SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12.
VASOMEDICAL, INC.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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VASOMEDICAL, INC.
_______________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
October 28, 2004
_______________
To our Stockholders:
An annual meeting of stockholders will be held at the Beekman Ballroom,
Beekman Tower Hotel, 3 Mitchell Place, (northeast corner of 49th Street and 1st
Avenue), New York, New York 10017 on Thursday, October 28, 2004, beginning at
10:00 a.m. At the meeting, you will be asked to vote on the following matters:
1. Election of three directors in Class III to hold office until the 2007
Annual Meeting of Stockholders.
2. Ratification and approval of our 2004 Stock Option/Stock Issuance
Plan, as set forth in Exhibit A.
3. Ratification of the appointment by the Board of Directors of Grant
Thornton LLP as our independent registered public accounting firm for
fiscal year 2005.
4. Any other matters that properly come before the meeting.
The above matters are set forth in the proxy statement attached to this
notice to which your attention is directed.
If you are a stockholder of record at the close of business on September
20, 2004, you are entitled to vote at the meeting or at any adjournment or
postponement of the meeting. This notice and proxy statement are first being
mailed to stockholders on or about September 27, 2004.
By Order of the Board of Directors,
PHOTIOS T. PAULSON
Chief Executive Officer
Dated: September 27, 2004
Westbury, New York
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE URGED TO
COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING
PRE-ADDRESSED POSTAGE-PAID ENVELOPE AS DESCRIBED ON THE ENCLOSED PROXY CARD.
YOUR PROXY, GIVEN THROUGH THE RETURN OF THE ENCLOSED PROXY CARD, MAY BE REVOKED
PRIOR TO ITS EXERCISE BY FILING WITH OUR CORPORATE SECRETARY PRIOR TO THE
MEETING A WRITTEN NOTICE OF REVOCATION OR A DULY EXECUTED PROXY BEARING A LATER
DATE, OR BY ATTENDING THE MEETING, FILING A WRITTEN NOTICE OF REVOCATION WITH
THE SECRETARY OF THE MEETING AND VOTING IN PERSON.
VASOMEDICAL, INC.
180 Linden Avenue
Westbury, New York 11590 USA
_______________
PROXY STATEMENT
_______________
ANNUAL MEETING OF STOCKHOLDERS
Thursday, October 28, 2004
_______________
Our Annual Meeting of Stockholders will be held on Thursday, October 28,
2004, at the Beekman Ballroom, Beekman Tower Hotel, 3 Mitchell Place, (northeast
corner of 49th Street and 1st Avenue), New York, New York 10017 at 10:00 a.m.
This proxy statement contains information about the matters to be considered at
the meeting or any adjournments or postponements of the meeting.
ABOUT THE MEETING
What is being considered at the meeting?
You will be voting on the following:
-- election of three directors in Class III;
-- approval of our 2004 Stock Option/Stock Issuance Plan ("2004 Stock
Plan"); and
-- ratification of the appointment of our independent registered public
accounting firm.
Who is entitled to vote at the meeting?
You may vote if you owned stock as of the close of business on September
20, 2004. Each share of stock is entitled to one vote.
How do I vote?
You can vote in three ways:
-- by attending the meeting
-- by telephone or internet as described on the enclosed proxy card, or
-- by completing, signing and returning the enclosed proxy card.
Can I change my mind after I vote?
Yes, you may change your mind at any time before the vote is taken at the
meeting. You can do this by (1) signing another proxy with a later date and
returning it to us prior to the meeting or filing with our corporate secretary a
written notice revoking your proxy, or (2) voting again at the meeting.
What if I return my proxy card but do not include voting instructions?
Proxies that are signed and returned but do not include voting instructions
will be voted FOR the election of the nominee directors, FOR the 2004 Stock Plan
and FOR the appointment of our independent registered public accounting firm.
What does it mean if I receive more than one proxy card?
It means that you have multiple accounts with brokers and/or our transfer
agent. Please vote all of these shares. We recommend that you contact your
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broker and/or our transfer agent to consolidate as many accounts as possible
under the same name and address. Our transfer agent is American Stock Transfer &
Trust Co. (718) 921- 8200.
Will my shares be voted if I do not provide my proxy?
If you hold your shares directly in your own name, they will not be voted
if you do not provide a proxy. Your shares may be voted under certain
circumstances if they are held in the name of a brokerage firm. Brokerage firms
generally have the authority to vote customers' unvoted shares on certain
"routine" matters, including the election of directors. When a brokerage firm
votes its customer's unvoted shares, these shares are counted for purposes of
establishing a quorum. At our meeting, these shares will be counted as voted by
the brokerage firm in the election of directors, approval of our 2004 Stock
Plan, and appointment of our independent registered public accounting firm, but
will not be counted for all other matters to be voted on because these other
matters are not considered "routine" under the applicable rules.
How many votes must be present to hold the meeting?
Your shares are counted as present at the meeting if you attend the meeting
and vote in person or if you properly return a proxy by mail. In order for us to
conduct our meeting, a majority of our outstanding shares as of September 20,
2004, must be present at the meeting. This is referred to as a quorum. On
September 20, 2004, there were 58,552,688 shares outstanding and entitled to
vote.
What vote is required to approve each item?
The affirmative vote of a majority of the votes cast at the Annual Meeting
on the proposal is required for approval of the election of directors, 2004
Stock Plan and the appointment of our independent registered public accounting
firm. A properly executed proxy marked "ABSTAIN" with respect to any such matter
will not be voted, although it will be counted for purposes of determining
whether there is a quorum.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of shares of our
common stock as of September 21, 2004 of (i) each person known by us to
beneficially own 5% or more of the shares of outstanding common stock, based
solely on filings with the Securities and Exchange Commission, (ii) each of our
executive officers and directors, and (iii) all of our executive officers and
directors as a group. Except as otherwise indicated, all shares are beneficially
owned, and investment and voting power is held by the persons named as owners.
Common Stock % of Outstanding
Name of Beneficial Owner Beneficially Owned (2) Shares
------------------------ ---------------------- ----------------
Alexander G. Bearn, MD............................................113,508 *
David S. Blumenthal, MD...........................................151,411 *
Gregory D. Cash...................................................133,332 *
Abraham E. Cohen..................................................756,411 1.28%
Thomas W. Fry......................................................41,333 *
John C. K. Hui, PhD (3).........................................1,434,322 2.42%
Photios T. Paulson................................................219,333 *
Kenneth W. Rind, PhD..............................................426,411 *
E. Donald Shapiro.................................................639,761 1.09%
Anthony Viscusi.................................................1,648,333 2.79%
Forrest R. Whittaker...............................................93,333 *
Martin Zeiger......................................................68,333 *
Directors and executive officers
as a group (11 persons).......................................5,592,489 9.18%
__________
* Less than 1% of the Company's Common Stock
(1) No officer or director owns more than one percent of the issued and
outstanding Common Stock of the Company unless otherwise indicated.
(2) Includes beneficial ownership of the following numbers of shares that may
be acquired within 60 days of September 20, 2004 pursuant to stock options
awarded under the Company's stock option plans:
Alexander G. Bearn 113,508 Photios T. Paulson 203,333
David S. Blumenthal 77,508 Kenneth W. Rind 76,411
Gregory D. Cash -- E. Donald Shapiro 43,333
Abraham E. Cohen 491,411 Anthony Viscusi 533,333
Thomas W. Fry 33,333 Forrest R. Whittaker 93,333
John C.K. Hui 645,000 Martin Zeiger 63,333
Directors and executive
officers as a group 2,373,836
(3) Includes 789,322 shares that are held in a trust for the benefit of Dr.
Hui's child. Dr. Hui and his wife are the trustees of this trust.
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PROPOSAL ONE
ELECTION OF DIRECTORS
Our certificate of incorporation and by-laws provides for a Board of
Directors consisting of not less than three nor more than eleven directors. Our
Board of Directors is divided into three classes, as nearly equal in number as
possible, whose terms of office expire in successive years. Our Board of
Directors consists of ten directors as set forth below:
Class I Class II Class III
(To Serve Until the (To Serve Until the (To Serve Until the
Annual Meeting of Annual Meeting of Annual Meeting of
Stockholders in 2005) Stockholders in 2006) Stockholders in 2007)
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E. Donald Shapiro (1)(3) Abraham E. Cohen (5) Alexander G. Bearn, MD (3)
Anthony Viscusi (1)(2)(3)(4) John C.K. Hui, PhD David S. Blumenthal, MD (3)
Martin Zeiger (2)(4) Photios T. Paulson (1) Kenneth W. Rind, PhD (1)(4)
Forrest R. Whittaker (2)(3)
____________________
(1) Member of the Executive Committee;
(2) Member of the Audit Committee;
(3) Member of the Compensation Committee;
(4) Member of the Corporate Governance Committee; and
(5) Ex-officio member of all committees.
Messrs. Bearn, Blumenthal and Rind, current directors in Class III, are to
be elected to serve until the 2007 Annual Meeting of Stockholders or until their
successors are duly elected and qualified. Shares represented by executed
proxies in the form enclosed will be voted, unless otherwise indicated, for the
election as directors of the nominees named in Class III unless any such nominee
shall be unavailable, in which event such shares will be voted for a substitute
nominee designated by the Board of Directors. The Board of Directors has no
reason to believe that any of the nominees will be unavailable or, if elected,
will decline to serve.
Our Board of Directors held four meetings during our fiscal year ended May
31, 2004. Each director attended or participated in at least 75% of such
meetings of the Board of Directors. During the fiscal year ended May 31, 2004,
there were
-- six meetings of the Audit Committee,
-- one meeting of the Compensation Committee,
-- two meetings of the Executive Committee.
Our Audit Committee is involved in discussions with our independent public
accountants with respect to the quarterly and year-end audited financial
statements, our internal accounting controls and the professional services
furnished by our independent registered public accounting firm. Our independent
registered public accounting firm periodically meet alone with the Audit
Committee and have unrestricted access to the committee. See "Audit Committee
Report." Our Compensation Committee recommends executive compensation and the
granting of stock options to key employees. See "Compensation Committee Report
on Executive Compensation." Our Executive Committee was established to advise
the Board of Directors and make recommendations on matters relating to our
business and operations. Our Corporate Governance Committee is responsible for
establishing and maintaining procedures for receiving, investigating and
reporting of information and reports concerning alleged violations of our Code
of Business Ethics and Standards of Conduct.
Principal Occupations of Directors
The following is a brief account of the business experience for at least
the past five years of our directors:
Alexander G. Bearn, MD (81 years of age) has been a director since November
1994. Dr. Bearn is a physician, scientist and author who has had distinguished
careers in academe and industry. From 1997 through his retirement in 2001, Dr.
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Bearn was the Executive Officer of the American Philosophical Society. Since
1966, Dr. Bearn has also been an adjunct professor at Rockefeller University. He
has also held positions as Chairman of the Department of Medicine of Cornell
University Medical College and Senior Vice President of Medical and Scientific
Affairs at Merck International. He serves on several boards, including the Board
of Trustees of Rockefeller University, the Macy Foundation , both of which he is
Emeritus, and the Howard Hughes Medical Institute.
David S. Blumenthal, MD (54) has been a director since June 1994. Dr.
Blumenthal has been a practicing cardiologist in the State of New York since
1981 and is a Clinical Professor of Medicine at the Weill Cornell Medical
College.
Abraham E. Cohen (68) has been our Chairman of the Board since June 1994
and a director since June 1993, and is presently an independent consultant. He
retired in 1992 as Senior Vice President of Merck & Co., Inc., a position he was
elected in 1985. From 1979 to 1989, Mr. Cohen was also President of Merck Sharp
& Dohme International, a division of Merck & Co., Inc. Mr. Cohen is a director
of the following public companies: Akzo Nobel Nv., Chugai Pharmaceutical Co.,
Ltd., Neurobiological Technologies, Inc. and Teva Pharmaceutical Industries,
Ltd.
John C.K. Hui, PhD (58), our Chief Technology Officer, has been a director
and Senior Vice President since February 1995. Dr. Hui has been an Assistant
Professor in the Department of Surgery and Division of Cardiology at the State
University of Stony Brook, New York since 1978. He has also been a scientist in
the medical department of Brookhaven National Laboratories. Dr. Hui was CEO and
president of and a principal stockholder in Vasogenics, Inc. at the time of its
acquisition by us in January 1995.
Photios T. Paulson (65) has been a director since April 2000 and has served
as our Chief Executive Officer from October 2002 through June 2003 and from
March 18, 2004 to date. Mr. Paulson has been an advisor to the health care
industry and was Vice President of bioMerieux N.A. Inc. from 1995 to 2002.
Between 1992 and 1995, Mr. Paulson was Chairman of bioMerieux Vitek Inc. Between
1987 and 1990, he was Senior Advisor, Health Care Industry, for Prudential
Securities. Mr. Paulson previously held senior positions with Becton Dickinson
and Company through 1987. Mr. Paulson is a director of bioMerieux N.A. Inc. and
Silliker Group Inc.
Kenneth W. Rind, PhD (69) has been a director since February 1995. Dr. Rind
has been Chairman of Oxford Venture Corporation, an independent venture capital
company, since 1981 and in 1998 was a founding General Partner of Israel
Infinity Venture Capital Fund. Previously, he was responsible for acquisitions
and venture capital investments at Xerox Development Corporation and in charge
of technology investment banking at Oppenheimer & Co., Inc. (now CIBC). He is a
director of several private companies.
E. Donald Shapiro (72) has been a director since June 1993, Vice Chairman
of the Company since January 2000 and is Dean Emeritus and was Dean and
Professor of The New York Law School through 2002. Mr. Shapiro is formerly the
Joseph Solomon Distinguished Professor of Law and is a former Dean of The New
York Law School, as well as a Supernumerary Fellow of St. Cross College at
Oxford University, England. He has authored numerous books and articles in the
field of medicine and law and is a recipient of honors and awards both in the
United States and overseas. Mr. Shapiro is a director of the following public
companies: Loral Space and Communications, Inc., Kramont Realty Trust, Frequency
Electronics, Inc., and NSTOR Technologies, Inc.
Anthony Viscusi (71) has been a director since June 1994 and was our
President and Chief Executive Officer from June 1994 through his retirement in
January 2000. Mr. Viscusi was Senior Vice President, Worldwide Marketing, for
the AgVet division of Merck & Co., Inc. from 1987 to 1993. In 1961, Mr. Viscusi
joined the international human health division of Merck, in which he spent most
of his career in various general management positions, after having taught at
Columbia, Wesleyan and Princeton universities.
Forrest R. Whittaker (54) has been a director since April 2000. Mr.
Whittaker has been President of Teleflex Medical, a division of Teleflex, Inc.,
since April 2003. Prior thereto, Mr. Whittaker was President of the Respiratory
Division of Tyco Healthcare from June 2000 through March 2003. Mr. Whittaker was
President and CEO of Paidos Health Management Services, Inc. between 1993 and
2000 and President of Baxter Healthcare Corporation's V. Mueller Division from
1989 through 1993.
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Martin Zeiger (67) has been a director since October 2001. Mr. Zeiger is an
independent consultant to the pharmaceutical industry. Mr. Zeiger was Senior
Vice President of Strategic Business Development for Barr Laboratories, a drug
manufacturer, from 1999 through August 2003. From 1987 through 1999, Mr. Zeiger
was Executive Vice President and General Counsel for Rugby Laboratories. In 1993
Marion Merrill Dow acquired Rugby Laboratories. Mr. Zeiger was a Vice President
of Marion Merrill Dow, Inc. and it's successor Hoechst Marion Roussell, Inc. Mr.
Zeiger is a member of the Heritage Board of Directors of the American Heart
Association in New York and a founding director of the Larry King Cardiac
Foundation.
MANAGEMENT
Our Officers are:
Name Age Position Held With the Company
---- --- ------------------------------
Photios T. Paulson 65 President and Chief Executive Officer
John C. K. Hui, PhD 58 Senior Vice President and Chief Technology Officer
Thomas W. Fry 60 Chief Financial Officer
______________
Thomas W. Fry, has been Chief Financial Officer since September 8, 2003.
Mr. Fry served as Vice President, Finance and Administration of BEI Medical
Systems Company, Inc. from September, 1997 until December 2002. From October,
1992 until November, 1997, Mr. Fry was Vice President, Finance and
Administration of its predecessor company of the same name which merged into BEI
Medical Systems Company, Inc. in November 1997. Mr. Fry was employed by
Disctronics Ltd. as Corporate Controller from 1989 to 1992, by Cavitron,
Inc./CUSA, a medical device, engineering and manufacturing company, as
Controller/CFO from 1986 to 1989, and by Cheeseborough-Ponds International as
Manager of Profit Planning and Manufacturing Controller from 1979 to 1986. Prior
to that time, Mr. Fry was employed by GTE from 1970 to 1979 in various
accounting and financial roles, including three years as the Controller of GTE
Sylvania in Caracus, Venezuela.
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Executive Compensation
The following table sets forth the annual and long-term compensation of our
Chief Executive Officer and each of our most highly compensated officers other
than the Chief Executive Officer (the "named executive officers") for the fiscal
years ended May 31, 2004, 2003, and 2002.
Summary Compensation Table
Long Term Compensation
---------------------------------------------------
Annual Compensation Awards Payouts
---------------------------------- ---------------------- ---------
Shares Long Term
Other Restricted Covered Incentive
Name and Annual Stock By Option Plan All Other
Principal Position Year Salary Bonus Compensation Awards Grants Payout Compensation(3)
------------------ ---- ------ ----- ------------ ---------- ---------- --------- ---------------
Photios T. Paulson(1) 2004 $20,833 - $30,449 - 25,000 - $106
CEO 2003 $148,308 - - - 215,000 - -
Gregory D. Cash (2) 2004 $205,949 - - - 300,000 - $12,261
President & CEO 2003 $131,718 - - - 300,000 - $4,444
John C. K.Hui 2004 $150,000 $25,000 - - - - $16,796
Senior VP/CTO 2003 $150,000 - - - - - $14,136
2002 $143,333 - - - 50,000 - $14,503
Thomas W. Fry / CFO 2004 $109,712 $33,333 - - 100,000 - $3,000
(1) The Board of Directors appointed Photios T. Paulson as Chief Executive
Officer in October 2002. Mr. Paulson resigned his position as an
officer on June 30, 2003 and was reappointed Chief Executive Officer
in March, 2004 upon the resignation of Gregory D. Cash.
(2) The Board of Directors appointed Gregory D. Cash as President and
Chief Executive Officer in June 2003 after serving as President and
Chief Operating Officer since his employment in October 2002. On March
26, 2004, Mr. Cash resigned as President and Chief Executive Officer.
(3) Represents premiums paid on medical, dental, life and disability group
benefit plans, as well as amounts matched in the Company's 401(k)
Plan.
Option/SAR Grants in Last Fiscal Year
The following table sets forth the number of options granted to our named
executive officers during the fiscal year ended May 31, 2004.
Potential Realizable
Value at Assumed Annual
Rates of Price
Individual Grants Appreciation for Option
Term
----------------------------------------------------------- ---------------------------
Total
Number of
Securities % of Total
Underlying Options/SARs to Exercise
Options/SAR Employees in Expiration
Name Granted (#) Fiscal Year (4) ($)/Share Date 5% 10%
---- ---------- --------------- ---------- ---- -------- --------
Photios T. Paulson 25,000 (1) 5.0% $1.31 10/29/13 $20,597 $52,195
Gregory D. Cash 300,000 (2) 60.0% $.92 06/29/13 $173,574 $439,872
Thomas W. Fry 100,000 (3) 20.0% $.97 09/07/13 $61,005 $154,594
(1) Represents ten-year, non-qualified stock options under the 1999 Stock
Option Plan that vest equally over three years commencing October 30,
2003 granted to Mr. Paulson as a director of the Company at that time.
Such vesting is dependent upon continued service to the Company.
(2) Represents ten-year, non-qualified stock options under the 1999 Stock
Option Plan that vest equally over three years commencing July 1,
2003. Such vesting was dependent upon continued service to the Company
and was cancelled following Mr. Cash's termination on March 26, 2004.
(3) Represents ten-year, non-qualified stock options under the 1999 Stock
Option Plan that vest equally over three years commencing September 9,
2003. Such vesting is dependent upon continued service to the Company.
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(4) Percentages based upon 500,000 shares issued to employees and officers
of the Company during the fiscal year and exclude 25,000 shares issued
to Mr. Paulson who was a director of the Company at the time of his
award.
Aggregated Option/SAR Exercises in Last Fiscal Year and F/Y-End Option Values
The following table sets forth information for each of the named executive
officers with respect to the value of options or warrants exercised during the
fiscal year ended May 31, 2004 and the value of outstanding and unexercised
options or warrants held as of May 31, 2004, based upon the market value of the
common stock of $1.16 per share on that date.
Value of Unexercised
Number of Options at In-the-Money Options
Shares Acquired Value Fiscal Year End at Fiscal Year End (2)
Name on Exercise (#) Realized (1) ExercisableUnexercisable ExercisableUnexercisable
---- --------------- ------------ ------------------------ ------------------------
Photios T. Paulson 0 0 183,333 136,667 40,933 24,667
John C. K. Hui 0 0 628,333 16,667 19,950 0
Gregory D. Cash 0 0 133,322 0 24,000 0
Thomas W. Fry 0 0 0 100,000 0 19,000
(1) Represents the difference between the closing price of the common stock and
the exercise price of the options on the date of exercise multiplied by the
number of shares acquired upon exercise. The calculation does not reflect
the effects of any income taxes that may be due on the value realized.
(2) Represents the difference between the closing market price of the common
stock at May 31, 2004 of $1.16 per share and the exercise price per share
multiplied by the number of in-the-money options at May 31, 2004.
Employment Agreements
We maintain an employment agreement with Mr. Fry, expiring September 7,
2005, and with Dr. Hui, expiring January 31, 2005. The employment agreements
provide for an annual base salary to Messrs. Fry and Hui of $150,000. The
employment agreements also provide, among other things, that in the event there
is a change in our control, as defined therein, or in any person directly or
indirectly controlling us, as also defined therein, the employee has the option
to terminate his employment agreement. Upon such termination, the employee has
the right to receive as a lump-sum payment certain compensation remaining to be
paid.
Equity Compensation Plan Information
The following chart summarizes the options and warrants outstanding and
available to be issued at May 31, 2004:
Number of securities
Number of securities remaining available for
to be issued upon Weighted-average future issuance under equity
exercise of exercise price of compensation plans (excluding
outstanding options outstanding options securities reflected in
Plan Category and warrants and warrants column (a))
(a) (b) (c)
Equity compensation plans approved
by security holders 2,210,586 $1.87 153,168
Equity compensation plans not
approved by security holders 3,151,165 $2.26 1,517,169
Total 5,361,751 $2.10 1,670,337
Stock Option and Other Plans
1995 Stock Option Plan
In May 1995, our stockholders approved the 1995 Stock Option Plan for our
officers and employees, for which we reserved an aggregate of 1,500,000 shares
8
of common stock. In December 1997, our Board of Directors terminated the 1995
Stock Option Plan with respect to new option grants. At May 31, 2004, 972,000
options had been granted, of which 571,000 are outstanding under the 1995 Option
Plan.
Outside Director Stock Option Plan
In May 1995, our stockholders approved an Outside Director Stock Option
Plan for our non-employee directors, for which we reserved an aggregate of
300,000 shares of common stock. On June 1, 1997, 1996 and 1995, options to
purchase an aggregate of 39,550 shares, 31,675 shares, and 77,418 shares of
common stock, respectively, at $1.77, $2.21, and $.78 per share, respectively,
were granted to outside directors. In December 1997, our Board of Directors
terminated the Outside Director Stock Option Plan with respect to new option
grants. At May 31, 2004, 85,059 options are outstanding under the Outside
Director Stock Option Plan.
1997 Stock Option Plan
In December 1997, our stockholders approved the 1997 Stock Option Plan (the
"1997 Plan") for our officers, directors, employees and consultants, for which
we have reserved, as amended, an aggregate of 2,800,000 shares of common stock.
The 1997 Plan provides that it will be administered by a committee of our Board
of Directors and that the committee will have full authority to determine the
identity of the recipients of the options and the number of shares subject to
each option. Options granted under the 1997 Plan may be either incentive stock
options or non-qualified stock options. The option price shall be 100% of the
fair market value of the common stock on the date of the grant (or in the case
of incentive stock options granted to any individual principal stockholder who
owns stock possessing more than 10% of the total combined voting power of all of
our voting stock, 110% of such fair market value). The term of any option may be
fixed by the committee but in no event shall exceed ten years from the date of
grant. Options are exercisable upon payment in full of the exercise price,
either in cash or in common stock valued at fair market value on the date of
exercise of the option. The term for which options may be granted under the 1997
Plan expires August 6, 2007. At May 31, 2004, 2,838,000 options had been granted
(including options previously granted but subsequently cancelled), of which
1,554,527 are outstanding under the 1997 Plan.
1999 Stock Option Plan
In July 1999, our Board of Directors authorized the 1999 Stock Option Plan
(the "1999 Plan") for our officers, directors, employees and consultants, for
which we have reserved, as amended, an aggregate of 5,000,000 shares of common
stock. The 1999 Plan provides that it will be administered by a committee of our
Board of Directors and that the committee will have full authority to determine
the identity of the recipients of the options and the number of shares subject
to each option. Options granted under the 1999 Plan may be either incentive
stock options or non-qualified stock options. The option price shall be 100% of
the fair market value of the common stock on the date of the grant (or in the
case of incentive stock options granted to any individual principal stockholder
who owns stock possessing more than 10% of the total combined voting power of
all of our voting stock, 110% of such fair market value). The term of any option
may be fixed by the committee but in no event shall exceed ten years from the
date of grant. Options are exercisable upon payment in full of the exercise
price, either in cash or in common stock valued at fair market value on the date
of exercise of the option. The term for which options may be granted under the
1999 Plan expires July 12, 2009. At May 31, 2004, 5,032,100 options had been
granted, (including options previously granted but subsequently cancelled), of
which 2,951,165 are outstanding under the 1999 Plan.
401(k) Plan
In April 1997, we adopted the Vasomedical, Inc. 401(k) Plan to provide
retirement benefits for its employees. As allowed under Section 401(k) of the
Internal Revenue Code, the plan provides tax-deferred salary deductions for
eligible employees. Employees are eligible to participate in the next quarter
enrollment period after employment. Participants may make voluntary
contributions to the plan up to 100% of their compensation. In fiscal year 2004,
2003 and 2002, the Company made discretionary contributions of approximately
$35,535, $35,000 and $20,000, respectively, to match a percentage of employee
contributions.
Shareholder Rights Plan
In March 1995, our Board of Directors approved a Shareholder Rights Plan,
under which a dividend distribution of one Right for each outstanding share of
9
our common stock is authorized. Each Right will entitle stockholders of record
on May 9, 1995 to purchase one-half share of Common Stock at a 50% discount to
market price if a person or group acquires 20% or more of our outstanding stock.
At present, we are not aware of any such person or group seeking to acquire 20%
or more of our outstanding common stock.
Director's Compensation
It has been our policy to grant fees of $1,500 per meeting to each outside
director who attends a regularly scheduled or special meeting of its Board of
Directors. Fees for committee meetings are $1,000 per meeting if the meeting is
held on a different day than the Board meeting. In addition, we reimburse
out-of-state directors for their cost of travel and lodging to attend such
meetings.
Our compensation structure for outside directors also includes:
-- a one-time grant of 50,000 non-qualified stock options to outside
directors issued on the date of their initial appointment to our Board
of Directors at the closing price on the issue date and vesting in
three equal annual increments commencing on the first anniversary of
the grant and contingent upon their continued service on our Board;
and
-- an automatic annual grant of 25,000 non-qualified stock options to
outside directors issued on the date of our Annual Meeting of
Stockholders at the closing price on the issue date and vesting in
three equal annual increments commencing on the first anniversary of
the grant and contingent upon their continued service on our Board.
Limitation on Liability of Officers and Directors
We have entered into indemnification agreements with each of our current
officers and directors pursuant to which we have agreed, among other things, to
indemnify these officers and directors to the fullest extent permitted by
Delaware law.
Compensation Committee Interlocks and Insider Participation
During fiscal 2004, our Compensation Committee consisted of Messrs. Bearn,
Blumenthal, Shapiro, Viscusi, and Whittaker. None of these persons were our
officers or employees during fiscal 2004 or, except as otherwise disclosed, had
any relationship requiring disclosure in this Proxy Statement.
In accordance with rules promulgated by the Securities and Exchange Commission,
the information included under the caption "Compensation Committee Report on
Executive Compensation" will not be deemed to be filed or to be proxy-soliciting
material or incorporated by reference in any prior or future filings by the
Company under the Securities Act of 1933 or the Securities Exchange Act.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation of our executive officers is generally determined by the
Compensation Committee of our Board of Directors, subject to applicable
employment agreements. Each member of the Compensation Committee is a director
who is not our employee or an employee of any of our affiliates. The following
report with respect to certain compensation paid or awarded to our executive
officers during fiscal 2004 is furnished by the directors who comprised the
Compensation Committee during fiscal 2004.
Executive Compensation Objectives
Our compensation programs are intended to enable us to attract, motivate,
reward and retain the management talent required to achieve corporate objectives
and thereby increase shareholder value. It is our policy to provide incentives
to its senior management to achieve both short-term and long-term objectives and
to reward exceptional performance and contributions to the development of our
business. To attain these objectives, our executive compensation program
includes a competitive base salary, cash incentive bonuses and stock-based
compensation.
10
Stock options are granted to employees, including our executive officers,
by the Compensation Committee under our 1999 Stock Option Plan. The Committee
believes that stock options provide an incentive that focuses the executive's
attention on managing us from the perspective of an owner with an equity stake
in the business. Options are awarded with an exercise price equal to the market
value of common stock on the date of grant, have a maximum term of ten years and
generally become exercisable, in whole or in part, starting one year from the
date of grant. Among our executive officers, the number of shares subject to
options granted to each individual generally depends upon the level of that
officer's responsibility. The largest grants are awarded to the most senior
officers who, in the view of the Compensation Committee, have the greatest
potential impact on our profitability and growth. Previous grants of stock
options are reviewed but are not considered the most important factor in
determining the size of any executive's stock option award in a particular year.
From time to time, the Compensation Committee intends to utilize the
services of independent consultants to perform analyses and to make
recommendations to the Committee relative to executive compensation matters. No
compensation consultant has so far been retained.
Relationship of Compensation to Performance and Compensation of Chief Executive
Officer and Chief Financial Officer
The Compensation Committee annually establishes, subject to the approval of
the Board of Directors and any applicable employment agreements, the salaries
that will be paid to our executive officers during the coming year. In setting
salaries, the Compensation Committee takes into account several factors,
including competitive compensation data, the extent to which an individual may
participate in the stock plans maintained by us, and qualitative factors bearing
on an individual's experience, responsibilities, management and leadership
abilities, and job performance.
Effective September 8, 2003, the Board of Directors appointed Thomas W. Fry
as Chief Financial Officer and entered into an employment agreement with him at
a base annual salary of $150,000. On March 18, 2004, the Board of Directors
reappointed Photios T. Paulson, a director, to the position of Chief Executive
Officer as a replacement for Mr. Gregory Cash who had resigned. The Committee
authorized a base salary of $250,000 to Mr. Paulson. The Compensation Committee
determined that the compensation payable to Messrs. Fry and Paulson was
appropriate in light of their positions with the Company and based on the
compensation level of executives in similar positions.
Our Compensation Committee:
Alexander G. Bearn
David S. Blumenthal
E. Donald Shapiro, Chairman
Anthony Viscusi
Forrest R. Whittaker
AUDIT COMMITTEE REPORT
The Board of Directors has appointed an Audit Committee consisting of three
non-employee directors. The current members of the Audit Committee satisfy the
independence requirements and other established criteria by the Nasdaq Stock
Market, Inc. and the Securities and Exchange Commission. We intend to comply
with future audit committee requirements as they become applicable to us.
As required by its written charter, which sets forth its responsibilities
and duties, the Audit Committee has reviewed and discussed with the Company's
independent public accountants, the matters required to be discussed by
Statement on Auditing Standards No. 61, Communication with Audit Committees, as
amended. The Audit Committee Charter is set forth as Exhibit B.
The Audit Committee has also received and reviewed the written disclosures
and the letter from the independent public accountants required by Independence
Standard No. 1, Independence Discussions with Audit Committees, as amended, by
the Independence Standards Board, and has discussed with the independent
registered public accounting firm their independence.
11
Based on the reviews and discussions referred to above, the Audit Committee
recommended to the Board of Directors that the financial statements referred to
above be included in the Company's Annual Report on Form 10-K for the year ended
May 31, 2004 for filing with the Securities and Exchange Commission.
The audit committee has also received and reviewed the fees paid to Grant
Thornton LLP during the last fiscal year for audit and non-audit services, which
are set forth below and has considered whether the provision of the non-audit
services is compatible with maintaining Grant Thornton LLP's independence and
concluded that it is.
Our Audit Committee:
Forrest R. Whittaker, Chairman
Anthony Viscusi
Martin Zeiger
Audit Committee Financial Expert
The members of the audit committee have substantial experience in assessing
the performance of companies, gained as members of our board of directors and
audit committee, as well as by serving in various capacities in other companies
or governmental agencies. As a result, they each have an understanding of
financial statements. However, none of them keep current on all aspects of
generally accepted accounting principles. Accordingly, the board of directors
does not consider any of them to be a financial expert as that term is defined
in applicable regulations. Nevertheless, the board of directors believes that
they competently perform the functions required of them as members of the audit
committee and, given their backgrounds, it would not be in our best interests to
replace any of them with another person to qualify a member of the audit
committee as a financial expert.
Audit Fees
For fiscal 2004 and 2003, Grant Thornton LLP's audit and accounting fees
were approximately $179,000 and $183,000, respectively.
Tax Service Fees
Aggregate fees incurred in connection with tax services rendered by Grant
Thornton LLP for fiscal 2004 and 2003 were approximately $47,000 and $28,000,
respectively, incurred primarily for the preparation of federal and state tax
returns.
All Other Fees
Aggregate fees for all other services rendered by Grant Thornton LLP for
fiscal 2004 and 2003 were approximately $9,000 and $60,000, respectively,
incurred in connection with SEC and other related consulting services. Grant
Thornton had no financial information systems design and implementation fees
during fiscal 2004.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Exchange Act requires our executive officers,
directors and persons who own more than ten percent of a registered class of our
equity securities ("Reporting Persons") to file reports of ownership and changes
in ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission
(the "SEC") and the National Association of Securities Dealers, Inc. (the
"NASD"). These Reporting Persons are required by SEC regulation to furnish us
with copies of all Forms 3, 4 and 5 they file with the SEC and the NASD. Based
solely upon our review of the copies of the forms it has received, we believe
that all Reporting Persons complied on a timely basis with all filing
requirements applicable to them with respect to transactions during fiscal 2004.
CODE OF ETHICS DISCLOSURE
We have adopted a Corporate Code of Business Ethics (the "Code") that
applies to all of our employees, officers and directors. It is broad in scope
and is intended to foster honest and ethical conduct, including accurate
12
financial reporting, compliance with laws and the like. It does not expressly
cover certain procedural matters covered by the Sarbanes-Oxley Act and
regulations promulgated thereunder and may not constitute a "code of ethics"
within the meaning of the law and regulations. Accordingly, we have adopted an
additional code of ethics that covers our senior executive officers and is
intended to comply with the new law and regulations. The "Code of Ethics --
Chief Executive and Chief Financial Officers" is set forth as Exhibit B to this
proxy statement.
13
PERFORMANCE GRAPH
The following graph sets forth the cumulative total return* to the
Company's stockholders during the five-year period ended May 31, 2004 as well as
an overall stock market index (NASDAQ Stock Market Index) and the Company's peer
group index (S&P Health Care Equipment):
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG VASOMEDICAL, INC. THE NASDAQ STOCK MARKET (U.S) INDEX
AND THE S & P HEALTH CARE EQUIPMENT INDEX
Cumulative Total Return
-----------------------------------------------------------------------
5/99 5/00 5/01 5/02 5/03 5/04
VASOMEDICAL, INC. 100.00 312.21 307.52 138.93 84.30 90.54
NASDAQ STOCK MARKET (U.S.) 100.00 161.64 83.42 68.28 60.58 82.80
S & P HEALTH CARE EQUIPMENT 100.00 111.55 109.86 119.37 123.88 160.61
*$100 invested on 5/13/99 in stock or index-including reinvestment of dividends. Fiscal year ending May 31.
14
PROPOSAL TWO
PROPOSAL TO ADOPT THE VASOMEDICAL, INC.
2004 STOCK OPTION/STOCK ISSUANCE PLAN
Introduction
At the meeting, you will be asked to adopt the Vasomedical, Inc. 2004 Stock
Option/Stock Issuance Plan (the "2004 Stock Plan"). The board adopted the 2004
Stock Plan in July 2004, subject to stockholder approval, covering 2,500,000
shares.
We believe that our long-term success depends upon our ability to attract
and retain qualified directors, officers, employees and consultants and to
motivate their best efforts on our behalf. Our directors, officers, other
employees and consultants, as well as those of our subsidiaries or affiliates,
are eligible to participate in the 2004 Stock Plan. We believe that the 2004
Stock Plan has been and will continue to be an important part of our
compensation of directors, officers, employees and consultants, particularly
since as of August 31, 2004, we only had approximately 1,035,670 shares
available for grant under our other existing stock option plans.
The 2004 Stock Plan is set forth as Exhibit A to this proxy statement. The
principal features of the 2004 Stock Plan are summarized below, but the summary
is qualified in its entirety by the full text of the 2004 Stock Plan.
Stock Subject to the 2004 Stock Plan
The stock to be offered under the 2004 Stock Plan consists of shares of our
common stock, whether authorized but unissued or reacquired. The 2004 Stock Plan
is divided into two separate equity programs: an option grant program and a
stock issuance program. Options granted under the 2004 Stock Plan shall be
non-qualified or incentive stock options and the exercise price is the fair
market value of the common stock on the date of grant except that for incentive
stock options it shall be 110% of the fair market value if the participant owns
10% or more of our common stock. Under the stock issuance program, the purchase
price per share shall be fixed by the board of directors or committee but cannot
be less than the fair market value of the common stock on the issuance date.
Payment for the shares may be made in cash or check payable to us, or for past
services rendered to us and all shares of common stock issued thereunder shall
vest upon issuance unless otherwise directed by the board or committee. The
number of shares issuable is also subject to adjustments upon the occurrence of
certain events, including stock dividends, stock splits, mergers,
consolidations, reorganizations, recapitalizations, or other capital
adjustments. As of May 31, 2004, no options or shares had been issued under the
2004 Stock Plan.
Administration of the 2004 Stock Plan
The 2004 Stock Plan is to be administered by our board of directors, the
compensation committee or a stock option committee consisting of no fewer than
two "non-employee directors," as defined in the Securities Exchange Act of 1934.
We expect that our compensation committee will administer the 2004 Stock Plan.
Subject to the terms of the 2004 Stock Plan, the board or the committee may
determine and designate the individuals who are to be granted stock options or
qualify to purchase shares of common stock under the 2004 Stock Plan, the number
of shares to be subject to options or to be purchased and the nature and terms
of the options to be granted. The board or the committee also has authority to
interpret the 2004 Stock Plan and to prescribe, amend and rescind the rules and
regulations relating to the 2004 Stock Plan. The committee may amend or modify
any grant in any manner not inconsistent with the terms of the 2004 Stock Plan.
Grant of Options
Our directors, officers, employees and consultants, as well as those of our
subsidiaries or affiliates, are eligible to participate in the 2004 Stock Plan.
15
Options granted under the 2004 Stock Plan shall be non-qualified or
incentive stock options and the exercise price is the fair market value of the
common stock on the date of grant except that for incentive stock options it
shall be 110% of the fair market value if the participant owns 10% or more of
our common stock. The committee must adjust the option price, as well as the
number of shares subject to option, in the event of stock splits, stock
dividends, recapitalization and certain other events involving a change in our
capital. Because of the discretionary nature of grants under the 2004 Plan, the
number, names and positions of persons who may be granted awards under the 2004
Plan and the awards that might be granted to them are not known at this time.
Exercise of Stock Options
Stock options granted under the 2004 Stock Plan shall expire not later than
ten years from the date of grant.
Stock options granted under the 2004 Stock Plan may become exercisable in
one or more installments in the manner and at the time or times specified by the
committee.
Upon the exercise of a stock option, optionees may pay the exercise price
in cash, by certified or bank cashiers check or, at our option, in shares of
common stock valued at its fair market value on the date of exercise, or a
combination of cash and stock. Withholding and other employment taxes applicable
to the exercise of an option shall be paid by the optionee at such time as the
board or the committee determines that the optionee has recognized gross income
under the Internal Revenue Code of 1986, as amended, resulting from such
exercise. These taxes may, at our option, be paid in shares of common stock.
A stock option is exercisable during the optionee's lifetime only by him or
his permitted transferee and cannot be exercised by him or his permitted
transferee unless, at all times since the date of grant and at the time of
exercise, he is employed by us, any parent corporation or any of our
subsidiaries or affiliates, except that, upon termination of his employment
(other than (1) by death, (2) by total disability followed by death in the
circumstances provided below or (3) by total disability), an option may be
exercised for a period of three months after this termination but only to the
extent such option is exercisable on the date of such termination. In the
discretion of the committee, options may be transferred to (1) members of the
optionee's family, (2) a trust, (3) a family limited partnership or (4) an
estate planning vehicle primarily for the optionee's family.
Upon termination of all employment by total disability, the optionee or his
permitted transferee may exercise such options at any time within twelve months
after his termination, but only to the extent such option is exercisable on the
date of such termination.
In the event of the death of an optionee (1) while our employee, or an
employee of any parent corporation or any subsidiary or affiliate, (2) within
three months after termination of all employment or provision of services (other
than for total disability) or (3) within twelve months after termination on
account of total disability of all employment with us, any parent corporation or
any subsidiary or affiliate, the optionee's estate or any person who acquires
the right to exercise such option by bequest or inheritance or by reason of the
death of the optionee may exercise the optionee's option at any time within the
period of twelve months from the date of death. In the case of clauses (1) and
(3) above, the option shall be exercisable in full for all the remaining shares
covered by it, but in the case of clause (2) the option shall be exercisable
only to the extent it was exercisable on the date of such termination of
employment.
Stock Issuance Program
Shares of common stock may, upon request by a participant, be issued at the
discretion of the board or committee under the stock issuance program through
direct and immediate issuances. Each such stock issuance shall comply with the
terms specified below.
Purchase Price
--------------
a. The purchase price per share shall be fixed by the board of directors
or committee but shall not be less than the fair market value per
share of common stock on the issue date.
b. Subject to the provisions of the 2004 Stock Plan, shares of common
stock may be issued for any of the following items of consideration
which the board or committee may deem appropriate in each individual
instance:
16
(i) cash or check made payable to us; or
(ii) past services rendered to us (or any parent or subsidiary).
Vesting Provisions
------------------
a. Shares of common stock issued under the stock issuance program shall
vest at the discretion of the board or committee.
b. The participant shall have full stockholder rights with respect to any
shares of common stock issued to the participant under the stock
issuance program.
c. Accordingly, the participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.
Change in Control
All unvested options shall automatically vest in full if and when either of
the following stockholder approved transactions to which the company is a party
are consummated: (i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
company's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to such
transaction, or (ii) the sale, transfer or other disposition of all or
substantially all of the company's assets in complete liquidation or dissolution
of the company. However, the shares subject to an outstanding option shall not
vest on such an accelerated basis if and to the extent: (i) such option is
assumed by the successor company (or parent thereof) in the corporate
transaction or (ii) such option is to be replaced with a cash incentive program
of the successor company which preserves the spread existing on the unvested
option shares at the time of the corporate transaction and provides for
subsequent payout in accordance with the same vesting schedule applicable to
those unvested option shares or (iii) the acceleration of such option is subject
to other limitations imposed by the board or committee at the time of the option
grant.
U.S. Federal Tax Matters
Restricted Stock. Employees generally recognize as taxable income the fair
market value of restricted stock on the date the restricted period ends. We are
entitled to a corresponding tax deduction at the same time.
Stock Options. Stock options may be granted in the form of incentive stock
options or non-qualified stock options. Incentive stock options are eligible for
favorable tax treatment under the U.S. Internal Revenue Code (the "Code"). To
meet the Code requirements, the maximum value of incentive stock options that
first become exercisable in any one year is limited to $100,000. Under the Code,
persons do not realize compensation income upon the grant of a stock option
(whether an incentive stock option or non-qualified stock option). At the time
of exercise of a non-qualified stock option, the holder will realize
compensation income in the amount of the spread between the exercise price of
the option and the fair market value of our stock on the date of exercise. At
the time of exercise of an incentive stock option, no compensation income is
realized other than "tax preference income" for purposes of the alternative
minimum tax. If the shares acquired on exercise of an incentive stock option are
held for at least two years after grant of the option and one year after
exercise, the excess of the amount realized on sale over the exercise price will
be taxed as capital gains. If the shares acquired on exercise of the incentive
stock option are disposed of within less than two years after grant or one year
of exercise, the holder will realized compensation income equal to the excess of
the fair market value of shares on the date of exercise over the option price.
Additional amounts realized will be taxed as capital gains. We will generally be
entitled to a deduction under the Code at the time equal to the amount of
compensation income realized by the holder of an option.
Recommendation of the Board
Our board of directors believes that it is in our best long-term interests
to have available for issuance under a stock option plan a sufficient number of
shares to attract, retain and motivate our highly qualified officers, employees,
directors and consultants by tying their interests to our stockholders'
interests.
The affirmative vote of a majority of the votes cast on this proposal in
person or by proxy at the Annual Meeting is required for approval by
stockholders of the 2004 Stock Plan
We recommend a vote FOR approval of the 2004 Stock Plan.
17
PROPOSAL THREE
PROPOSAL TO APPOINTMENT OF INDEPENDENT REGISTERED ACCOUNTING FIRM
General
The board of directors, upon the recommendation of the audit committee,
recommends that the stockholders approve the appointment of Grant Thornton LLP
as our company's independent registered public accounting firm to audit our
financial statements for the fiscal/ year ending May 31, 2005.
Board Position and Required Vote
The proposal will be adopted only if it receives the affirmative vote of a
majority of the votes cast at the Annual Meeting on this proposal. The board of
directors recommends a vote FOR the ratification of the appointment of Grant
Thornton, LLP as our independent registered public accounting firm.
FINANCIAL STATEMENTS AND INCORPORATION BY REFERENCE
A copy of our Annual Report to Stockholders for the fiscal year ended May
31, 2004 has been provided to all stockholders as of the Record Date.
Stockholders are referred to the report for financial and other information
about us, but such report, is not incorporated in this proxy statement and is
not a part of the proxy soliciting material.
MISCELLANEOUS INFORMATION
As of the date of this Proxy Statement, the Board of Directors does not
know of any business other than that specified above to come before the meeting,
but, if any other business does lawfully come before the meeting, it is the
intention of the persons named in the enclosed Proxy to vote in regard thereto
in accordance with their judgment.
We will pay the cost of soliciting proxies in the accompanying form. In
addition to solicitation by use of the mails, certain of our officers and
regular employees may solicit proxies by telephone, telegraph or personal
interview. We may also request brokerage houses and other custodians and
nominees and fiduciaries, to forward soliciting material to the beneficial
owners of stock held of record by such persons, and may make reimbursement for
payments made for their expense in forwarding soliciting material to such
beneficial owners.
Proposals of stockholders intended to be presented at the 2005 Annual
Meeting of Stockholders pursuant to SEC Rule 14a-8 must be received at our
principal office not later than May 12, 2005 to be included in the proxy
statement for that meeting.
By Order of the Board of Directors,
PHOTIOS T. PAULSON
Chief Executive Officer
Dated: September 27, 2004
Westbury, New York
18
Exhibit A
VASOMEDICAL, INC., 2004 STOCK OPTION/STOCK ISSUANCE PLAN
--------------------------------------------------------
I. GENERAL PROVISIONS
------------------
A. PURPOSE OF THE PLAN
-------------------
This 2004 Stock Option/Stock Issuance Plan ("Plan") is intended to promote
the interests of VASOMEDICAL, INC., a Delaware corporation ("Corporation"), by
providing eligible persons in the employ or service of the Corporation or its
affiliates with the opportunity to acquire a proprietary interest, or otherwise
increase their proprietary interest, in the Corporation as an incentive for them
to continue in such employ or service.
Unless otherwise defined herein, all capitalized terms shall have the
meaning assigned to them in the attached Appendix.
B. STRUCTURE OF THE PLAN
---------------------
The Plan shall be divided into two (2) separate equity programs:
(i) the Option Grant Program under which eligible persons ("Optionees")
may, at the discretion of the Board, be granted options to purchase
shares of common stock; and
(ii) the Stock Issuance Program under which eligible persons
("Participants") may, at the discretion of the Board, be issued shares
of common stock directly, either through the immediate purchase of
such shares or as a bonus for services rendered the Corporation (or
any Parent or Subsidiary).
The provisions of Articles One and Four shall apply to both equity programs
under the Plan and shall accordingly govern the interests of all persons under
the Plan.
C. ADMINISTRATION OF THE PLAN
--------------------------
The Plan shall be administered by the Corporation's Board of Directors
("Board"), or in the discretion of the Board, a committee consisting of no less
than two Non-Employee Directors or persons meeting such other requirements as
may be imposed by Rule 16(b) under the 1934 Act ("Committee").
The Board or Committee shall have full power and authority (subject to the
provisions of the Plan) to establish such rules and regulations as it may deem
appropriate for proper administration of the Plan and to make such
determinations under, and issue such interpretations of, the Plan and any
outstanding options or stock issuances thereunder as it may deem necessary or
advisable. Decisions of the Board shall be final and binding on all parties who
have an interest in the Plan or any option or stock issuance thereunder.
A-1
D. ELIGIBILITY
-----------
The persons eligible to participate in the Plan are:
1. Employees;
2. non-employee members of the Board or the non-employee members of the board
of directors of any Parent or Subsidiary; and
3. consultants and other independent advisors who provide services to the
Corporation, or any parent or subsidiary of the Corporation.
The Board or Committee shall have full authority to determine, (i) with
respect to the grants made under the Option Grant Program, described in Article
Two below, which eligible persons are to receive the option grants, the time or
times when those grants are to be made, the number of shares to be covered by
each such grant, the status of the granted option as either an Incentive Option
or a Non-Statutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding, and (ii) with
respect to stock issuances made under the Stock Issuance Program, described in
Article Three, which eligible persons are to receive such stock issuances, the
time or times when those issuances are to be made, the number of shares to be
issued to each Participant, the vesting schedule (if any) applicable to the
issued shares and the consideration to be paid by the Participant for such
shares.
The Board or Committee shall have the absolute discretion either to grant
options in accordance with the Option Grant Program or to issue stock in
accordance with the Stock Issuance Program.
E. STOCK SUBJECT TO THE PLAN
-------------------------
The stock issuable under the Plan shall be shares of the Corporation's
authorized but unissued or reacquired common stock. The maximum number of shares
of common stock which may be issued under the Plan is 2,500,000 shares.
Shares of common stock subject to outstanding options shall be available
for subsequent issuance under the Plan to the extent (i) the options expire or
terminate for any reason prior to exercise in full, or (ii) the options are
cancelled in accordance with the cancellation-regrant provisions of Article Two.
Unvested shares issued under the Plan and subsequently repurchased by the
Corporation, at the option exercise or direct issue price paid per share,
pursuant to the Corporation's repurchase rights under the Plan shall be added
back to the number of shares of common stock reserved for issuance under the
Plan.
If there is any change to the common stock by reason of any stock split,
stock dividend, recapitalization, combination of shares, exchange of shares or
other change affecting the outstanding common stock as a class without the
Corporation's receipt of consideration, then appropriate adjustments shall be
made to (i) the maximum number and/or class of securities issuable under the
Plan, and (ii) the number and/or class of securities and the exercise price per
share in effect under each outstanding option in order to prevent the dilution
or enlargement of benefits thereunder.
A-2
II. OPTION GRANT PROGRAM
A. OPTION TERMS
------------
Each option shall be evidenced by one or more documents in the form
approved by the Board, and which shall be subject to the provisions of the Plan.
1. Exercise Price.
a. The exercise price per share shall be fixed by the Board in
accordance with the following provisions:
(i) The exercise price per share shall not be less than the Fair
Market Value per share of common stock on the option grant
date.
(ii) If the Optionee is a 10% Stockholder, then the exercise
price per share shall not be less than one hundred ten
percent (110%) of the Fair Market Value per share of common
stock on the option grant date for Incentive Options.
b. The exercise price is payable in cash or check made payable to
the Corporation upon exercise of the option, subject to the
provisions of Section I of Article Four and the documents
evidencing the option. If the common stock is registered under
Section 12 of the Securities Exchange Act of 1934, as amended
("34 Act") at the time the option is exercised, then the exercise
price may also be paid as follows:
(i) in shares of common stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings
for financial reporting purposes and valued at Fair Market
Value on the Exercise Date, or
(ii) to the extent the option is exercised for vested shares,
through a special sale and remittance procedure pursuant to
which the Optionee shall concurrently provide irrevocable
instructions (x) to a Corporation-designated brokerage firm
to effect the immediate sale of the purchased shares and
remit to the Corporation, out of the sale proceeds available
on the settlement date, sufficient funds to cover the
aggregate exercise price payable for the purchased shares
plus all applicable Federal, state and local income and
employment taxes required to be withheld by the Corporation
by reason of such exercise and (y) to the Corporation to
deliver the certificates for the purchased shares directly
to such brokerage firm in order to complete the sale.
A-3
Except to the extent the foregoing sale and remittance procedure is used,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
2. Exercise and Term of Options. Each option shall be exercisable at such
time or times, during such period and for such number of shares as shall be
determined by the Board or Committee and set forth in the documents evidencing
the option grant. However, no option shall have a term in excess of ten (10)
years measured from the option grant date.
3. Effect of Termination of Service.
a. The following provisions shall govern the exercise of any vested
option held by the Optionee at the time of cessation of
Optionee's employment or rendering of services to the Corporation
(collectively "Service") or death:
(i) Should the Optionee cease to remain in Service for any
reason other than death, Disability or Misconduct, then the
Optionee shall have a period of three (3) months following
the date of such cessation of Service during which to
exercise each option held by such Optionee to the extent
exercisable on the date of such termination.
(ii) Should Optionee's Service terminate by reason of Disability,
then the Optionee shall have a period of twelve (12) months
following the date of such cessation of Service during which
to exercise each outstanding option held by such Optionee to
the extent exercisable on the date of such termination.
(iii)If the Optionee dies while holding an outstanding option,
then the personal representative of his or her estate or the
person or persons to whom the option is transferred pursuant
to the Optionee's will or the laws of inheritance shall have
a twelve (12)-month period following the date of the
Optionee's death to exercise such option to the extent
exercisable on the date of such termination.
(iv) Under no circumstances, however, shall any such option be
exercisable after the specified expiration of the option
term.
(v) All vested options shall terminate upon the expiration of
the applicable exercise period or (if earlier) upon the
expiration of the option term.
b. The Board or Committee shall have the discretion, exercisable
either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which the option is to remain
exercisable following Optionee's cessation of Service or
death from the limited period otherwise in effect for that
option to such greater period of time as it shall deem
appropriate, but in no event beyond the expiration of the
option term, and/or
(ii) permit the option to be exercised, during the applicable
post-Service exercise period, not only with respect to the
number of vested shares of common stock for which such
option is exercisable at the time of the Optionee's
cessation of Service but also with respect to one or more
additional installments in which the Optionee would have
vested under the option had the Optionee continued in
Service.
A-4
4. Stockholder Rights. The holder of an option shall have no stockholder
rights with respect to the shares subject to the option until such person
exercise the option, pays the exercise price and becomes the recordholder of the
purchased shares.
5. Limited Transferability of Options. During the lifetime of the Optionee,
the option shall be exercisable only by the Optionee and shall not be assignable
or transferable other than by will or, following the Optionee's death, by the
laws of descent and distribution.
B. CORPORATE TRANSACTION
---------------------
1. All unvested options shall automatically vest in full if and when either
of the following stockholder approved transactions to which the Corporation is a
party are consummated: (i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting power of
the Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to such
transaction, or (ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation. However, the shares subject to an outstanding
option shall not vest on such an accelerated basis if and to the extent: (i)
such option is assumed by the successor corporation (or parent thereof) in the
Corporate Transaction or (ii) such option is to be replaced with a cash
incentive program of the successor corporation which preserves the spread
existing on the unvested option shares at the time of the Corporate Transaction
and provides for subsequent payout in accordance with the same vesting schedule
applicable to those unvested option shares or (iii) the acceleration of such
option is subject to other limitations imposed by the Board or Committee at the
time of the option grant.
2. Each option which is assumed in connection with a Corporate Transaction
shall be appropriately adjusted, immediately after such Corporate Transaction,
to apply to the number and class of securities which would have been issuable to
the Optionee in consummation of such Corporate Transaction, had the option been
exercised immediately prior to such Corporate Transaction. Appropriate
adjustments shall also be made to (i) the number and class of securities
available for issuance under the Plan following the consummation of such
Corporate Transaction and (ii) the exercise price payable per share under each
outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same.
3. The Board or Committee shall have the discretion, exercisable either at
the time the option is granted or at any time while the option remains
outstanding, to structure one or more options so that those options shall
automatically accelerate and vest in full (and any repurchase rights of the
Corporation with respect to the unvested shares subject to those options shall
immediately terminate) upon the occurrence of a Corporate Transaction, whether
or not those options are to be assumed in the Corporate Transaction.
4. The Board or Committee shall also have full power and authority,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to structure such option so that the shares subject
to that option will automatically vest on an accelerated basis should the
Optionee's Service terminate by reason of the Optionee's involuntary dismissal
or discharge by the Corporation for reasons other than misconduct ("Involuntary
Termination") within a designated period (not to exceed one year) following the
effective date of any Corporate Transaction in which the option is assumed and
the repurchase rights applicable to those shares do not otherwise terminate. Any
option so accelerated shall remain exercisable for the fully-vested option
shares until the expiration or sooner termination of the option term.
5. The portion of any Incentive Option accelerated in connection with a
Corporate Transaction shall remain exercisable as an Incentive Option only to
the extent the applicable One Hundred Thousand Dollar ($100,000.00) limitation
is not exceeded. To the extent such dollar limitation is exceeded, the
accelerated portion of such option shall be exercisable as a Non-Statutory
Option under the Federal tax laws.
6. The grant of options under the Plan shall in no way affect the right of
the Corporation to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
A-5
III. STOCK ISSUANCE PROGRAM
---------------------------
A. STOCK ISSUANCE TERMS
--------------------
Shares of common stock may, upon request by a Participant, be issued at the
discretion of the Board or Committee under the Stock Issuance Program through
direct and immediate issuances without any intervening option grants. Each such
stock issuance shall comply with the terms specified below.
1. Purchase Price.
--------------
a. The purchase price per share shall be fixed by the Board or
Committee but shall not be less than the Fair Market Value per
share of common stock on the issue date.
b. Subject to the provisions of Section A of Article IV, shares of
common stock may be issued under the Stock Issuance Program for
any of the following items of consideration which the Board may
deem appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any Parent or
Subsidiary).
2. Vesting Provisions.
------------------
a. Shares of common stock issued under the Stock Issuance Program
shall vest at the discretion of the Board of Directors or
Committee.
b. The Participant shall have full stockholder rights with respect
to any shares of common stock issued to the Participant under the
Stock Issuance Program. Accordingly, the Participant shall have
the right to vote such shares and to receive any regular cash
dividends paid on such shares.
IV. MISCELLANEOUS
-----------------
A. FINANCING
---------
The Board or Committee may permit any Optionee or Participant to pay the
option exercise price under the Option Grant Program or the purchase price for
shares issued under the Stock Issuance Program by delivering a full- recourse,
interest bearing promissory note payable in one or more installments and secured
by the purchased shares. The terms of any such promissory note (including the
interest rate and the terms of repayment) shall be established by the Board in
its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares (less the par value of
those shares) plus (ii) any Federal, state and local income and employment tax
liability incurred by the Optionee or the Participant in connection with the
option exercise or share purchase.
B. ADJUSTMENTS DUE TO STOCK SPLITS, MERGERS, CONSOLIDATION, ETC.
-------------------------------------------------------------
If, at any time, the Company shall take any action, whether by stock
dividend, stock split, combination of shares or otherwise, which results in a
proportionate increase or decrease in the number of shares of common stock
theretofore issued and outstanding, the number of shares which are reserved for
issuance under the Plan and the number of shares which, at such time, are
subject to options shall, to the extent deemed appropriate by the committee, be
increased or decreased in the same proportion, provided, however, that the
Company shall not be obligated to issue fractional shares.
Likewise, in the event of any change in the outstanding shares of common
stock by reason of any recapitalization, merger, consolidation, reorganization,
combination or exchange of shares or other corporate change, the committee shall
make such substitution or adjustments, if any, as it deems to be appropriate, as
to the number or kind of shares of common stock or other securities which are
reserved for issuance under the Plan and the number of shares or other
securities which, at such time are subject to Options.
A-6
In the event of a change of control, at the option of the board of
directors or committee, (a) all options outstanding on the date of such change
of control shall, for a period of sixty days following such change of control,
become immediately and fully exercisable, and (b) an optionee will be permitted
to surrender for cancellation within sixty days after such change of control any
option or portion of any option which was granted more than six months prior to
the date of such surrender, to the extent not yet exercised, and to receive a
cash payment in an amount equal to the excess, if any, of the Fair Market Value
(on the date of surrender) of the shares of common stock subject to the option
or portion thereof surrendered, over the aggregate purchase price for such
shares under the option.
C. EFFECTIVE DATE AND TERM OF PLAN
-------------------------------
1. The Plan shall become effective on July 13, 2004, provided that no
Incentive Options may be granted unless the Plan is first approved by the
Corporation's stockholders. The Board may grant options and issue shares under
the Plan at any time after the effective date of the Plan and before the date
fixed herein for termination of the Plan.
2. The Plan shall terminate upon the earliest of (i) the expiration of the
ten (10)-year period measured from the date the Plan is adopted by the Board,
(ii) the date on which all shares available for issuance under the Plan shall
have been issued as vested shares or (iii) the termination of all outstanding
options in connection with a Corporate Transaction. All options and unvested
stock issuances outstanding at the time of a clause (i) termination event shall
continue to have full force and effect in accordance with the provisions of the
documents evidencing those options or issuances.
D. AMENDMENT OF THE PLAN
---------------------
The Board or Committee shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall adversely affect the rights and obligations with
respect to options or unvested stock issuances at the time outstanding under the
Plan unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws and regulations.
E. WITHHOLDING
-----------
The Corporation's obligation to deliver shares of common stock upon the
exercise of any options or upon the issuance of shares issued under the Plan
shall be subject to the satisfaction of all applicable Federal, state and local
income and employment tax withholding requirements.
F. REGULATORY APPROVALS
--------------------
The implementation of the Plan, the granting of any options under the Plan
and the issuance of any shares of common stock (i) upon the exercise of any
option or (ii) under the Stock Issuance Program shall be subject to the
Corporation's obtaining all approvals and permits required by regulatory
authorities having jurisdiction over the Plan, the options granted under it and
the shares of common stock issued pursuant to it.
G. NO EMPLOYMENT OR SERVICE RIGHTS
-------------------------------
Nothing in the Plan shall confer upon the Optionee or the Participant any
right to continue in Service for any period of specific duration or interfere
with or otherwise restrict in any way the rights of the Corporation (or any
Parent or Subsidiary employing or retaining such person) or of the Optionee or
the Participant, which rights are hereby expressly reserved by each, to
terminate such person's Service at any time for any reason, with or without
cause.
A-7
APPENDIX
--------
The following definitions shall be in effect under the Plan:
Board shall mean the Corporation's Board of Directors.
Change of Control shall mean:
(i) any person who is not currently such becomes the beneficial owner,
directly or indirectly, of securities of the Company representing 25%
or more of the combined voting power of the Company's then outstanding
voting securities; or
(ii) three or more directors, whose election or nomination for
election is not approved by a majority of the Incumbent Board (as
defined in the plan), are elected within any single 12-month period to
serve on the board of directors; or
(iii) members of the Incumbent Board cease to constitute a majority of
the Board of Directors without the approval of the remaining members
of the Incumbent Board; or
(iv) any merger (other than a merger where the Company is the survivor
and there is no accompanying change in control under subparagraphs
(i), (ii) or (iii) of this paragraph (b), consolidation, liquidation
or dissolution of the Company, or the sale of all or substantially all
of the assets of the Company.
Code shall mean the Internal Revenue Code of 1986, as amended.
Common Stock shall mean the Corporation's common stock, $.0001 par value.
Corporate Transaction shall mean either of the following stockholder-approved
transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more than
fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities are transferred to a person or persons different from the
persons holding those securities immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or substantially all of
the Corporation's assets in complete liquidation or dissolution of the
Corporation.
Corporation shall mean Vasomedical, Inc., a Delaware corporation.
Disability shall mean the inability of Optionee to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment and shall be determined by the Plan Administrator on the basis of
such medical evidence as the Plan Administrator deems warranted under the
circumstances. Disability shall be deemed to constitute Permanent Disability in
the event that such Disability is expected to result in death or has lasted or
can be expected to last for a continuous period of twelve (12) months or more.
Eligibility. Incentive Options may only be granted to Employees.
Employee shall mean an individual who is in the employ of the Corporation (or
any Parent or Subsidiary), subject to the control and direction of the employer
entity as to both the work to be performed and the manner and method of
performance.
Exercise Date shall mean the date on whch the option shall have been exercised.
Exercise Price shall mean the exercise price payable per Option Share as
specified in the Grant Notice.
Expiration Date shall mean the date on which the option expires as specified in
the Grant Notice.
A-8
Fair Market Value per share of common stock on any relevant date shall be
determined in accordance with the following provisions:
(i) If the common stock is at the time traded on the NASDAQ National or
SmallCap Market, then the Fair Market Value shall be the closing selling price
per share of common stock on the date in question, as the price is reported by
the National Association of Securities Dealers on the NASDAQ National or
SmallCap Market. If there is no closing selling price for the common stock on
the date in question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
(ii) If the common stock is at the time listed on any Stock Exchange, then
the Fair Market Value shall be the closing selling price per share of common
stock on the date in question on the Stock Exchange determined by the Plan
Administrator to be the primary market for the common stock, as such price is
officially quoted in the composite tape of transactions on such exchange. If
there is no closing selling price for the common stock on the date in question,
then the Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(iii) If the common stock is at the time neither listed on any Stock
Exchange nor traded on the NASDAQ National Market, then the Fair Market Value
shall be determined by the Plan Administrator after taking into account such
factors as the Plan Administrator shall deem appropriate.
Grant Date shall mean the date of grant of the option as specified in the Grant
Notice.
Grant Notice shall mean the Notice of Grant of Stock Option accompanying the
Agreement, pursuant to which Optionee has been informed of the basic terms of
the option evidenced hereby.
Incentive Option shall mean an option which satisfies the requirements of Code
Section 422.
Misconduct shall mean the commission of any act of fraud, embezzlement or
dishonesty by the Optionee or Participant, any unauthorized use or disclosure by
such person of confidential information or trade secrets of the Corporation (or
any Parent or Subsidiary), or any other intentional misconduct by such person
adversely affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Corporation (or any
Parent or Subsidiary) may consider as grounds for the dismissal or discharge of
any Optionee, Participant or other person in the Service of the Corporation (or
any Parent or Subsidiary).
1934 Act shall mean the Securities Exchange Act of 1934, as amended.
Non-Employee Director shall have the meaning provided under Rule 16(b) or any
successor rule under the 1934 Act.
Non-Statutory Option shall mean an option not intended to satisfy the
requirements of Code Section 422.
Option Agreement shall mean the option agreement issued pursuant to the Grant
Notice.
Option Shares shall mean the number of shares of common stock subject to the
option.
Optionee shall mean the person to whom the option is granted as specified in the
Grant Notice.
Parent shall mean any corporation (other than the Corporation) in an unbroken
chain of corporations ending with the Corporation, provided each corporation in
the unbroken chain (other than the Corporation) owns, at the time of the
determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
Permitted Transfer shall mean (i) a gratuitous transfer of the Purchased Shares,
provided and only if Optionee obtains the Corporation's prior written consent to
such transfer, (ii) a transfer of title to the Purchased Shares effected
pursuant to Optionee's will or the laws of intestate succession following
Optionee's death or (iii) a transfer to the Corporation in pledge as security
for any purchase-money indebtedness incurred by Optionee in connection with the
acquisition of the Purchased Shares.
A-9
Plan shall mean the Corporation's 2004 Stock Option/Stock Issuance Plan.
Plan Administrator shall mean either the Board or a committee of the Board
acting in its capacity as administrator of the Plan.
Purchase Agreement shall mean the stock purchase agreement pursuant to the Grant
Notice.
Service shall mean the Optionee's performance of services for the Corporation
(or any Parent or Subsidiary) in the capacity of an Employee, a non-employee
member of the board of directors or an independent consultant.
Stock Exchange shall mean the American Stock Exchange or the New York Stock
Exchange.
Subsidiary shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
Vesting Commencement Date shall mean the date on which the Option Shares
commences to vest as specified in the Grant Notice.
Vesting Schedule shall mean the vesting schedule specified in the Grant Notice
pursuant to which the Optionee is to vest in the Option Shares in a series of
installments over his or her period of Service.
A-10
Exhibit B
VASOMEDICAL, INC.
CHARTER OF THE AUDIT COMMITTEE
------------------------------
I. Audit Committee Purpose
The Audit Committee is appointed by the Board of Directors to assist the
Board in fulfilling its oversight responsibilities. The Audit Committee's
primary duties and responsibilities are to:
-- Monitor the integrity of the Company's financial reporting process and
systems of internal controls regarding finance, accounting, and legal
compliance.
-- Monitor the Company's compliance with legal and regulatory
requirements.
-- Monitor the qualifications, independence and performance of the
Company's independent auditors.
-- Provide an avenue of communication among the independent auditors,
management, the internal auditing department, and the Board of
Directors.
The Audit Committee has the authority to conduct any investigation
appropriate to fulfilling its responsibilities, and it has direct access to the
independent auditors as well as anyone in the organization. The Audit Committee
has the ability to retain, at the Company's expense, special legal, accounting,
or other consultants or experts it deems necessary in the performance of its
duties.
II. Audit Committee Composition and Meetings
Audit Committee members shall meet the requirements of the NASD. The Audit
Committee shall be comprised such number of directors as determined by the
Board, but no less than three directors, each of whom shall be an independent
director as such is defined by Nasdaq rules, and any rule or regulation
prescribed by the SEC, free from any relationship that would interfere with the
exercise of his or her independent judgment. All members of the Committee shall
have a basic understanding of finance and accounting and be able to read and
understand fundamental financial statements in accordance with the Nasdaq Audit
Committee requirements.
Audit Committee members shall be elected by the Board at the annual meeting
of the Board or until their successors shall be duly elected and qualified. If
an audit committee Chair is not designated, the members of the Committee may
designate a Chair by majority vote of the Committee membership.
The Committee shall meet at least four times annually, or more frequently
as circumstances dictate. The Audit Committee Chair shall prepare and/or approve
an agenda in advance of each meeting. The Committee should meet privately in
executive session at least annually with management, the director of the
internal auditing department, the independent auditors, and as a committee to
discuss any matters that the Committee or each of these groups believe should be
discussed. In addition, the Committee, or at least its Chair, should communicate
with management and the independent auditors quarterly to review the Company's
financial statements and significant findings based upon the auditor's limited
review procedures.
III. Audit Committee Responsibilities and Duties
1. Overseeing the internal audit function and reviewing, on a continuing
basis, the adequacy of the Company's system of internal controls, including
meeting periodically with the Company's management and the independent auditors
to review the adequacy of such controls and to review before release the
disclosure regarding such system of internal controls required under SEC rules
to be contained in the Company's periodic filings and the attestations or
reports by the independent auditors relating to such disclosure.
2. Appointing, compensating and overseeing the work of the independent
auditors (including resolving disagreements between management and the
independent auditors regarding financial reporting) for the purpose of preparing
or issuing an audit report or related work.
3. Pre-approving audit and non-audit services provided to the Company by
the independent auditors (or subsequently approving non-audit services in those
B-1
circumstances where a subsequent approval is necessary and permissible); in this
regard, the Audit Committee shall have the sole authority to approve the hiring
and firing of the independent auditors, all audit engagement fees and terms and
all non-audit engagements, as may be permissible, with the independent auditors.
4. Reviewing and providing guidance with respect to the external audit and
the Company's relationship with its independent auditors by:
(1) reviewing the independent auditors' proposed audit scope, approach and
independence;
(2) obtaining on a periodic basis a statement from the independent
auditors regarding relationships and services with the Company which
may impact independence and presenting this statement to the Board of
Directors, and to the extent there are relationships, monitoring and
investigating them;
(3) reviewing the independent auditors' peer review conducted every three
years;
(4) discussing with the Company's independent auditors the financial
statements and audit findings, including any significant adjustments,
management judgments and accounting estimates, significant new
accounting policies and disagreements with management and any other
matters described in SAS No. 61, as may be modified or supplemented;
(5) reviewing reports submitted to the audit committee by the independent
auditors in accordance with the applicable SEC requirements; and
(6) reviewing and discussing with management and the independent auditors
the annual audited financial statements and quarterly unaudited
financial statements, including the Company's disclosures under
"Management's Discussion and Analysis of Financial Condition and
Results of Operations," prior to filing the Company's Annual Report on
Form 10-K and Quarterly Reports on Form 10-Q, respectively, with the
SEC.
5. Directing the Company's independent auditors to review before filing
with the SEC the Company's interim financial statements including the Quarterly
Reports on Form 10-Q, using professional standards and procedures for conducting
such reviews.
6. Conducting a post-audit review of the financial statements and audit
findings, including any significant suggestions for improvements provided to
management by the independent auditors.
7. Reviewing before release the unaudited quarterly operating results in
the Company's quarterly earnings release.
8. Overseeing compliance with the requirements of the SEC for disclosure of
auditor's services and audit committee members, member qualifications and
activities.
9. Reviewing, approving and monitoring the Company's code of ethics for its
senior officers.
10. Reviewing management's monitoring of compliance with the Company's
standards of business conduct and with the Foreign Corrupt Practices Act.
11. Reviewing, in conjunction with counsel, any legal matters that could
have a significant impact on the Company's financial statements.
12. Providing oversight and review at least annually of the Company's risk
management policies, including its investment policies.
13. Reviewing the performance of the independent auditors and ensure that
the independent auditors are accountable to the Board of Directors.
B-2
14. Ensuring receipt from the independent auditors of a formal written
statement delineating between the auditor and the Company, consistent with
Independence Standards Board Standard 1, as well as actively engaging in a
dialogue with the independent auditors with respect to any disclosed
relationships or services that may impact the objectivity and independence of
the independent auditors.
15. If necessary, instituting special investigations and, if appropriate,
hiring special counsel or experts to assist.
16. Reviewing related party transactions for potential conflicts of
interest.
17. Reviewing and reassessing the adequacy of its formal written charter on
an annual basis.
18. Performing other oversight functions as requested by the full Board of
Directors.
Other Audit Committee Responsibilities
--------------------------------------
19. Annually prepare a report to shareholders as required by the Securities
and Exchange Commission. The report should be included in the Company's annual
proxy statement.
20. Perform any other activities consistent with this Charter, the
Company's by-laws, and governing law, as the Committee or the Board deems
necessary or appropriate.
21. Maintain minutes of meetings and periodically report to the Board of
Directors on significant results of the foregoing activities.
While the Audit Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Audit Committee to plan or conduct audits or
to determine that the Company's financial statements are complete and accurate
and are in accordance with generally accepted accounting principles. Nor is it
the duty of the Audit Committee to conduct investigations, to resolve
disagreements, if any, between management and the independent auditor or to
assure compliance with laws and regulations and the Company's Code of Business
Conduct.
B-3
Exhibit C
CODE OF ETHICS FOR CEO AND SENIOR FINANCIAL OFFICERS
Vasomedical, Inc. ( the " Company") has a Code of Business Conduct
applicable to all directors and employees of the Company. The CEO and all senior
financial officers, including the CFO and principal accounting officer, are
bound by the provisions set forth therein relating to ethical conduct, conflicts
of interest and compliance with law. In addition to the Code of Business
Conduct, the CEO and senior financial officers are subject to the following
additional specific policies:
1. The CEO and all senior financial officers are responsible for full,
fair, accurate, timely and understandable disclosure in the periodic
reports required to be filed by the Company with the SEC. Accordingly, it
is the responsibility of the CEO and each senior financial officer promptly
to bring to the attention of the Audit Committee any material information
of which he or she may become aware that affects the disclosures made by
the Company in its public filings or otherwise assist the Audit Committee
in fulfilling its responsibilities as specified in the Audit Committee
Charter.
2. The CEO and each senior financial officer shall promptly bring to the
attention of the Audit Committee any information he or she may have
concerning (a) significant deficiencies in the design or operation of
internal controls which could adversely affect the Company's ability to
record, process, summarize and report financial data or (b) any fraud,
whether or not material, that involves management or other employees who
have a significant role in the Company's financial reporting, disclosures
or internal controls.
3. The CEO and each senior financial officer shall promptly bring to the
attention of the Audit Committee any information he or she may have
concerning any violation of the Company's Code of Business Conduct,
including any actual or apparent conflicts of interest between personal and
professional relationships, involving any management or other employees who
have a significant role in the Company's financial reporting, disclosures
or internal controls.
4. The CEO and each senior financial officer shall promptly bring to the
attention of the Audit Committee any information he or she may have
concerning evidence of a material violation of the securities or other
laws, rules or regulations applicable to the Company and the operation of
its business, by the Company or any agent thereof, or of violation of the
Code of Business Conduct or of these additional procedures.
5. The Board of Directors shall determine, or designate appropriate persons
to determine, appropriate actions to be taken in the event of violations of
the Code of Business Conduct or of these additional procedures by the CEO
and the Company's senior financial officers. Such actions shall be
reasonably designed to deter wrongdoing and to promote accountability for
adherence to the Code of Business Conduct and to these additional
procedures, and shall include written notices to the individual involved
that the Board has determined that there has been a violation, censure by
the Board, demotion or re-assignment of the individual involved, suspension
with or without pay or benefits (as determined by the Board) and
termination of the individual's employment. In determining what action is
appropriate in a particular case, the Board of Directors or such designee
shall take into account all relevant information, including the nature and
severity of the violation, whether the violation was a single occurrence or
repeated occurrences, whether the violation appears to have been
intentional or inadvertent, whether the individual in question had been
advised prior to the violation as to the proper course of action and
whether or not the individual in question had committed other violations in
the past.
C-1
VASOMEDICAL, INC.
The undersigned hereby appoints ABRAHAM E. COHEN and PHOTIOS
T. PAULSON, or either of them, attorneys and Proxies with
full power of substitution in each of them, in the name and
stead of the undersigned to vote as Proxy all the stock of
the undersigned in VASOMEDICAL, INC., a Delaware
corporation, at the Annual Meeting of Stockholders scheduled
to be held on October 28, 2004 and any adjournments thereof.
The Board of Directors recommends a vote FOR the following proposals:
1. Election of the following nominees, as set forth in the proxy statement:
Alexander G. Bearn, MD
David S. Blumenthal, MD
Kenneth W. Rind, PhD
[ ] FOR all nominees listed above [ ] WITHHOLD authority to vote
(Instruction: To withhold authority to vote for any individual nominee,
print the nominee's name on the line provided below)
-----------------------------------------------------
2. To ratify and approve the Company's 2004 Stock Option/Stock Issuance Plan,
as set forth in the Proxy Statement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To ratify the appointment by the Board of Directors of Grant Thornton LLP
as the Company's independent certified public accountants for fiscal 2005.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Upon such other business as may properly come before the meeting or any
adjournment thereof.
(Continued and to be signed on reverse side)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
THE SHARES REPRESENTED HEREBY SHALL BE VOTED BY PROXIES, AND EACH OF THEM, AS
SPECIFIED AND, IN THEIR DISCRETION, UPON SUCH OTHER MATTERS AS MAY PROPERLY COME
BEFORE THE MEETING. STOCKHOLDERS MAY WITHHOLD THE VOTE FOR ONE OR MORE
NOMINEE(S) BY WRITING THE NOMINEE(S) NAME(S) IN THE BLANK SPACE PROVIDED ON THE
REVERSE HEREOF. IF NO SPECIFICATION IS MADE, THE SHARES WILL BE VOTED FOR THE
PROPOSALS SET FORTH ON THE REVERSE HEREOF.
Dated: _____________, 2004
________________________________________[L.S.]
________________________________________[L.S.]
(Note: Please sign exactly as your name appears hereon.
Executors, administrators, trustees, etc. should so indicate
when signing, giving full title as such. If signer is a
corporation, execute in full corporate name by authorized
officer. If shares are held in the name of two or more
persons, all should sign.)
PLEASE DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE