $10,000 for any individual.
18
The following table sets forth certain information with respect to
plan-based awards granted to each of our Named Executive Officers during
the fiscal year ended December 31, 2006.
GRANTS OF PLAN-BASED AWARDS
---------------------------------------------------------------------------------------------------------------------------------
ESTIMATED FUTURE PAYOUTS ESTIMATED FUTURE PAYOUTS ALL OTHER GRANT DATE
UNDER NON-EQUITY UNDER EQUITY INCENTIVE OPTION AWARDS; FAIR
INCENTIVE PLAN AWARDS PLAN AWARDS NUMBER OF EXERCISE OR VALUE OF
------------------------------------------------------- SECURITIES BASE PRICE STOCK AND
THRESH- MAXI- THRESH- MAXI- UNDERLYING OF OPTION OPTION
GRANT OLD TARGET MUM OLD TARGET MUM OPTIONS AWARDS AWARDS($)
NAME DATE ($) ($)(1) ($) ($) ($)(2) ($) (#)(3) ($/SH)(4) (5)
---------------------------------------------------------------------------------------------------------------------------------
Bevil J. Hogg 2/22/06 -- 95,813 -- -- 38,400 -- 76,900 12.03 396,804
---------------------------------------------------------------------------------------------------------------------------------
Michael P. Kaminski 2/22/06 -- 75,687 -- -- 19,100 -- 38,200 12.03 197,112
---------------------------------------------------------------------------------------------------------------------------------
James M. Stolze 2/22/06 -- 74,353 -- -- 15,900 -- 31,800 12.03 164,088
---------------------------------------------------------------------------------------------------------------------------------
Douglas M. Bruce 2/22/06 -- 70,803 -- -- 10,600 -- 21,100 12.03 108,876
---------------------------------------------------------------------------------------------------------------------------------
Melissa C. Walker 2/23/06 -- 56,405 -- -- 10,000 -- 20,000 12.35 103,200
---------------------------------------------------------------------------------------------------------------------------------
(1) Constitutes awards that could have been earned under the
2006 bonus program, representing 25% of the base salary for
each such individual. In February 2007, the compensation
committee determined that 75% of such awards were earned
under the program; such amounts are reported in column
entitled Non-Equity Incentive Plan Compensation included the
Summary Compensation Table, above.
(2) Constitutes performance-based restricted shares granted in
fiscal 2006 under our 2002 Stock Incentive Plan, subject to
the achievement of financial targets for the performance
period ending September 30, 2010.
(3) Constitutes stock appreciation rights granted in fiscal 2006
under our 2002 Stock Incentive Plan.
(4) The exercise price of stock subject to options awarded under
the plan is the fair market value of the stock on the date
of grant. Under the terms of the plan, the fair market value
of the stock is the closing sales price of the stock on the
date of grant as reported by the Nasdaq Global Market.
(5) Includes the full grant date fair value of SARs and
performance-based restricted stock computed in accordance
with SFAS 123(R) applying the same valuation model and
assumptions applied for financial reporting purposes.
Generally, the full grant date fair value is the amount that
the Company would expense in its financial statements over
the award vesting schedule. These amounts reflect the
Company's accounting expense and do not correspond to the
actual value that will be recognized by the Named Executive
Officers.
19
The following table discloses information regarding outstanding
awards under the Company's 2002 Stock Incentive Plan, as amended, as of
December 31, 2006.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
---------------------------------------------------------------------------------------------------------------------------------
NUMBER OF EQUITY INCENTIVE PLAN
NUMBER OF SECURITIES EQUITY INCENTIVE PLAN AWARDS; MARKET OR
SECURITIES UNDERLYING AWARDS; NUMBER OF PAYOUT VALUE OF
UNDERLYING UNEXERCISED OPTION UNEARNED SHARES, UNEARNED SHARES,
UNEXERCISED OPTIONS EXERCISE OPTION UNITS OR OTHER RIGHTS UNITS OR OTHER RIGHTS
OPTIONS (#) PRICE EXPIRATION THAT HAVE NOT VESTED THAT HAVE NOT VESTED
NAME (#) EXERCISABLE UNEXERCISABLE(1) ($) DATE (#)(2) ($)(3)
---------------------------------------------------------------------------------------------------------------------------------
Bevil J. Hogg 8,333 -- 1.62 11/7/2011
55,555 -- 1.62 11/7/2011
97,222 -- 4.75 1/31/2012
62,210 7,234 5.94 5/27/2013
35,445 13,166 6.77 1/27/2014
28,356 20,255 8.00 8/16/2014
34,687 57,813 7.80 6/15/2010
76,900 12.03 2/21/2011
47,500 490,200
38,400 396,288
---------------------------------------------------------------------------------------------------------------------------------
Michael P. 124,825 -- 4.75 4/17/2012
Kaminski 12,441 1,447 5.94 5/27/2013
50,636 18,808 5.94 1/7/2014
17,812 29,688 7.80 6/15/2010
38,200 12.03 2/21/2001
22,500 232,200
19,100 197,112
---------------------------------------------------------------------------------------------------------------------------------
James M. Stolze 71,759 39,352 7.02 5/25/2014
14,062 23,438 7.80 6/15/2010
31,800 12.03 2/22/2011
22,500 232,200
15,900 164,088
---------------------------------------------------------------------------------------------------------------------------------
Douglas M. Bruce 48,611 -- 4.75 1/31/2012
6,220 724 5.94 5/27/2013
7,595 2,821 6.77 1/27/2013
6,076 4,340 8.00 2/25/2012
8,437 14,063 7.80 6/15/2010
21,100 12.03 2/21/2011
17,500 180,600
10,600 109,392
---------------------------------------------------------------------------------------------------------------------------------
Melissa C. Walker 4,629 -- 1.37 2/20/2011
13,888 -- 4.75 2/18/2012
12,441 1,447 5.94 5/27/2013
10,705 3,183 5.94 11/19/2013
6,562 10,938 7.80 6/15/2010
20,000 12.35 2/21/2011
12,500 129,000
10,000 103,200
---------------------------------------------------------------------------------------------------------------------------------
(1) The amounts appearing in this column represent the total
number of options and stock appreciation rights that have
not vested as of December 31, 2006. Option grants and SARs
vest at the rate of 25% after one year of service from the
date of grant, and monthly thereafter, over 36 additional
months.
(2) The amounts appearing in this column represent the total
number of performance-based restricted shares granted under
our 2002 Stock Incentive Plan which vest if certain revenue
and profitability goals are achieved. Those goals have not
been achieved.
(3) Based on the closing price of $10.32 for the shares of our
common stock on December 29, 2006 (the last business day of
fiscal 2006).
20
The following table summarizes information regarding the exercise of
options and the vesting of stock during the fiscal year ended December 31,
2006.
OPTION EXERCISES AND STOCK VESTED
-------------------------------------------------------------------------------------------------------------------
OPTION AWARDS STOCK AWARDS
--------------------------------------------------------------------------
NUMBER OF SHARES
ACQUIRED ON VALUE REALIZED ON NUMBER OF SHARES VALUE REALIZED
EXERCISE EXERCISE ACQUIRED ON VESTING ON VESTING
NAME (#) ($)(1) (#) ($)
-------------------------------------------------------------------------------------------------------------------
Bevil J. Hogg 50,000 434,000 -- --
25,000 199,500
-------------------------------------------------------------------------------------------------------------------
Michael P. Kaminski 10,000 53,200 -- --
-------------------------------------------------------------------------------------------------------------------
James M. Stolze -- -- -- --
-------------------------------------------------------------------------------------------------------------------
Douglas M. Bruce -- -- -- --
-------------------------------------------------------------------------------------------------------------------
Melissa C. Walker 34,722 264,234 -- --
-------------------------------------------------------------------------------------------------------------------
(1) Values represent the deference between the exercise price of
the options and the closing market price of the company's
common stock at exercise.
RETIREMENT AND OTHER POST-TERMINATION BENEFITS
We have entered into employment agreements with our Named Executive
Officers that provide for a continuation of certain post-employment
benefits, to the extent permitted under the applicable employment benefit
plan(s). Each of the employment agreement provide for payments at,
following, or in connection with a variety of circumstances following the
Named Executive Officer's retirement, resignation, or in the event of a
change of control of the Company.
Mr. Hogg. If Mr. Hogg is terminated without cause, he will be paid a
salary continuance equal to his base salary for the lesser of (1) the
period from the date of his termination of employment until he commences
employment with a new employer or (2) 24 months. In addition, 12 months
worth of Mr. Hogg's unvested options, stock appreciation rights and
restricted shares will automatically vest. Upon an acquisition or merger
where we are not the surviving entity and a change of control occurs, 50%
of Mr. Hogg's unvested options, stock appreciation rights and restricted
shares will vest. If Mr. Hogg is terminated after any such acquisition or
merger or is not offered a comparable position in the surviving entity, he
will be paid a salary continuance equal to his base salary for 24 months
and 100% of his unvested options, stock appreciation rights and restricted
shares will vest at the end of the salary continuance period.
Mr. Kaminski. If Mr. Kaminski is terminated without cause, he will
be paid a salary continuance equal to his monthly base salary for the
lesser of (1) the period from the date of his termination of employment
until he commences employment with a new employer or (2) six months. In
addition, if Mr. Kaminski's employment is terminated as a result of, or
following, an acquisition or merger where we are not the surviving entity
and a change of control occurs, and Mr. Kaminski is not offered a
comparable position and salary in the surviving entity, (1) he will be paid
salary continuance equal to his monthly base salary for the lesser of (a)
the period from the date of his termination of employment until he
commences employment with a new employer or (b) six months, and (2) 100% of
his unvested options, stock appreciation rights and restricted shares will
vest at the end of the salary continuance period.
Mr. Stolze. If he is terminated without cause, he will be paid
salary continuance equal to his monthly base salary for six months. In
addition, if Mr. Stolze's employment is terminated in contemplation of or
within a year of a change in control of Stereotaxis, 100% of his unvested
options, stock appreciation rights and restricted shares will vest under
the terms of the 2002 Stock Incentive Plan.
21
Mr. Bruce. In addition, if Mr. Bruce is terminated as a result of,
or following, an acquisition or merger where we are not the surviving
entity and a change of control occurs and he is not offered a comparable
position and salary with the surviving entity, or is terminated within one
year of such acquisition or merger, he will be paid salary continuance
equal to his monthly base salary for six months.
Ms. Walker. If she is terminated without cause, she will be paid a
salary continuance equal to her monthly base salary for three months. In
addition, if Ms. Walker's employment is terminated as a result of, or
following, an acquisition or merger where we are not the surviving entity
and a change of control occurs, and she is not offered a comparable
position and salary in the surviving entity, (1) she will be paid salary
continuance equal to her monthly base salary for three months and (2) 100%
of her unvested options will vest at the end of the salary continuance
period.
The foregoing terms described with respect to each of the above
named executive officers are in accordance with the terms of their
respective employment agreements. In addition, certain rights regarding
change of control are included in equity award agreements under our equity
incentive plans. Generally, under our 2002 Stock Incentive Plan, in the
event of a change of control (as defined in the plan) and if a
participant's employment is terminated in contemplation of, or within one
year after, the change of control, the option or other award fully vests.
We do not currently maintain any other retirement or
post-termination benefits plans. We do not currently maintain any
change-in-control severance plans.
22
V. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to us with
respect to the beneficial ownership of our common stock as of March 31,
2007 by:
* each person known by us to own beneficially more than 5% of our
outstanding common stock;
* each of our directors or nominees;
* each of our named executive officers; and
* all of our directors, nominees and executive officers as a group.
There were 36,806,643 shares of common stock outstanding as of March
31, 2007. The table below includes the number of shares underlying options
and warrants that are currently exercisable or exercisable within 60 days
of March 31, 2007. Shares of common stock subject to options and warrants
that are currently exercisable or exercisable within 60 days of March 31,
2007 are considered outstanding and beneficially owned by the person
holding the options or warrants for the purposes of computing beneficial
ownership of that person but are not treated as outstanding for the purpose
of computing the percentage ownership of any other person. To our
knowledge, except as set forth in the footnotes to this table and subject
to applicable community property laws where applicable, each person named
in the table has sole voting and investment power with respect to the
shares set forth opposite such person's name. Except as otherwise
indicated, the address of each of the persons in this table is as follows:
c/o Stereotaxis, Inc., 4320 Forest Park Avenue, Suite 100, St. Louis,
Missouri 63108.
---------------------------------------------------------------------------------------------------
PERCENTAGE OF
SHARES
NUMBER OF SHARES OF OF COMMON STOCK
NAME AND ADDRESS OF COMMON STOCK BENEFICIALLY
BENEFICIAL OWNER OF COMMON STOCK BENEFICIALLY OWNED OWNED
---------------------------------------------------------------------------------------------------
FIVE PERCENT STOCKHOLDERS
---------------------------------------------------------------------------------------------------
Gilder, Gagnon, Howe & Co. LLC (1)
1775 Broadway, 26th Floor
New York, NY 10019 3,585,642 9.7%
--------------------------------------------------------------------------------------------------
Entities affiliated with Sanderling Ventures (2)
400 S. El Camino Real, Suite 1200
San Mateo, CA 94402 3,373,851 9.2%
--------------------------------------------------------------------------------------------------
Alafi Capital Company LLC (3)
9 Commodore Drive, Suite 405
Emeryville, CA 94608 2,547,168 6.9%
--------------------------------------------------------------------------------------------------
Fidelity Management & Research Company (4)
82 Devonshire Street
Boston, Massachusetts 02109 2,493,975 6.8%
--------------------------------------------------------------------------------------------------
T. Rowe Price Associates, Inc. (5)
100 E. Pratt Street
Baltimore, Maryland 21202 2,329,470 6.3%
--------------------------------------------------------------------------------------------------
Federated Kaufmann Fund (6)
140 E. 45th Street
New York, NY 10017(5A) 2,270,900 6.2%
--------------------------------------------------------------------------------------------------
Next Century Growth Investors, LLC (7)
5500 Wayzata Blvd., Suite 1275
Minneapolis, MN 55416 2,193,250 6.0%
--------------------------------------------------------------------------------------------------
Entities affiliated with EGS Healthcare (8)
105 Rowayton Avenue, 2nd Floor
Rowayton, CT 06853 2,059,796 5.6%
--------------------------------------------------------------------------------------------------
TimesSquare Capital Management, LLC (9)
1177 Avenue of the Americas
New York, NY 10036 2,064,500 5.6%
--------------------------------------------------------------------------------------------------
23
---------------------------------------------------------------------------------------------------
PERCENTAGE OF
SHARES
NUMBER OF SHARES OF OF COMMON STOCK
NAME AND ADDRESS OF COMMON STOCK BENEFICIALLY
BENEFICIAL OWNER OF COMMON STOCK BENEFICIALLY OWNED OWNED
---------------------------------------------------------------------------------------------------
DIRECTORS AND NAMED EXECUTIVE OFFICERS
---------------------------------------------------------------------------------------------------
Fred A. Middleton (10) 3,583,437 9.7%
---------------------------------------------------------------------------------------------------
Abhi Acharya (11) 41,111 *
---------------------------------------------------------------------------------------------------
Christopher Alafi (12) 2,749,804 7.4%
---------------------------------------------------------------------------------------------------
David W. Benfer (13) 35,600 *
---------------------------------------------------------------------------------------------------
Ralph G. Dacey, Jr. (14) 77,500 *
---------------------------------------------------------------------------------------------------
Gregory R. Johnson (15) 413,950 1.1%
---------------------------------------------------------------------------------------------------
William M. Kelley (16) 74,527 *
---------------------------------------------------------------------------------------------------
Abhijeet Lele (17) 2,083,129 5.7%
---------------------------------------------------------------------------------------------------
Robert J. Messey (18) 36,600 *
---------------------------------------------------------------------------------------------------
William C. Mills III (19) 52,500 *
---------------------------------------------------------------------------------------------------
Eric N. Prystowsky -- *
---------------------------------------------------------------------------------------------------
Bevil J. Hogg (20) 758,736 2.0%
---------------------------------------------------------------------------------------------------
Douglas M. Bruce (21) 205,718 *
---------------------------------------------------------------------------------------------------
Michael P. Kaminski (22) 273,130 *
---------------------------------------------------------------------------------------------------
Ruchir Sehra (23) 44,481 *
---------------------------------------------------------------------------------------------------
James M. Stolze (24) 159,638 *
---------------------------------------------------------------------------------------------------
Melissa C. Walker (25) 101,174 *
---------------------------------------------------------------------------------------------------
All directors and executive officers as a group (16 persons) 10,691,035 27.9%
---------------------------------------------------------------------------------------------------
* Indicates ownership of less than 1%
(1) All information regarding ownership of Gilder, Gagnon, Howe
& Co. LLC is based solely on a Schedule 13G filed by Gilder,
Gagnon, Howe & Co. LLC on February 14, 2007.
(2) Includes: (a) 122 shares held by Sanderling II Limited
Partnership; (b) 1,242 shares held by and 1,896 shares
issuable under warrants held by Sanderling Ventures
Management V; (c) 2,816 shares held by Sanderling VI
Beteiligungs GmbH & Co. KG; (d) 3,355 shares held by
Sanderling VI Limited Partnership; (e) 1,532 shares held by
Sanderling Ventures Management VI; (f) 301,745 shares held
by Sanderling Management Limited, Custodian FBO Sanderling
Ventures Limited, L.P.; (g) 532,758 shares held by and 9,480
shares issuable under warrants held by Sanderling IV
Biomedical Co-Investment Fund, L.P.; (h) 224,515 shares held
by Sanderling Venture Partners IV Co-Investment Fund, L.P.;
(i) 677,906 shares held by and 24,501 shares issuable under
warrants held by Sanderling Venture Partners V Co-Investment
Fund, L.P.; (j) 110,971 shares held by and 3,565 shares
issuable under warrants held by Sanderling V Beteiligungs
GmbH & Co. KG; (k) 119,566 shares held by and 4,006 shares
issuable under warrants held by Sanderling V Limited
Partnership; (l) 397,164 shares held by and 14,854 shares
issuable under warrants held by Sanderling V Biomedical Co-
Investment Fund, L.P.; (m) 781,351 shares held by Sanderling
Venture Partners II, L.P.; (n) 15,000 shares held by
Sanderling Management 401(k) Plan; and (o) 145,506 shares
held by Sanderling Venture Partners VI Co-Investment Fund,
L.P.
Middleton-McNeil Associates, L.P. is the general partner of
Sanderling Venture Partners II, L.P. and has voting and
dispositive authority over the shares owned by Sanderling
Venture Partners II, L.P. Middleton-McNeil Associates, L.P.
is managed by its general partners, Fred A. Middleton and
Robert G. McNeil. Such individuals disclaim beneficial
ownership of all such shares held by the foregoing funds,
except to the extent of their proportionate pecuniary
interests therein.
24
Middleton-McNeil, L.P. is the general partner of Sanderling
II Limited Partnership and has voting and dispositive
authority over the shares owned by such entities.
Middleton-McNeil, L.P. is managed by its general partners,
Fred A. Middleton and Robert G. McNeil. Such individuals
disclaim beneficial ownership of all such shares held by the
foregoing funds, except to the extent of their proportionate
pecuniary interests therein.
Middleton-McNeil Associates IV, LLC is the general partner
of Sanderling IV Biomedical Co-Investment Fund, L.P. and has
voting and dispositive authority over the shares owned by
Sanderling IV Biomedical Co-Investment Fund, L.P.
Middleton-McNeil Associates IV, LLC is managed by its
members, Fred A. Middleton and Robert G. McNeil. Such
individuals disclaim beneficial ownership of all such shares
held by the foregoing funds, except to the extent of their
proportionate pecuniary interests therein.
Middleton-McNeil Associates IV, L.P. is the general partner
of Sanderling Venture Partners IV Co-Investment Fund, L.P.
and has voting and dispositive power over the shares owned
by Sanderling Venture Partners IV Co-Investment Fund, L.P.
Middleton-McNeil Associates IV, L.P. is managed by its
general partners, Fred A. Middleton and Robert G. McNeil.
Such individuals disclaim beneficial ownership of all such
shares held by the foregoing funds, except to the extent of
their proportionate pecuniary interests therein.
Middleton, McNeil & Mills Associates V, LLC is the
Investment General Partner of Sanderling V Limited
Partnership and Sanderling V Beteiligungs GmbH & Co. KG and
the General Partner of Sanderling V Biomedical Co-Investment
Fund, L.P. and Sanderling Venture Partners V Co-Investment
Fund, L.P. and has voting and dispositive authority over the
shares owned by such entities. Middleton, McNeil & Mills
Associates V, LLC is managed by its managing directors, Fred
A. Middleton and Robert G. McNeil, Timothy C. Mills and
Timothy J. Wollaeger. Such individuals disclaim beneficial
ownership of all such shares held by the foregoing funds,
except to the extent of their proportionate pecuniary
interests therein.
Sanderling Ventures Management V is managed by Fred A.
Middleton and Robert G. McNeil, Timothy C. Mills, and
Timothy J. Wollaeger, the individuals who have invested
under the d/b/a Sanderling Ventures Management V, which
individuals have voting and dispositive power over the
shares owned by Sanderling Ventures Management V. Such
individuals disclaim beneficial ownership of all such shares
held by the foregoing funds, except to the extent of their
proportionate pecuniary interests therein.
Sanderling Ventures Management VI is managed by Fred A.
Middleton and Robert G. McNeil, Timothy C. Mills, Timothy J.
Wollaeger and Paul A. Grayson, the individuals who have
invested under the d/b/a Sanderling Ventures Management VI,
which individuals have voting and dispositive power over the
shares owned by Sanderling Ventures Management VI. Such
individuals disclaim beneficial ownership of all such shares
held by the foregoing funds, except to the extent of their
proportionate pecuniary interests therein.
Middleton, McNeil, Mills & Associates, VI, LLC is the
Investment General Partner of Sanderling Venture Partners VI
Co-Investment Fund, L.P., Sanderling VI Beteiligungs GmbH &
Co. KG and Sanderling VI Limited Partnership and has voting
and dispositive power over the shares owned by such entity.
Sanderling Venture Partners VI Co-Investment Fund, L.P. is
managed by its managing directors, Fred A. Middleton and
Robert G. McNeil, Timothy C. Mills, Timothy J. Wollaeger and
Paul A. Grayson. Such individuals disclaim beneficial
ownership of all such shares held by the foregoing funds,
except to the extent of their proportionate pecuniary
interests therein.
(3) Includes 2,329,253 shares held by and 217,915 shares
issuable under warrants held by Alafi Capital Company LLC
("Alafi Capital"). Christopher Alafi, one of our directors,
and Moshe Alafi are the managing partners of Alafi Capital
and have full voting and investment power with respect to
the shares owned by Alafi Capital.
(4) Fidelity Management & Research Company ("Fidelity"), a
wholly-owned subsidiary of FMR Corp. and an investment
adviser registered under Section 203 of the Investment
Advisers Act of 1940, is the beneficial owner of 2,493,975
shares of our common stock as a result of acting as
investment adviser to various investment companies
registered under Section 8 of the Investment Company Act of
1940. Edward C. Johnson 3d and FMR Corp., through its
control of Fidelity, and the funds each has sole power to
dispose of the 2,493,975 shares owned by the Funds. Members
of the family of Edward C. Johnson 3d, Chairman of FMR
Corp., are the predominant owners, directly or through
trusts, of Series B shares of common stock of
25
FMR Corp., representing 49% of the voting power of FMR Corp.
The Johnson family group and all other Series B shareholders
have entered into a shareholders' voting agreement under
which all Series B shares will be voted in accordance with
the majority vote of Series B shares. Accordingly, through
their ownership of voting common stock and the execution of
the shareholders' voting agreement, members of the Johnson
family may be deemed, under the Investment Company Act of
1940, to form a controlling group with respect to FMR Corp.
Neither FMR Corp. nor Edward C. Johnson 3d, Chairman of FMR
Corp., has the sole power to vote or direct the voting of
the shares owned directly by the Fidelity Funds, which power
resides with the Funds' Boards of Trustees. Fidelity carries
out the voting of the shares under written guidelines
established by the Funds' Boards of Trustees. All
information regarding ownership by Fidelity is based solely
on a Schedule 13G filed by Fidelity on February 14, 2007.
(5) T. Rowe Price Associates, Inc. ("Price Associates") does not
serve as custodian of the assets of any of its clients;
accordingly, in each instance only the client or the
client's custodian or trustee bank has the right to receive
dividends paid with respect to, and proceeds from the sale
of, such securities. The ultimate power to direct the
receipt of dividends paid with respect to, and the proceeds
from the sale of, such securities, is vested in the
individual and institutional clients which Price Associates
serves as investment adviser. Any and all discretionary
authority which has been delegated to Price Associates may
be revoked in whole or in part at any time. All information
regarding ownership of Price Associates is based solely on a
Schedule 13G filed by Price Associates on February 14, 2007.
(6) Includes 1,602,200 and 16,800 shares purchased from us by
Federated Kauffmann Fund and Federated Kaufmann Fund II,
respectively, in a registered direct public offering in
March 2007.
(7) Next Century Growth Investors, LLC ("Next Century Growth")
has investment discretion and/or voting power over client
securities, which may be revoked, including shares of common
stock of the Company. Thomas L. Press and Donald M. Longlet,
as a result of their positions with and ownership positions
in Next Century Growth, could be deemed to confer upon each
of them voting and/or investment power over the shares. Each
of Next Century Growth, Thomas L. Press and Donald M.
Longlet disclaim beneficial ownership of such stock except
to the extent of each of their respective pecuniary
interested therein, if any. All information regarding
ownership of Next Century Growth and Messrs. Press and
Longlet is based solely on a Schedule 13G filed by Next
Century Growth on February 14, 2007.
(8) Includes (a) 593,495 shares held by EGS Private Healthcare
Partnership, L.P., (b) 84,782 shares held by EGS Private
Healthcare Counterpart, L.P., (c) 1,046,798 shares held by
EGS Private Healthcare Partnership II L.P., (d) 165,089
shares held by EGS Private Healthcare Investors II, L.P.,
(e) 157,517 shares held by EGS Private Healthcare Canadian
Partners, L.P., and (f) 12,115 shares held by EGS Private
Healthcare President's Fund, L.P. (collectively, "EGS").
EGS Private Healthcare Investors, L.L.C. is the general
partner of EGS Private Healthcare Partnership II L.P., EGS
Private Healthcare Investors II, L.P., EGS Private
Healthcare Canadian Partners, L.P. and EGS Private
Healthcare President's Fund, L.P. and has voting and
dispositive power over the shares owned by such entities.
EGS Private Healthcare Investors, L.L.C. is managed by a
board of managers comprised of Abhijeet Lele and Terry
Vance. Such individuals disclaim beneficial ownership of all
such shares held by the foregoing funds, except to the
extent of their proportionate pecuniary interests therein.
EGS Private Healthcare Associates, LLC is the general
partner of EGS Private Healthcare Partnership, L.P. and EGS
Private Healthcare Counterpart, L.P. and has voting and
dispositive power over the shares owned by such entities.
EGS Private Healthcare Associates, LLC is managed by Fred
Greenberg, its managing member. Mr. Lele has also been
delegated authority to act on behalf of such entity. Such
individuals disclaim beneficial ownership of all such shares
held by the foregoing funds, except to the extent of their
proportionate pecuniary interests therein.
(9) Includes 300,000 shares purchased from us by TimesSquare
Capital Management, LLC in a registered direct public
offering in March 2007.
(10) Includes 3,315,549 shares held by and 58,302 shares issuable
under warrants held by Sanderling as described above. Mr.
Middleton disclaims beneficial ownership of the shares and
warrants held by Sanderling and
26
Middleton-McNeil L.P. except to the extent of his
proportionate ownership interest therein. Also includes
options to purchase 60,000 shares of common stock.
(11) Includes options to purchase 30,000 shares.
(12) Includes 2,329,253 shares held by and 217,915 shares
issuable under warrants held by Alafi Capital as described
above. Dr. Alafi is a general partner of Alafi Capital and
disclaims beneficial ownership of the shares and warrants
held by Alafi Capital except to the extent of his
proportionate partnership interest therein. Also includes
19,201 shares issuable under warrants and options to
purchase 27,500 shares of common stock held by Dr. Alafi.
(13) Includes options to purchase 30,000 shares.
(14) Includes options to purchase 27,500 shares.
(15) Includes 222,039 shares held by and 12,480 shares issuable
under warrants held by Prolog Capital A, L.P. and 114,379
shares held by and 6,720 shares issuable under warrants held
by Prolog Capital B, L.P. Dr. Johnson is a Principal of each
of such entities and disclaims beneficial ownership of the
shares and warrants held by such entities except to the
extent of his proportionate partnership interest therein.
Also includes options to purchase 27,500 shares of common
stock.
(16) Includes 4,000 shares held by Advisors To Healthcare
Suppliers (ATHS), formerly MedTech Partners. Mr. Kelley is a
partner of ATHS and disclaims beneficial ownership of the
shares held by ATHS except to the extent of his
proportionate partnership interest therein. Also includes
options to purchase 61,527 shares.
(17) Includes 2,059,796 shares held by held by EGS as described
above. Mr. Lele is a general partner of EGS and member of
the board of managers of EGS Private Healthcare Investments,
L.L.C. and EGS Private Healthcare Associates, L.L.C., which
control the EGS entities, and disclaims beneficial ownership
of such shares and warrants held by the EGS entities except
to the extent of his proportionate ownership interest
therein. Also includes options to purchase 23,333 shares of
common stock.
(18) Includes options to purchase 32,500 shares of common stock.
(19) Includes options to purchase 42,500 shares of common stock.
(20) Includes options to purchase 372,836 shares of common stock.
(21) Includes options to purchase 88,770 shares. Also includes
100 shares owned by Mr. Bruce's minor daughter.
(22) Includes options to purchase 231,200 shares of common stock.
(23) Includes options to purchase 5,875 shares of common stock.
(24) Includes options to purchase 111,238 shares of common stock.
(25) Includes options to purchase 107,814 shares of common stock.
27
VI. AUDIT COMMITTEE
Three non-employee directors comprise the audit committee. All are
independent as defined in Rule 4200 (a)(15) of the Rules of the NASD. The
Board of Directors has adopted a written charter for the audit committee
which was attached as Exhibit A to the Company's Proxy statement filed on
April 14, 2006.
The audit committee assists the board of directors in its oversight
of the Company's accounting and financial reporting process. Management has
the primary responsibility for the financial statements and the reporting
process, including the Company's systems of internal control, while the
independent registered public accountants are responsible for performing an
independent audit of the Company's financial statements in accordance with
auditing standards generally accepted in the United States and expressing
an opinion on the conformity of those financial statements with accounting
principles generally accepted in the United States.
In fulfilling its oversight responsibilities the Committee reviewed
and discussed the audited financial statements to be included in the Annual
Report on From 10-K for the year ended December 31, 2006 with management,
including a discussion of the quality and the acceptability of the
Company's financial reporting practices and the internal controls over
financial reporting.
The committee reviewed with the independent registered public
accounting firm their judgments as to the quality and the acceptability of
the Company's financial reporting and such other matters as are required to
be discussed with the Committee under auditing standards generally accepted
in the United States, including the matters required to be discussed by
Statement on Auditing Standards No. 61. In addition, the Committee
discussed with the independent auditors, the auditor's independence from
management of the Company including the matters in the auditors' written
disclosure and the letter required by Standard No. l of the Independence
Standards Board received by the Company.
The Company's independent registered public accountants did not
provide any non-audit services to the Company during 2006.
In reliance on the reviews and discussions referred to above, the
committee recommended to the board of directors that the audited financial
statements be included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2006 for filing with the Securities and
Exchange Commission, The committee has appointed Ernst & Young LLP as the
Company's independent registered public accountants for fiscal 2007.
William C. Mills III, Chair
Robert J. Messey
David W. Benfer
28
VII. PROPOSAL II: AMENDMENT OF THE 2002 STOCK INCENTIVE PLAN
Our 2002 Stock Incentive Plan was adopted by our Board of Directors
in February 2002 and approved by our stockholders in March 2002. Our Board
of Directors believes that long-term incentive compensation programs align
the interests of management, employees and the stockholders to create
long-term stockholder value. The Board believes that plans such as the 2002
Stock Incentive Plan increase our ability to achieve this objective by
allowing for several different forms of long-term incentive awards, which
the Board believes will help us recruit, reward, motivate and retain
talented personnel.
As of March 31, 2007, a total of 6,110,998 shares of common stock
have been reserved for issuance under this plan, which includes shares that
were available for issuance under the 1994 Stock Option Plan as of the date
the 2002 Stock Incentive Plan was adopted and shares that were added to the
authorized shares on January 1, 2003, 2004, 2005, 2006 and 2007 pursuant to
the terms of the 2002 Incentive Stock Plan. In addition, under the terms of
our 2002 Non-Employee Directors' Stock Plan, grants for shares in excess of
the 300,000 shares available under that plan reduce the number of shares
otherwise available for grant under the 2002 Stock Incentive Plan at the
time of any Stock Option award.
Under the terms of the 2002 Stock Incentive Plan, the exercise price
of each stock option is the market value of our common stock on the date of
grant. Stock options have a maximum term of 10 years but terminate earlier
if the individual ceases to serve as an employee. As of March 31, 2007,
options and stock appreciation rights to purchase 3,092,521 shares were
issued and outstanding under the 2002 Stock Incentive Plan and 1,848,314
options and stock appreciation rights had been exercised. In addition, as
of such date, 715,776 shares of restricted stock were issued and
outstanding under the 2002 Stock Incentive Plan. No other awards had been
made and 386,554 shares remained available for future grants as of such
date (which number accounts for the reduction of shares available under the
2002 Non-employee Directors' Stock Plan, as described in the preceding
paragraph). As of March 30, 2007, the closing price of our common stock was
$11.90 per share.
In April 2007, our Board of Directors approved a proposal to amend
the 2002 Stock Incentive Plan to increase the shares reserved for issuance
thereunder by 1,000,000 shares. We are seeking stockholder approval of this
amendment to the 2002 Stock Incentive Plan.
We are also seeking stockholder approval of the 2002 Stock Incentive
Plan for purposes of Section 162(m) of the Internal Revenue Code of 1986,
as amended, which we refer to as Section 162(m). Your approval of the 2002
Stock Incentive Plan will permit us to receive a tax deduction for certain
awards granted under the 2002 Stock Incentive Plan as described below.
Please see the summary of the 2002 Stock Incentive Plan below.
VOTE REQUIRED AND RECOMMENDATION
The affirmative vote of a majority of the votes cast, in person or
by proxy, will be required to approve the 2002 Stock Incentive Plan for
purposes of Section 162(m) and to amend the 2002 Stock Incentive Plan to
increase the number of shares reserved for issuance thereunder. Because
brokers are not permitted to vote on this proposal in the absence of voting
instructions from beneficial owners, broker non-votes will have no effect
on the outcome of this proposal. Abstentions will have the effect of
negative votes.
The Board of Directors and our executive officers have an interest
in this proposal as they may receive awards under the 2002 Stock Incentive
Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE
AMENDMENT TO INCREASE THE SHARES RESERVED UNDER THE 2002 STOCK INCENTIVE
PLAN BY 1,000,000 SHARES AND APPROVAL OF THE PLAN FOR 162(M) PURPOSES.
29
SUMMARY OF THE 2002 STOCK INCENTIVE PLAN (INCLUDING PROPOSED AMENDMENT TO
RESERVE AN ADDITIONAL 1,000,000 SHARES FOR ISSUANCE)
The 2002 Stock Incentive Plan is summarized below. The following
summary of certain features of the 2002 Stock Incentive Plan is qualified
in its entirety by reference to the actual text of the 2002 Stock Incentive
Plan, which is attached as Appendix A to this proxy statement.
General. This plan is designed to attract, motivate and retain our
-------
employees and other selected individuals through long-term incentive and
other awards, thereby providing them with a proprietary interest in our
growth and performance.
Eligibility. Our employees, including any employees of any direct or
-----------
indirect subsidiaries that we may form from time to time, and consultants
and contractors are eligible to participate in this plan, and awards may
consist of any form of stock option, performance share award or restricted
stock award. However, the grant of incentive stock options is restricted to
our employees or the employees of any of our direct or indirect
subsidiaries. There are currently approximately 200 employees and directors
eligible to participate under the 2002 Stock Incentive Plan.
Administration. This plan is administered by the Board of Directors
--------------
through a committee appointed by the Board of Directors. The Compensation
Committee of the Board of Directors currently administers this plan.
Currently, every member of the Compensation Committee is (i) a
"Non-Employee Director" within the meaning of Rule 16b-3 of the Exchange
Act, and (ii) an "independent director" for purposes of the rules and
regulations of The Nasdaq Global Market, Inc. Our Compensation Committee
charter specifies that a majority of the members shall be "outside
directors" as defined by Section 162(m) of the Internal Revenue Code, and
that any members who are not "outside directors" as defined by Section
162(m) of the Internal Revenue Code, shall recuse themselves from
participating in discussion regarding, or voting on, matters that require
the approval of "outside directors" under Section 162(m) of the Internal
Revenue Code. The Committee has full power to determine persons eligible to
participate in the plan, to interpret this plan, to adopt the rules,
regulations and guidelines necessary or proper to carry out this plan and
to determine the type and terms of any awards to be granted. The specific
terms, conditions, performance requirements, limitations and restrictions
of any award will be set forth in an award agreement, entered into between
us and a participant.
Awards may include but are not limited to the following:
Stock Options. The Committee is able to grant nonstatutory stock
options and incentive stock options under the 2002 Stock Incentive Plan.
The award agreement for an option grant shall set forth the terms and
provisions of the award, including the exercise price per share, the
maximum duration of the option and the number of shares of common stock to
which the option pertains. The exercise price of an incentive stock option
may not be less than 100% of the fair market value of the common stock on
the date the option is granted (110% in the case of a 10% stockholder), and
the exercise price of a nonstatutory option shall be determined by the
Committee, but may not be less than 85% of the fair market value of the
common stock on the date the option is granted. As our common stock is
listed on the Nasdaq Global Market, the fair market value is the per share
closing sale price for the common stock (or the average of the closing bid
and asked prices if no sales were reported that day) on the date the option
is granted. No individual may be granted options to purchase more than
277,777 shares during any fiscal year.
The price at which shares of stock may be purchased under a stock
option must be paid in cash at the time of exercise, or, at the discretion
of the Committee, by the tender of stock or another award, or through a
cashless exercise whereby a portion of the proceeds from the sale of the
option shares is paid to us in satisfaction of the exercise price.
The term of an option may not exceed 10 years, except that, with
respect to any participant who owns 10% of the voting power of all classes
of our outstanding capital stock, the term of an incentive stock option may
not exceed five years.
30
Pursuant to the current form of nonqualified stock option agreement
and the form of incentive stock option agreement, options have a ten year
term. Grants to non-employees generally vest over a one or two-year period.
Under the current form of stock option agreement, grants to employees
generally become partially available for exercise on the first anniversary
of the grant date. On such date, 25% of the shares covered by the option
become available for exercise, with an additional 2.0833% becoming
available on the first day of each calendar month thereafter, such that the
entire number of shares covered by an option are available by the fourth
anniversary of the grant date. In the event of a change of control and if a
participant's employment is terminated in contemplation of, or within one
year after, the change of control, the option fully vests. For these
purposes, a change of control means:
* the purchase or acquisition by any person, entity or group of
beneficial ownership of 20% or more of the then-outstanding shares
of our common stock or of the combined voting power to elect the
board of directors;
* a change in a majority of the members of the board of directors in
place at the date of effectiveness of this plan, unless any such
change is approved by a majority of such remaining original board
members; or
* the liquidation, dissolution, sale of all or substantially all of
our assets, or a merger, reorganization or consolidation, under
circumstances whereby the stockholders immediately prior to such
transaction do not own more than 50% of the common stock and
combined voting power of the successor corporation immediately
after such transaction.
After a termination of service with us, a participant will be able
to exercise the vested portion of his or her option for the period of time
stated in the award agreement. If no such period of time is stated in the
participant's award agreement, the participant will generally be able to
exercise his or her option for (i) 30 days following his or her termination
for reasons other than death or disability, and (ii) twelve months
following his or her termination due to death or disability. In no event
may an option be exercised later than the expiration of its term.
Stock Appreciation Rights. The Committee has approved the issuance
of stock appreciation rights under the Plan. Stock appreciation rights are
the rights to receive the appreciation in fair market value of common stock
between the exercise date and the date of grant. We can pay the
appreciation in either cash, or shares of our common stock, or a
combination thereof. Stock appreciation rights will become exercisable at
the times and on the terms established by the Committee, subject to the
terms of the 2002 Stock Incentive Plan. The Committee, subject to the terms
of the 2002 Stock Incentive Plan, will have complete discretion to
determine the terms and conditions of stock appreciation rights granted
under the 2002 Stock Incentive Plan; provided, however, that the term of a
stock appreciation right may not repriced without stockholder approval, as
discussed below. After termination of service with us, a participant will
be able to exercise the vested portion of his or her stock appreciation
right for the period of time stated in the award agreement. If no such
period of time is stated in a participant's award agreement, a participant
will generally be able to exercise his or her stock appreciation right for
(i) six months following his or her termination for reasons other than
death or disability, and (ii) twelve months following his or her
termination due to death or disability. In no event will a stock
appreciation right be exercised later than the expiration of its term.
Performance Shares. A performance share award is an award
denominated in units of stock, which will provide for payment of stock if
performance goals are achieved over specified performance periods. Once the
performance share award vests, the participant shall be entitled to payout
of the value of the award in shares of common stock.
Restricted Stock. Restricted stock is an award of common stock
granted subject to restrictions on transfer and vesting requirement as
determined by the Committee. The Committee shall have complete discretion
to determine (i) the number of shares subject to a restricted stock granted
to any participant and (ii) the conditions for grant or for vesting that
must be satisfied, which typically will be based principally or solely on
continued service to us but may include a performance-based component.
Shares of common stock granted under any restricted stock agreement may not
be sold, transferred, pledged, assigned or otherwise alienated or
hypothecated until all applicable restrictions are removed or have expired,
except as provided for by the Committee.
31
Restrictions on Transferability. Awards granted under this plan are
-------------------------------
generally not transferable by the participant except by law, will or the
laws of descent and distribution, or by permission of the Committee.
Receipt of Award. If payment is required, payment of awards may be
----------------
made in the form of cash, stock or any combination of cash or stock as
determined by the committee. In addition, payments may be deferred, and
dividends or dividend equivalent rights may be extended to and made a part
of any award denominated in stock or units of stock, in accordance with
such terms, conditions or restrictions as the Committee may establish.
Participants may also be offered an election to substitute an award for
another award or awards of the same or different type.
Section 162(m). Section 162(m) denies a deduction to any publicly
--------------
held corporation for compensation paid to "covered employees" in a taxable
year to the extent that compensation to any covered employee exceeds $1
million. It is possible that compensation attributable to stock awards,
when combined with all other types of compensation received by our covered
employees, could cause us to exceed this limitation in any particular year
for one or more of our covered employees. For purposes of Section 162(m),
the term "covered employee" means our chief executive officer and our four
highest compensated officers as of the end of a taxable year, determined in
accordance with federal securities laws.
Compensation that qualifies as "performance-based compensation"
under Section 162(m) is exempt from the $1 million deduction limit. The
2002 Stock Incentive Plan is being submitted to the stockholders for
approval in order to permit certain awards granted under 2002 Stock
Incentive Plan to covered employees to qualify as "performance-based
compensation." Prior to the date of the Annual Meeting, awards granted
under the Incentive Compensation Plan were exempt from the deduction limit
imposed by Section 162(m) based upon a transition exemption for companies
that have recently become public. This transition exemption ends as of the
date of the 2008 Annual Meeting.
In order to preserve our ability to deduct the compensation
associated with options and stock appreciation rights granted to such
persons, the 2002 Stock Incentive Plan provides that no participant may be
granted options and stock appreciation rights to purchase more than 277,777
shares of common stock in any fiscal year. We have designed the 2002 Stock
Incentive Plan so that it permits us to also issue other awards that
qualify as performance-based compensation under Section 162(m) of the Code.
The Committee, in its discretion, may establish performance goals
applicable to a participant with respect to an award. At the Committee's
discretion, one or more of the following performance goals may apply:
annual revenue, cash position, earnings per share, net income, operating
cash flow, operating income, return on assets, return on equity, return on
sales, and total stockholder return, all as determined in accordance with
accounting principles generally accepted in the United States.
Capitalization Changes. In the event that our capital stock is
----------------------
changed by reason of any stock split, reverse stock split, stock dividend,
recapitalization or other change in our capital structure, appropriate
proportional adjustments shall be made in the number and class of shares of
stock subject to the 2002 Stock Incentive Plan, the individual fiscal year
limits applicable to restricted stock, performance share awards, stock
appreciation rights and options, the number and class of shares of stock
subject to any award outstanding under the 2002 Stock Incentive Plan, and
the exercise price of any such outstanding option or SAR or other award.
Any such adjustment shall be made upon approval of the Compensation
Committee of our Board of Directors, whose determination shall be
conclusive.
Repricings. Other than in connection a change in our capitalization,
----------
discussed above, neither the Committee nor the Board shall have the
authority to reprice any outstanding option or stock appreciation right
without stockholder approval. For purposes of the 2002 Stock Incentive
Plan, repricing includes lowering the exercise price of an option or the
grant price of a stock appreciation right after it is granted and canceling
an option at a time when its exercise price exceeds the fair market value
of the underlying stock, in exchange for an option, restricted stock award
or other equity related award.
32
Amendment, Suspensions and Termination of the 2002 Stock Incentive
------------------------------------------------------------------
Plan. Our Board of Directors may amend, alter, suspend or terminate the
----
2002 Stock Incentive Plan at any time, except that stockholder approval is
required for any amendment to the 2002 Stock Incentive Plan to the extent
required by any applicable laws. No amendment, alteration, suspension or
termination of the 2002 Stock Incentive Plan will impair the rights of any
participant, unless mutually agreed otherwise between the participant and
the Committee and which agreement must be in writing and signed by the
participant and the Company. The 2002 Stock Incentive Plan will terminate
on March 25, 2012, unless our Board of Directors terminates it earlier.
FEDERAL INCOME TAX ASPECTS
The following paragraphs are a summary of the general federal income
tax consequences to U.S. taxpayers and the Company of awards granted under
the 2002 Stock Incentive Plan. Tax consequences for any particular
individual may be different.
Nonstatutory Stock Options. No taxable income is realized when a
--------------------------
nonstatutory stock option with an exercise price equal to the fair market
value of the underlying stock on the date of grant is granted to a
participant. Upon exercise, the participant will recognize ordinary income
in an amount by which the fair market value of the shares purchased on the
date of exercise, exceeds the exercise price paid for such share. Any
taxable income recognized in connection with an option exercise by an
employee of the Company is subject to tax withholding by the Company. Any
additional gain or loss recognized upon any later disposition of the shares
would be capital gain or loss.
Incentive Stock Options. No taxable income is realized when an
-----------------------
incentive stock option is granted or exercised (except for purposes of the
alternative minimum tax, in which case the differential between the fair
market value on the date of grant and the exercise price is an alternative
minimum tax preference item). If a participant exercises the option and
then later sells or otherwise disposes of the shares acquired pursuant to
an incentive stock option more than two years after the grant date and more
than one year after the exercise date, the difference between the sale
price and the exercise price will be taxed as capital gain or loss. If the
participant exercises the option and then later sells or otherwise disposes
of the shares before the end of the two- or one-year holding periods
described above, he or she generally will realize ordinary income at the
time of the disposition equal to the fair market value of the shares on the
exercise date (or the sale price, if less) minus the exercise price of the
option.
Stock Appreciation Rights. No taxable income is realized when a
-------------------------
stock appreciation right with an exercise price equal to the fair market
value of the underlying stock on the date of grant is granted to a
participant. Upon exercise, the participant will recognize ordinary income
in an amount equal to the amount of excess, if any, of the fair market
value of the stock on the date of exercise over the fair market value of
the stock on the date of grant. Any additional gain or loss recognized upon
any later disposition of the shares would be capital gain or loss.
Restricted Stock. Unless a timely 83(b) election is made, as
----------------
described in the following paragraph, a participant generally will not
realize taxable income at the time an award of restricted stock is granted.
Instead, he or she will recognize ordinary income in the first taxable year
in which his or her interest in the shares underlying the award becomes
either (i) freely transferable, or (ii) no longer subject to substantial
risk of forfeiture. The amount of ordinary income recognized will be equal
to the difference between the fair market value of the shares at the time
any restrictions on transferability lapse and the original purchase price
paid for the shares, if any.
A participant may elect, pursuant to Section 83(b) of the Internal
Revenue Code, to recognize ordinary income at the time he or she is granted
the award in an amount equal to the fair market value of the shares
underlying the award (less the purchase price paid for the shares, if any)
on the date the award is granted, notwithstanding that the restricted stock
would otherwise not be includible in gross income at that time. Any change
in the value of the shares after the date of grant would be taxed as a
capital gain or loss if and when the shares are disposed of by the
participant. If the section 83(b) election is made, the participant's
holding period for capital gains begins on the date of grant.
Performance Shares. A participant generally will not recognize
------------------
taxable income upon the granting of an award of performance shares. Upon
selling shares of stock received in payment under a performance share, the
participant
33
will recognize a capital gain or loss in an amount equal to the difference
between the sale price of the share and the participant's tax basis in the
share.
Tax Effect for the Company. We generally will be entitled to a tax
--------------------------
deduction in connection with an award under the 2002 Stock Incentive Plan
in an amount equal to the ordinary income realized by a participant and at
the time the participant recognizes such income (for example, the exercise
of a nonstatutory stock option). Special rules limit the deductibility of
compensation paid to our Chief Executive Officer and to each of its four
most highly compensated executive officers. Under Section 162(m), the
annual compensation paid to any of these specified executives will be
deductible only to the extent that it does not exceed $1,000,000. However,
we can preserve the deductibility of certain compensation in excess of
$1,000,000 if the conditions of Section 162(m) are met. These conditions
include stockholder approval of the 2002 Stock Incentive Plan, which we are
seeking as part of this proxy, setting limits on the number of awards that
any individual may receive and for awards other than certain stock options,
establishing performance criteria that must be met before the award
actually will vest or be paid. The 2002 Stock Incentive Plan has been
designed to permit the Committee to grant awards that qualify as
performance-based for purposes of satisfying the conditions of Section
162(m), thereby permitting us to continue to receive a federal income tax
deduction in connection with such awards.
Section 409A. Section 409A of the Code, which was added by the
------------
American Jobs Creation Act of 2004, provides certain new requirements with
respect to non-qualified deferred compensation arrangements. These include
new requirements with respect to an individual's election to defer
compensation and the individual's election of the timing and form of
distribution of the deferred compensation. Section 409A also generally
provides that distributions may only be made on or following the occurrence
of certain events (e.g., the individual's separation from service, a
predetermined date, or the individual's death or a change in control).
Section 409A imposes restrictions on an individual's ability to change his
or her distribution timing or form after the compensation has been
deferred. For certain individuals who are "specified employees", Section
409A requires that such individual's distribution commence no earlier than
six months after such individuals separation from service. For purposes of
Section 409A, the term "specified employee" includes officers with a
certain level of compensation ($145,000 in 2007) and employees with a
certain level of ownership in the company.
Awards granted under the 2002 Stock Incentive Plan with a deferral
feature will be subject to the requirements of Section 409A. If an award is
subject to and fails to satisfy the requirements of Section 409A, the
recipient of that award may recognize ordinary income on the amounts
deferred under the award, to the extent vested, which may be prior to when
the compensation is actually or constructively received. Also, if an award
that is subject to Section 409A fails to comply with Section 409A's
provisions, Section 409A imposes an additional 20% federal income tax on
compensation recognized as ordinary income, as well as interest on such
deferred compensation. Generally, we intend to structure any awards under
the 2002 Stock Incentive Plan to meet the applicable tax law requirements
under Section 409A in order to avoid its adverse tax consequences.
THE FOREGOING IS ONLY A SUMMARY OF CERTAIN FEDERAL INCOME TAX
CONSEQUENCES TO THE PARTICIPANTS AND THE COMPANY WITH RESPECT TO THE GRANT
AND EXERCISE OF AWARDS UNDER THE 2002 STOCK INCENTIVE PLAN. IT DOES NOT
PURPORT TO BE COMPLETE, AND DOES NOT DISCUSS THE TAX CONSEQUENCES OF A
PARTICIPANT'S DEATH OR THE PROVISIONS OF THE INCOME TAX LAWS OF ANY
MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE PARTICIPANT MAY RESIDE.
ACCOUNTING TREATMENT
We adopted Statement of Financial Accounting Standards ("SFAS") No.
123 (revised 2004), "Share-Based Payment," ("SFAS 123(R)") in the first
quarter of fiscal 2006. SFAS 123(R) requires the estimated fair market
value of all share-based payments to employees, including grants of
employee stock options, to be recognized as expense in the statement of
operations. Share-based compensation expense to be recognized would include
the estimated expense for all stock awards granted on and subsequent to
January 29, 2006, based on the grant date fair value estimated in
accordance with the provisions of SFAS 123(R), and the estimated expense
for the portion vesting in the
34
period for options granted prior to, but not vested as of January 29, 2006,
based on the grant date fair value estimated in accordance with the
original provisions of SFAS 123.
STOCK ISSUANCES
The Committee has discretionary authority to approve awards under
the 2002 Incentive Stock Plan. For this reason, the benefits that will be
received by or allocated to any person or group of persons under the 2002
Stock Incentive Plan in future periods is not presently determinable. No
awards have been approved by the Committee to be granted under the 2002
Incentive Stock Plan subject to stockholder approval at the 2007 Annual
Meeting.
VIII. PROPOSAL III: RATIFICATION OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTANTS
Our audit committee, pursuant to its charter, has appointed Ernst &
Young LLP as the Company's independent registered public accountants to
examine the financial statements of the Company for our 2007 fiscal year.
While the audit committee is responsible for the appointment,
compensation, retention, termination and oversight of the independent
registered public accounting firm, the audit committee and our board are
requesting, as a matter of policy, that the stockholders ratify the
appointment of Ernst & Young LLP as the Company's independent registered
public accountants for 2007. The audit committee is not required to take
any action as a result of the outcome of the vote on this proposal.
However, if the stockholders do not ratify the appointment, the audit
committee may investigate the reasons for stockholder rejection and may
consider whether to retain Ernst & Young LLP or to appoint another firm.
Furthermore, even if the appointment is ratified, the audit committee in
their discretion may direct the appointment of a different independent
registered public accounting firm at any time during the year if they
determine that such a change would be in the best interests of the Company
and its stockholders.
A formal statement by representatives of Ernst & Young LLP is not
planned for the annual meeting. However, Ernst & Young LLP representatives
are expected to be present at the meeting and available to respond to
appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF
THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL YEAR 2007.
35
IX. PRINCIPAL ACCOUNTING FEES AND SERVICES
The following fees were charged for professional services rendered
by Ernst & Young LLP, our independent auditors, in fiscal year 2005 and
fiscal year 2006:
---------------------------------------------------------------------------------
AMOUNT BILLED FOR
FISCAL YEAR
-------------------
2005 2006
DESCRIPTION OF PROFESSIONAL SERVICE $ $
---------------------------------------------------------------------------------
AUDIT FEES - professional services rendered for the audit
of our annual financial statements and review of financial
statements included in our Form 10-Q or services that are
normally provided by the accountant in connection with
statutory and regulatory filings or engagements for those
fiscal years. $492,883 $491,983
---------------------------------------------------------------------------------
AUDIT-RELATED FEES - assurance and related services by
Ernst & Young LLP that are reasonably related to the
performance of the audit or review of financial statements
and are not reported as "Audit Fees." 1,500 1,500
---------------------------------------------------------------------------------
TAX FEES - professional services rendered by Ernst & Young
LLP for tax compliance, tax advice and tax planning. -- --
---------------------------------------------------------------------------------
ALL OTHER FEES -- --
---------------------------------------------------------------------------------
TOTAL ERNST & YOUNG LLP FEES $494,383 $493,483
---------------------------------------------------------------------------------
PRE-APPROVAL POLICY
As described in the audit committee charter, which was amended and
restated in March 2004, it is the audit committee's policy and procedure to
review and consider and ultimately pre-approve, where appropriate, all
audit and non-audit engagement services to be performed by our independent
registered public accountants.
X. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Since January 1, 2001, there has not been, nor is there currently
planned, any transaction or series of similar transactions to which we were
or are a party in which the amount involved exceeds $120,000 and in which
any director, executive officer or holder of more than 5% of our common
stock or any member of such persons' immediate families had or will have a
direct or indirect material interest other than agreements which are
described below.
Nasdaq Rules. The Nasdaq rules defining "independent" director
status also govern conflict of interest situations. Each of our directors
other than Mr. Hogg qualifies as "independent" in accordance with Nasdaq
rules. The Nasdaq rules include a series of objective tests that would not
allow a director to be considered independent if the director had certain
employment, business or family relationships with the Company. The Nasdaq
independence definition includes a requirement that the board also review
the relations of each independent director to the Company on a subjective
basis. In accordance with that review, the board has made a subjective
determination as to each independent director that no relationships exist
that, in the opinion of the board, would interfere with the exercise of
independent judgment in carrying out the responsibilities of a director. In
making these determinations, the directors reviewed and discussed
information provided by the directors and the Company with regard to each
director's business and personal activities as they may relate to the
Company and the Company's management.
SEC Rules. In addition to the Company and Nasdaq policies and rules
described above, the SEC has specific disclosure requirements covering
certain types of transactions involving the Company and a director,
executive officer or other specified party. There were no such transactions
in fiscal year 2006 except as disclosed below. Further, with regard to SEC
rules, we have not engaged in any transaction, or series of similar
transactions, since the beginning of fiscal year 2006, or any currently
proposed transaction, or series of similar transactions, to which the
Company was or is to be a party, in which the amount involved exceeds
$120,000 and in which any of our directors, executive
36
officers, nominees for election as a director, beneficial owners of more
than 5% of our Common Stock, or members of their immediate family had, or
will have, a direct or indirect material interest.
In addition, except as noted in the following paragraph, none of the
following persons has been indebted to the Company or its subsidiaries at
any time since the beginning of fiscal year 2006: any of our directors or
executive officers; any nominee for election as a director; any member of
the immediate family of any of our directors, executive officers or
nominees for director; any corporation or organization of which any of our
directors, executive officers or nominees is an executive officer or
partner or is, directly or indirectly, the beneficial owner of 10% or more
of any class of equity securities (except trade debt entered into in the
ordinary course of business); and any trust or other estate in which any of
the directors, executive officers or nominees for director has a
substantial beneficial interest or for which such person serves as a
trustee or in a similar capacity.
NOTE RECEIVABLE
In November 2001, we loaned $134,700 to Doug Bruce in connection
with the exercise of options to purchase 83,333 shares of common stock.
This note was a full recourse note which bore interest at the rate of 7%
per annum. This note and the accrued interest due were fully repaid in
2006.
NOTE AND WARRANT PURCHASE AGREEMENT
In November 2005, we entered into a Note and Warrant Purchase
Agreement with Sanderling Venture Partners VI Co-Investment Fund, L.P. and
Alafi Capital Company LLC relating to (i) the commitment by these investors
to lend to us up to an aggregate principal amount of $20 million (the
"Committed Funds") to be evidenced by promissory notes (the "Notes"), and
(ii) the issuance of warrants to purchase shares of our common stock. The
private placement was conducted pursuant to Section 4(2) of the Securities
Act of 1933, as amended. Net proceeds from the private placement, if they
had been drawn, would have been used for working capital and other general
corporate purposes.
The Committed Funds were available for us to draw until the earlier
of May 10, 2006 or the receipt by us of not less than $30 million in
connection with a future equity or debt strategic financing with a medical
device or technology company (the "Commitment Period"), with an option to
extend the Commitment Period and the term of the Notes through November 10,
2006. Each of the investors received five-year warrants to purchase 153,209
shares of our common stock at an exercise price of $6.527 per share, which
was equal to the average daily closing price of our common stock for 10
consecutive trading days commencing November 4, 2005 and ending on November
17, 2005. The number of shares of common stock issued was equal to the
portion of such investor's Committed Funds multiplied by 10%, divided by
the exercise price. Additional warrants would have been issuable if we had
drawn down on the Committed Funds or elected to extend the Commitment
Period or the term of the Notes to November 10, 2006. We did not extend the
Commitment Period or draw down the funds.
Our chairman, Fred A. Middleton, is a managing director of an entity
that is the general partner of Sanderling Venture Partners VI Co-Investment
Fund, L.P. Christopher Alafi, one of our board members, is a manager of
Alafi Capital Company.
ARRANGEMENTS WITH DR. PRYSTOWSKY
On February 7, 2007, we appointed Dr. Eric N. Prystowsky as a Class
I member of our Board of Directors. In February 2004, we entered into a
consulting agreement with Dr. Prystowsky, one of our directors. The
agreement was amended in July 2005 and provides that Dr. Prystowsky will
serve as Chairman of our Electrophysiology Scientific Advisory Board and as
a member of our Scientific Advisory Board. Additionally, Dr. Prystowsky
agreed to (1) advise us in matters related to magnetic navigation systems,
devices and therapies, (2) make presentations at conferences and seminars
on our behalf, and (3) educate and train physicians regarding our
technology. In consideration for his consulting and advisory board
services, Dr. Prystowsky is entitled to receive a total cash stipend of
$75,000 per year. Dr. Prystowsky also receives an annual stipend of $40,000
for the educational services he provides us. If Dr. Prystowsky provides
more than 50 hours of educational services in a year he will receive an
hourly fee of $800 for the
37
additional hours, up to a maximum of $100,000 total fees for his
educational services. We paid a total of $79,583 to Dr. Prystowsky in 2005
and $136,600 in 2006 for consulting services under this agreement. The
initial term of the agreement expired in February 2007 and was extended for
a one-year period in accordance with the terms of the contract.
Compensation under the consulting agreement is separate from compensation
payable to Dr. Prystowsky as a director.
XI. STOCK PRICE PERFORMANCE GRAPH
The following graph shows the total shareholder return of an
investment of $100 in cash since Stereotaxis' initial public offering of
common stock on August 11, 2004 through December 31, 2006, the NASDAQ
Composite (U.S.) Index and the NASDAQ Medical Device Index. All values
assume reinvestment of the full amount of all dividends although dividends
have never been declared on Stereotaxis' common stock.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG STEREOTAXIS, INC., THE NASDAQ STOCK MARKET,
AND THE NASDAQ MEDICAL DEVICE MANUFACTURER'S INDEX
[graph]
-------------------------------------------------------------------------
8/12/04 12/31/04 6/30/05 12/31/05 6/30/06 12/31/06
-------------------------------------------------------------------------
Stereotaxis, Inc. $100.00 125.70 102.43 110.10 137.98 131.97
NASDAQ $100.00 123.83 117.60 126.46 125.05 138.94
NASDAQ Medical Device Index $100.00 118.93 118.49 130.58 125.39 137.72
----------------------------
In accordance with the rules of the SEC, the information contained
in the Report of the Compensation Committee on Executive Compensation, the
Report of the Audit Committee and the Stock Price Performance Graph shall
not be deemed to be "soliciting material," or to be "filed" with the SEC or
subject to the SEC's Regulation 14A, or to the liabilities of Section 18 of
the Securities Exchange Act of 1934, as amended, except to the extent that
the Company specifically requests that the information be treated as
soliciting material or specifically incorporates it by reference into a
document filed under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended.
38
XII. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires all Company executive officers, directors, and persons owning more
than 10% of any registered class of our capital stock to file reports of
ownership and changes in ownership with the SEC. Based solely on the
reports received by us and on written representations from reporting
persons, we believe that all such persons timely filed such reports during
the last fiscal year with the exception of Mr. Benfer, who filed a late
Form 4 in June 2006, reporting his purchase of 600 shares of our common
stock that occurred in May 2006.
XIII. GENERAL INFORMATION
A. STOCKHOLDER PROPOSALS
PROPOSALS INCLUDED IN PROXY STATEMENT
Proposals of stockholders of the Company that are intended to be
presented by such stockholders at the Company's 2008 annual meeting and
that stockholders desire to have included in the Company's proxy materials
relating to such meeting must be received by the Company at its principal
executive offices no later than December 23, 2007, which is 120 calendar
days prior to the anniversary of this year's mailing date. Upon timely
receipt of any such proposal, the Company will determine whether or not to
include such proposal in the proxy statement and proxy in accordance with
applicable regulations governing the solicitation of proxies.
PROPOSALS NOT INCLUDED IN THE PROXY STATEMENT
Our restated bylaws provide that stockholders seeking to bring
business before an annual meeting of stockholders, or to nominate
candidates for election as directors at an annual meeting of stockholders,
must provide timely notice in writing. To be timely, a stockholder's notice
must be delivered to or mailed and received at our principal executive
offices not more than 120 days or less than 90 days prior to the
anniversary date of the immediately preceding annual meeting of
stockholders. However, in the event that the annual meeting is called for a
date that is not within 30 days before or after such anniversary date,
notice by the stockholder in order to be timely must be received not later
than the close of business on the 10th day following the date on which
notice of the date of the annual meeting was mailed to stockholders or made
public, whichever first occurs. Our restated bylaws specify requirements as
to the form and content of a stockholder's notice. These provisions may
preclude stockholders from bringing matters before an annual meeting of
stockholders or from making nominations for directors at an annual meeting
of stockholders.
Any stockholder wishing to submit a candidate for election to our
board of directors should follow the procedures outlined in "Director
Nominations." For all other proposals, as to each matter of business
proposed, the stockholder should send the following information to the
Corporate Secretary, Stereotaxis, Inc., 4320 Forest Park Avenue, Suite 100,
St. Louis, Missouri 63108:
* A brief description of the business desired to be brought before
the meeting and the reasons for conducting such business;
* The text of the business (including the text of any resolutions
proposed and the language of any proposed amendment to our charter
documents);
* The name and address, as they appear in our stockholder records,
of the stockholder(s) proposing such business;
* The class and number of shares of the stock which are beneficially
owned by the proposing stockholder(s);
* Any material interest of the proposing stockholder(s) in such
business; and
39
A statement as to whether either the proposing stockholder(s)
intend(s) to deliver a proxy statement and form of proxy to holders of, in
the case of the proposal, at least the percentage of the Company's voting
shares required under applicable law to carry the proposal.
A more complete description of this process is set forth in our
bylaws.
B. HOUSEHOLDING OF PROXIES
The Securities and Exchange Commission has adopted rules that permit
companies and intermediaries such as brokers to satisfy delivery
requirements for annual reports and proxy statements with respect to two or
more stockholders sharing the same address by delivering a single annual
report and/or proxy statement addressed to those stockholders. This process
is commonly referred to as "householding." The Company and some brokers
household annual reports and proxy materials, delivering a single annual
report and/or proxy statement to multiple stockholders sharing an address
unless contrary instructions have been received from the affected
stockholders.
Once you have received notice from your broker or the Company that
your broker or we will be householding materials to your address,
householding will continue until you are notified otherwise or until you
revoke your consent. If, at any time, you no longer wish to participate in
householding and would prefer to receive a separate annual report and/or
proxy statement in the future, please notify your broker if your shares are
held in a brokerage account or us if you hold registered shares. If, at any
time, you and another stockholder sharing the same address wish to
participate in householding and prefer to receive a single copy of our
annual report and/or proxy statement, please notify your broker if your
shares are held in a brokerage account or us if you hold registered shares.
You may request to receive at any time a separate copy of our annual
report or proxy statement, or notify us that you do or do not wish to
participate in householding by sending a written request to our Corporate
Secretary at 4320 Forest Park Avenue, Suite 100, St. Louis, Missouri 63108,
or by telephoning 314-678-6100.
C. OTHER INFORMATION
The board of directors knows of no matter, other than those referred
to in this proxy statement, which will be presented at the meeting.
However, if any other matters, including a stockholder proposal excluded
from this proxy statement pursuant to the rules of the SEC, properly come
before the meeting or any of its adjournments, the person or persons voting
the proxies will vote in accordance with their best judgment on such
matters. Should any nominee for director be unable to serve or for good
cause will not serve at the time of the meeting or any adjournments
thereof, the persons named in the proxy will vote for the election of such
other person for such directorship as the board of directors may recommend,
unless, prior to the meeting, the board has eliminated that directorship by
reducing the size of the board. The board is not aware that any nominee
herein will be unable to serve or for good cause will not serve as a
director.
The Company will bear the expense of preparing, printing and mailing
this proxy material, as well as the cost of any required solicitation.
Directors, officers or employees of the Company may solicit proxies on
behalf of the Company. In addition, the Company will reimburse banks,
brokerage firms, and other custodians, nominees and fiduciaries for
reasonable expenses incurred in forwarding proxy materials to beneficial
owners of the Company's stock and obtaining their proxies.
You are urged to vote promptly by marking, signing, dating, and
returning your proxy card. You may revoke your proxy at any time before it
is voted; and if you attend the meeting, as we hope you will, you may vote
your shares in person.
ANNUAL REPORT
This proxy statement has been accompanied with or preceded by our
Annual Report to Stockholders and our Annual Report on Form 10-K, excluding
exhibits, as filed with the SEC.
April 23, 2007
40
EXHIBIT A
STEREOTAXIS, INC.
2002 STOCK INCENTIVE PLAN
AS PROPOSED TO BE AMENDED BY THE STOCKHOLDERS ON MAY 24, 2007
1. OBJECTIVES.
The Stereotaxis, Inc. 2002 Stock Incentive Plan (the "Plan") is designed to
attract, motivate and retain selected employees of, and other individuals
providing services to, the Company. These objectives are accomplished by
making long-term incentive and other awards under the Plan, thereby
providing Participants with a proprietary interest in the growth and
performance of the Company.
2. DEFINITIONS.
(a) "Awards"--The grant of any form of stock option, performance share
award, or restricted stock award, whether granted singly, in combination or
in tandem, to a Participant pursuant to such terms, conditions, performance
requirements, limitations and restrictions as the Committee may establish
in order to fulfill the objectives of the Plan.
(b) "Award Agreement"--An agreement between the Company and a
Participant that sets forth the terms, conditions, performance
requirements, limitations and restrictions applicable to an Award.
(c) "Board"--The Board of Directors of the Company.
(d) "Code"--The Internal Revenue Code of 1986, as amended from time to
time.
(e) "Committee"--The committee designated by the Board to administer the
Plan and chosen from those of its members, or, in the absence of any such
Committee, the Board.
(f) "Company"--Stereotaxis, Inc., a Delaware corporation.
(g) "Fair Market Value"--The last sale price, regular way, or, in case
no such sale takes place on such date, the average of the closing bid and
asked prices, regular way, of the Shares, in either case as reported in the
principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the New York Stock Exchange,
Inc. (the "NYSE") or, if the Shares are not listed or admitted to trading
on the NYSE, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal
national securities exchange on which the Shares are listed or admitted to
trading or, if the Shares are not listed or admitted to trading on any
national securities exchange, the last quoted sale price on such date or,
if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market on such date, as reported by the National
Association of Securities Dealers, Inc. Automated Quotations System or such
other system then in use, or, if on any such date the Shares are not quoted
by any such organization, the average of the closing bid and asked prices
on such date as furnished by a professional market maker making a market in
the Shares selected by the Committee. If the Shares are not publicly held
or so listed or publicly traded, the determination of the Fair Market Value
per Share shall be made in good faith by the Committee.
(h) "Fiscal Year"--The fiscal year of the Company, as the same may be
changed from time to time.
(i) "Incentive Stock Option"--A stock option intended to meet the
requirements of Section 422 of the Code and the regulations thereunder.
(j) "Nonqualified Stock Option"--A stock option which is not an
Incentive Stock Option.
(k) "Participant"--An individual to whom an Award has been made under
the Plan. Awards may be made to employees of the Company, or any of its
subsidiaries (including subsidiaries of subsidiaries), or any other entity
in which the Company has a significant equity or other interest, as
determined by the Committee, as well as individuals providing services to
the Company; provided, that Incentive Stock Options may only be granted to
employees of the Company or any of its subsidiaries (including subsidiaries
of subsidiaries).
A-1
(l) "Performance Period"--A period of one or more consecutive Fiscal
Years over which one or more of the performance criteria listed in Section
5(e) shall be measured pursuant to the grant of Awards (whether such Awards
take the form of stock options, performance share awards, long term cash
incentives or stock ownership incentive awards). Performance Periods may
overlap one another.
(m) "Shares" or "Stock"--Authorized and issued or unissued shares of
common stock of the Company.
3. STOCK AVAILABLE FOR AWARDS.
Subject to adjustment pursuant to Section 12, the number of shares that may
be issued under the Plan for Awards granted wholly or partly in stock
during the term of the Plan is 7,110,998.(1) Shares of Stock may be made
available from the authorized but unissued shares of the Company, from
shares held in the Company's treasury and not reserved for some other
purpose, or from shares purchased on the open market. For purposes of
determining the number of shares of Stock issued under the Plan, no shares
shall be deemed issued until they are actually delivered to a Participant,
or such other person in accordance with Section 9. Shares covered by Awards
that either wholly or in part are not earned, or that expire or are
forfeited, terminated, canceled, settled in cash, payable solely in cash or
exchanged for other Awards, shall be available for future issuance under
Awards. Further, shares tendered to the Company in connection with the
exercise of stock options, or withheld by the Company for the payment of
tax withholding on any Award, shall also be available for future issuance
under Awards; provided, however, that not more than 5,194,851 shares may be
used for the grant of Incentive Stock Options.
4. ADMINISTRATION.
The Plan shall be administered by the Committee, which shall have full
power to select Participants, to interpret the Plan, and to adopt such
rules, regulations and guidelines for carrying out the Plan as it may deem
necessary or proper. A majority of the Committee shall constitute a quorum.
The acts of a majority of the members present at any meeting at which a
quorum is present and acts approved in writing by a majority of the
Committee in lieu of a meeting shall be deemed acts of the Committee. Each
member of the Committee is entitled to, in good faith, rely upon any report
or other information furnished to that member by any officer or other
associate of the Company, any subsidiary, the Company's certified public
accountants, or any executive compensation consultant or other professional
retained by the Company to assist in the administration of the Plan.
5. AWARDS.
The Committee shall determine the type or types of Award(s) to be made to
each Participant and shall set forth in the related Award Agreement the
terms, conditions, performance requirements, limitations and restrictions
applicable to each Award. Awards may include but are not limited to those
listed in this Section 5. Awards may be granted singly, in combination or
in tandem. Awards may also be made in combination or in tandem with, in
replacement or payment of, or as alternatives to, grants, rights or
compensation earned under any other plan of the Company, including the plan
of any acquired entity.
(a) Stock Option--A stock option is a grant of a right to purchase a
specified number of shares of Stock at a stated price. The exercise price
of Incentive Stock Options shall be not less than 100% of Fair Market Value
on the date of grant and the exercise price of Nonqualified Stock Options
shall be not less than 85% of Fair Market Value on the date of grant. No
individual may be granted options to purchase more than 277,777 shares
during any Fiscal Year.
(b) Performance Share Award--A performance share award is an Award
denominated in units of stock. Performance share awards will provide for
the payment of stock if performance goals are achieved over specified
Performance Periods.
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(1) The 6,277,665 shares available include (i) the 1,000,000 share increase as
approved by the stockholders on May 24, 2007, (ii) the shares originally
included in the Plan and that were available under the Stereotaxis, Inc.
1994 Stock Option Plan, and (iii) the shares that were added annually on
January 1, 2003, 2004, 2005, 2006 and 2007, respectively, pursuant to the
terms of the Plan. Each of the foregoing share amounts reflect the
1-for-3.6 reverse stock split completed in July 2004.
A-2
(c) Restricted Stock Award--A restricted stock award is an Award of
Stock which will vest if performance or other goals are achieved over
specified Performance Periods.
(d) Performance Criteria under section 162(m) of the Code for
Performance Share Awards, and Restricted Stock Awards--The performance
criteria for performance share awards and restricted stock awards made to
any "covered employee" (as defined by section 162(m) of the Code) and which
are intended to qualify as performance-based compensation under section
162(m)(C) thereof, shall consist of objective tests based on one or more of
the following: the Company's earnings per share growth; earnings; earnings
per share; cash flow; customer satisfaction; revenues; financial return
ratios; market performance; shareholder return and/or value; operating
profits (including earnings before income taxes, depreciation and
amortization); net profits; profit returns and margins; stock price;
working capital; business trends; production cost; project milestones; and
plant and equipment performance.
(e) Nothing herein shall preclude the Committee from making any payments
or granting any Awards whether or not such payments or Awards qualify for
tax deductibility under section 162(m) of the Code. No payments are to be
made to a Participant if the applicable performance criteria are not
achieved for a given Performance Period. If the applicable performance
criteria are achieved for a given Performance Period, the Committee has
full discretion to reduce or eliminate the amount otherwise payable for
that Performance Period. Under no circumstances may the Committee use
discretion to increase the amount payable to a Participant under a
performance share award, or a restricted stock.
6. PAYMENT OF AWARDS.
Payment of Awards may be made in the form of cash, stock or combinations
thereof and may include such restrictions as the Committee shall determine.
Further, payments may be deferred, either in the form of installments or as
a future lump-sum payment, in accordance with such procedures as may be
established from time to time by the Committee. Dividends or dividend
equivalent rights may be extended to and made part of any Award denominated
in stock or units of stock, subject to such terms, conditions and
restrictions as the Committee may establish. The Committee may also
establish rules and procedures for the crediting of interest on deferred
cash payments and dividend equivalents for deferred payments denominated in
stock or units of stock. At the discretion of the Committee, a Participant
may be offered an election to substitute an Award for another Award or
Awards of the same or different type.
7. STOCK OPTION EXERCISE.
The price at which shares of Stock may be purchased under a stock option
shall be paid in full in cash at the time of the exercise or, if permitted
by the Committee, by means of tendering Stock or surrendering another Award
or any combination thereof. The Committee may determine other acceptable
methods of tendering Stock or other Awards and may impose such conditions
on the use of Stock or other Awards to exercise a stock option as it deems
appropriate. In addition, the optionee may effect a "cashless exercise" of
a stock option in which the option shares are sold through a broker and a
portion of the proceeds to cover the exercise price is paid to the Company,
or otherwise in accordance with the rules and procedures adopted by the
Committee.
8. TAX WITHHOLDING.
Prior to the payment or settlement of any Award, the Participant must pay,
or make arrangements acceptable to the Company for the payment of, any and
all federal, state and local tax withholding that in the opinion of the
Company is required by law. The Company shall have the right to deduct
applicable taxes from any Award payment and withhold, at the time of
delivery or vesting of shares of stock under the Plan, an appropriate
number of shares for payment of taxes required by law or to take such other
action as may be necessary in the opinion of the Company to satisfy all
obligations for withholding of such taxes.
9. TRANSFERABILITY.
No Award shall be transferable or assignable, or payable to or exercisable
by, anyone other than the Participant to whom it was granted, except (a) by
law, will or the laws of descent and distribution, (b) as a result of the
disability of a Participant or (c) that the Committee (in the form of an
Award Agreement or otherwise) may permit transfers of Awards (other than
Incentive Stock Options) by gift or otherwise to a member of a
Participant's immediate family
A-3
and/or trusts whose beneficiaries are members of the Participant's
immediate family, or to such other persons or entities as may be approved
by the Committee.
10. AMENDMENT, MODIFICATION, SUSPENSION OR DISCONTINUANCE OF THE PLAN.
The Board may amend, modify, suspend or terminate the Plan for the purpose
of meeting or addressing any changes in law or other legal requirements or
for any other purpose permitted by law; provided, however, that no such
amendment, modification, suspension or termination of the Plan shall
adversely affect in any material way any Award previously granted under the
Plan, without the written consent of the Participant. Unless otherwise
required by law, no such amendment shall require the approval of
stockholders.
11. TERMINATION OF EMPLOYMENT.
If the employment of a Participant terminates, the status of the Award
shall be as set forth in the Award Agreement.
12. ADJUSTMENTS.
In the event of any change in the outstanding Stock of the Company by
reason of a stock split, stock dividend, combination or reclassification of
shares, recapitalization, merger, or similar event, the Committee shall
adjust appropriately: (a) the number of shares or kind of Stock (i)
available for issuance under the Plan, (ii) for which Awards may be granted
to an individual Participant set forth in Section 5, and (iii) covered by
outstanding Awards denominated in stock or units of stock; (b) the exercise
and grant prices related to outstanding Awards; and (c) the appropriate
Fair Market Value and other price determinations for such Awards. In the
event of any other change affecting the Stock or any distribution (other
than normal cash dividends) to holders of Stock, such adjustments in the
number and kind of shares and the exercise, grant and conversion prices of
the affected Awards as may be deemed equitable by the Committee, including
adjustments to avoid fractional shares, shall be made to give proper effect
to such event. In the event of a corporate merger, consolidation,
acquisition of property or stock, separation, reorganization or
liquidation, the Committee shall be authorized to cause to issue or assume
stock options, whether or not in a transaction to which section 424(a) of
the Code applies, by means of substitution of new stock options for
previously issued stock options or an assumption of previously issued stock
options. In such event, the aggregate number of shares of Stock available
for issuance under Awards under Section 3, including the individual
Participant maximums set forth in Section 5, will be increased to reflect
such substitution or assumption.
13. MISCELLANEOUS.
(a) Any notice to the Company required by any of the provisions of the
Plan shall be addressed to the chief human resources officer of the Company
in writing, and shall become effective when it is received.
(b) The Plan shall be unfunded and the Company shall not be required to
establish any special account or fund or to otherwise segregate or encumber
assets to ensure payment of any Award.
(c) Nothing contained in the Plan shall prevent the Company from
adopting other or additional compensation arrangements or plans, subject to
stockholder approval if such approval is required, and such arrangements or
plans may be either generally applicable or applicable only in specific
cases.
(d) No Participant shall have any claim or right to be granted an Award
under the Plan and nothing contained in the Plan shall be deemed or be
construed to give any Participant the right to be retained in the employ of
the Company or to interfere with the right of the Company to discharge any
Participant at any time without regard to the effect such discharge may
have upon the Participant under the Plan. Except to the extent otherwise
provided in any plan or in an Award Agreement, no Award under the Plan
shall be deemed compensation for purposes of computing benefits or
contributions under any other plan of the Company.
(e) The Plan and each Award Agreement shall be governed by the laws of
the State of Delaware, excluding any conflicts or choice of law rule or
principle that might otherwise refer construction or interpretation of the
Plan to the substantive law of another jurisdiction. Unless otherwise
provided in the Award Agreement, recipients of an Award under the Plan are
deemed to submit to the exclusive jurisdiction and venue of the federal or
state courts of Missouri, County of St. Louis, to resolve any and all
issues that may arise out of or relate to the Plan or any related Award
Agreement.
A-4
(f) The Committee shall have full power and authority to interpret the
Plan and to make any determinations thereunder, and the Committee's
determinations shall be binding and conclusive. Determinations made by the
Committee under the Plan need not be uniform and may be made selectively
among individuals, whether or not such individuals are similarly situated.
(g) If any provision of the Plan is or becomes or is deemed invalid,
illegal or unenforceable in any jurisdiction, or would disqualify the Plan
or any Award under any law deemed applicable by the Committee, such
provision shall be construed or deemed amended or limited in scope to
conform to applicable laws or, in the discretion of the Committee, it shall
be stricken and the remainder of the Plan shall remain in full force and
effect.
(h) The Plan was adopted by the Board on March 25, 2002 subject to
approval of the stockholders of the Company within 12 months of the date it
was adopted. Awards may be granted prior to such approval, but no such
Award may be exercised, vested or settled prior to such approval, and if
such approval is not obtained, any such Award shall be void ab initio and
of no force or effect. If such approval is obtained, no further awards
shall be granted under the Stereotaxis, Inc. 1994 Stock Option Plan.
(i) Subject to earlier termination pursuant to Section 10, the Plan will
terminate on March 25, 2012. Awards outstanding at the termination of the
Plan will not be affected by such termination.
A-5
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YOUR VOTE IS IMPORTANT
STEREOTAXIS,INC. VOTE BY INTERNET/TELEPHONE
24 HOURS A DAY, 7 DAYS A WEEK
INTERNET TELEPHONE MAIL
-------- --------- ----
https://wwww.proxypush.com/stxs 1-866-813-1449
o Go to the website address o Use any touch-tone o Mark, sign and date your
listed above. OR telephone. OR proxy card.
o HAVE YOUR PROXY CARD READY. o HAVE YOUR PROXY CARD o Detach your proxy card.
o Follow the simple instructions READY. o Return your proxy card in
that appear on your computer o Follow the simple the postage-paid envelope
screen. recorded instructions. provided.
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1-866-813-1449
CALL TOLL-FREE TO VOTE
| |
DETACH PROXY CARD HERE
.................................................................................................................
PLEASE SIGN, DATE AND RETURN
THE PROXY CARD PROMPTLY |X|
USING THE ENCLOSED ENVELOPE VOTES MUST BE INDICATED
(X) IN BLACK OR BLUE INK.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1, 2 AND 3.
FOR AGAINST ABSTAIN
1. To elect four Class III directors to 2. To ratify the appointment of | | | | | |
serve until our 2010 annual meeting of Ernst & Young LLP as our
stockholders; independent registered public
accounting firm for fiscal year
FOR WITHHOLD 2007.
ALL | | FOR ALL | | EXCEPTIONS | |
3. Approve the Stereotaxis, Inc. | | | | | |
Nominee Class III: 01 - Bevil J. Hogg; 2002 Stock Incentive Plan for
02 - William M. Kelley; purposes of 162(m) and amendment
03 - Fred A. Middleton; thereto.
04 - William C. Mills, III
4. In their discretion, the proxies are authorized to vote
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE upon any other business as may properly come before the
FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE meeting.
THROUGH THAT NOMINEE'S NAME AND CHECK THE
"EXCEPTIONS" BOX ABOVE). To change your address, please mark this box. | |
To include any comments, please mark this box. | |
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SCAN LINE
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Please sign exactly as name(s) appear hereon. Joint
owners should each sign personally. When signing as
executor, administrator, corporation officer, attorney,
agent, trustee, guardian or in other representative
capacity, please state your full title as such.
-------------------------------------------- --------------------------------- --------------------------
Date Share Owner sign here Co-Owner sign here
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................................................................................
STEREOTAXIS, INC.
SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL MEETING
OF STOCKHOLDERS OF STEREOTAXIS, INC. - MAY 24, 2007
The undersigned hereby appoints Fred A. Middleton, Bevil J. Hogg and
James M. Stolze or any of them, attorneys and proxies, with full power of
substitution and revocation in each, for and on behalf of the undersigned, and
with all the powers the undersigned would possess if personally present, to
vote at the above Annual Meeting to be held at Company's principal offices at
4320 Forest Park Avenue, Suite 100, St. Louis, Missouri 63108 on Thursday,
May 24, 2007, commencing at 9:00 a.m. Central time.
This proxy, when properly executed, will be voted as directed by the
stockholder. If no direction is given, when the duly executed proxy is
returned, the shares represented by this proxy will be voted FOR proposals 1,
2 and 3 and, in the discretion of the proxies, on such other business as may
properly come before the meeting, all in accordance with the Company's proxy
statement, receipt of which is hereby acknowledged.
(Continued, and to be signed and dated, on the reverse side.)
STEREOTAXIS, INC.
P.O. BOX 11200
NEW YORK, N.Y. 10203-0200
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APPENDIX
Page 38 of the proxy statement contains a Performance Graph. The
information contained within the graph is presented in a tabular format
immediately following the graph.