SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement. [ ] Confidential, for use of the
Commission only (as permitted by
Rule 14a-6(e)(2).
[X] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12.
Merge Technologies Incorporated
--------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
--------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------------------
(5) Total fee paid:
--------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
--------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
--------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
--------------------------------------------------------------------------------
(3) Filing Party:
--------------------------------------------------------------------------------
(4) Date Filed:
--------------------------------------------------------------------------------
Merge Technologies Incorporated
1126 South 70th Street
Milwaukee, Wisconsin 53214-3151
(414) 977-4000
==========================================
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
==========================================
To the Shareholders of Merge Technologies Incorporated:
Notice is hereby given that the Annual Meeting of Shareholders (the
"Annual Meeting" or the "Meeting") of Merge Technologies Incorporated, a
Wisconsin corporation doing business as Merge eFilm (the "Company"), will be
convened at the Embassy Suites Hotel, 1200 South Moorland Road, Brookfield,
Wisconsin on May 20, 2004, at 10:00 a.m. Central Time (the "Meeting Date").
All Shareholders of the Company (the "Shareholders") are entitled to attend
the Meeting. The Annual Meeting will be held for the purpose of considering
and voting upon proposals to:
1. Elect nine (9) individuals to serve as Directors until the
next annual meeting of Shareholders or otherwise as provided
in the Amended and Restated Bylaws of the Company; and
2. Transact such other business as may properly come before the
Annual Meeting, or any adjournment thereof.
Only Shareholders of record at the close of business on March 19,
2004, are entitled to receive notice of and to vote at the Annual Meeting, or
any adjournment thereof (the "Eligible Holders"). Unless otherwise defined,
capitalized terms in this Notice shall have the meaning ascribed to them in the
Proxy Statement accompanying this Notice.
A Proxy Statement and proxy are enclosed. Whether or not you expect to
attend the Annual Meeting, it is important that you promptly fill in, sign,
date and mail the proxy in the enclosed envelope so that you may vote your
shares.
By order of the Board of Directors:
/s/ Richard A. Linden
---------------------------------------
Richard A. Linden
President and Chief Executive Officer
Milwaukee, Wisconsin
April 12, 2004
The Company's 2003 Annual Report to Shareholders is enclosed with this
Notice and Proxy Statement.
========================================
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS OF
MERGE TECHNOLOGIES INCORPORATED
MAY 20, 2004
========================================
This Proxy Statement is furnished to the holders of shares (the
"Shareholders") of Common Stock, par value $0.01 per share (the "Common Shares"
or "Common Stock"), of MERGE TECHNOLOGIES INCORPORATED, a Wisconsin corporation
doing business as Merge eFilm (the "Company"), in connection with the
solicitation of proxies by the Company's Board of Directors (the "Directors" or
the "Board") for use at the annual meeting of Shareholders to be held on May
20, 2004 (the "Annual Meeting" or the "Meeting"), or any adjournment thereof.
The Annual Meeting will be convened at approximately 10:00 a.m. Central Time.
Any adjournment or postponement thereof will be announced at the Annual
Meeting. This Proxy Statement, the enclosed Notice and proxy were first sent
or given to Shareholders on or about April 12, 2004.
The Company will make arrangements with brokerage houses, banks and
other custodians, nominees and fiduciaries to forward solicitation materials
to the beneficial owners of the Common Shares held of record by those persons.
The Company may reimburse these custodians, nominees and fiduciaries for their
reasonable out-of-pocket expenses incurred in forwarding the materials. The
Company will bear the cost of soliciting proxies, although the Company
currently does not intend to solicit proxies. Brokerage firms, fiduciaries,
nominees and others holding Common Shares for beneficial owners will be
reimbursed for the out-of-pocket expenses in forwarding proxy materials to
these beneficial owners. In addition to the use of the mail, proxies may be
solicited by Directors, officers and employees of the Company, who will not
be specifically compensated for these services, by means of personal calls
upon, or telephonic, telegraphic or telefacsimile communications with,
Shareholders or their representatives.
Only Common Shares represented by properly executed proxies in the
accompanying form received by the Board prior to the Annual Meeting will be
voted at the Annual Meeting. If a Shareholder specifies a choice with
respect to any matter to be acted upon, the Common Shares represented by that
proxy will be voted as specified. If a Shareholder does not specify a choice,
in an otherwise properly executed proxy, with respect to any proposal referred
to therein, the Common Shares represented by that proxy will be voted with
respect to that proposal in accordance with the recommendations of the Board
described herein. A Shareholder who signs and returns a proxy in the
accompanying form may revoke it by: (i) giving written notice of revocation
to the Company before the proxy is voted at the Annual Meeting; (ii) executing
and delivering a later-dated proxy before the proxy is voted at the Annual
Meeting; or (iii) attending the Annual Meeting and voting the Common Shares
in person.
The close of business on March 19, 2004, has been fixed as the date
for determining Shareholders entitled to notice of and to vote at the Annual
Meeting (the "Record Date"). On the Record Date, the Company had 12,944,675
Common Shares outstanding which have voting rights, including: (i) 12,607,530
shares of Common Stock, (ii) one Preferred Series Special Voting Share, which
entitles the holder of record of such share to voting rights equal to 1,000
Common Shares, and (iii) one Preferred Series 2 Special Voting Share, which
entitles the holder of record of such share to voting rights equal to 336,145
Common Shares. The Preferred Series Special Voting Share was issued by the
Company in connection with the Company's acquisition of Interpra Medical
Imaging Network Ltd., now known as eFilm Medical Inc. ("Interpra"), to
provide voting rights to holders of Interpra Exchangeable Shares, which
shares are convertible into Common Shares. The Preferred Series 2 Special
Voting Share was issued by the Company in connection the Company's
acquisition of eFilm Medical Inc. ("eFilm") to provide voting rights to
holders of eFilm Exchangeable Shares, which shares are convertible into
Common Shares. Both the Preferred Series Special Voting Share and the
Preferred Series 2 Special Voting Share will be treated as Common Shares
having 1,000 and 336,145 votes, respectively, at the Annual Meeting.
Directors and named executive officers of the Company own 1,305,251 Common
Shares or approximately ten percent (10%) of the Company's total outstanding
Common Shares and intend to vote in favor of the proposals. Only
Shareholders of record as of the Record Date (the "Eligible Holders") will
be entitled to vote at the Annual Meeting. A complete list of Eligible
Holders will be available for inspection at the Company's offices beginning
two (2) business days after the date of this Notice. Votes cast by proxy or
in person at the Annual Meeting will be tabulated by an inspector of election
appointed for the Annual Meeting who will determine whether or not a quorum is
present. The presence of a majority of the outstanding Common Shares
represented in person or by proxy at the Annual Meeting will constitute a
quorum.
The nine (9) nominees receiving the highest vote totals of the shares
of Common Stock, including the Common Shares represented by the Preferred
Series Special Voting Share and the Preferred Series 2 Special Voting Share, by
Eligible Holders in person or represented by proxy at the Annual Meeting will
be elected as Directors of the Company. The affirmative vote of a majority of
the shares of Common Stock, including the Common Shares represented by the
Preferred Series Special Voting Share and the Preferred Series 2 Special Voting
Share, by Eligible Holders present in person or represented by proxy at the
Annual Meeting is required for approval of any other matter which is properly
brought before the meeting. With regard to the election of Directors, votes
may be cast in favor or withheld; votes that are withheld will be excluded
entirely from the vote and will have no effect. Broker non-votes (shares not
voted by brokers due to the absence of instructions from street name holders)
on a matter are not considered voted or as present or represented on that
matter and will have no effect on the outcome of the election of Directors.
The mailing address of the principal executive offices of the Company
is 1126 South 70th Street, Suite S107B, Milwaukee, Wisconsin 53214-3151. The
Company's Shareholder e-mail address is shareholder-info@merge-efilm.com and
the Company's web site is located at www.merge-efilm.com. The Common Shares
are included for quotation on the Nasdaq National Market under the symbol
"MRGE."
THE DATE OF THIS PROXY STATEMENT IS APRIL 12, 2004.
AVAILABLE INFORMATION
-----------------------
The Company files reports, proxy materials and other information with
the Securities and Exchange Commission (the "Commission"). These reports,
proxy materials and other information concerning the Company can be inspected
and copied at the Public Reference Section maintained by the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N. W., Washington, D. C.
20549. Copies can be obtained by mail from the Commission at prescribed rates
from the Public Reference Section of the Commission at its principal office
in Washington, D. C. The Commission also maintains a site on the World Wide
Web (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the Commission. The Common Shares are included for
quotation on the Nasdaq National Market and copies of reports and other
material concerning the Company can be inspected at the offices of the
National Association of Securities Dealers, Inc. at 1801 K Street, N. W., 8th
Floor, Washington, D. C. 20006.
SUMMARY
---------
The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information appearing elsewhere in
this Proxy Statement. Unless the context otherwise requires, all references
in this Proxy Statement to the "Company" refer to Merge Technologies
Incorporated doing business as Merge eFilm and its subsidiaries.
MATTERS TO BE CONSIDERED BY SHAREHOLDERS AT THE ANNUAL MEETING
----------------------------------------------------------------
The Annual Meeting of Shareholders of the Company will be held for the
purpose of considering and voting upon proposals to:
1. Elect nine (9) individuals to serve as Directors until the
next annual meeting of Shareholders or otherwise as provided
in the Bylaws of the Company; and
2. Transact such other business as may properly come before the
Annual Meeting, or any adjournment thereof.
Only Shareholders of record at the close of business on the Record Date
are entitled to receive notice of and to vote at the Annual Meeting, or any
adjournment thereof.
PROPOSAL REGARDING ELECTION OF DIRECTORS
------------------------------------------
Nine (9) individuals will be elected at the Annual Meeting to serve as
Directors until the next annual meeting of the Shareholders or otherwise as
provided in the Bylaws. Unless instructions to the contrary are given, the
persons named as proxy voters in the accompanying proxy, or their substitutes,
will vote for the following nominees with respect to all proxies received by
the Company. If any nominee should become unavailable for any reason, the
votes will be cast for a substitute nominee designated by the Board. The
Directors have no reason to believe that any of the nominees named below will
be unable to serve if elected.
The nominees for election to the Board are as follows:
William C. Mortimore, 58, founder of the Company and an executive
officer, is Chairman of the Board and Chief Strategist since September 2000, as
President and Chief Executive Officer from November 1987 through August 2000
and as a member of the Board of Directors of the Company since its inception in
November 1987. Mr. Mortimore has served as co-founder and a senior manager of
several businesses in the fields of information communications technology,
healthcare services and real estate and has been responsible for securing
public and private financing for these organizations. Mr. Mortimore is an
original member of the American College of Radiology / National Association of
Electrical Manufacturers ("ACR / NEMA") committee responsible for establishing
and maintaining the DICOM medical imaging standard. Mr. Mortimore has served
as a member of the Board of Directors of the Diagnostic Imaging Division of
NEMA, since the Spring of 1996. Mr. Mortimore has also served as a member of
the Board of Directors of MRI Devices, Inc., a privately held diagnostic
imaging manufacturer, since November 2002. Mr. Mortimore received a B. S. in
Electrical Engineering from Michigan State University, an M.E.E. from the
University of Minnesota and pursued doctoral studies in Electrical Engineering
at the University of Minnesota.
Robert A. Barish, M. D., 50, a Director, is Associate Dean for Clinical
Affairs and Professor of Surgery and Medicine at the University of Maryland
School of Medicine. From 1996 to 1998, he served as the Chief Executive
Officer of University Care, for University of Maryland Medical. He is a
Trustee of the Endowment Fund of the University of Maryland. Dr. Barish holds
a B. A. from the University of New Hampshire, an M. D. from the New York
Medical College and an M.B.A. from Loyola College. Dr. Barish has been a
Director of the Company since its initial public offering in February 1998.
Dennis Brown, 56, a Director, is Vice President of Finance, Chief
Financial Officer and Treasurer of Apogent Technologies Inc. ("Apogent"), a New
York Stock Exchange company located in Portsmouth, New Hampshire, and has
served in such capacities since January 2003. From December 2000 through
January 2003, Mr. Brown served as a financial consultant to Apogent. Mr.
Brown has also served as Vice President, Chief Financial Officer and Treasurer
of Sybron International Corporation ("Sybron"), a publicly traded company
formerly headquartered in Milwaukee, Wisconsin. He served in that capacity
from January 1993 through December 2000, at which time Sybron was reorganized
through a tax free spin off of its dental group located in Orange, California,
and the relocation of its life sciences group to Portsmouth, New Hampshire, at
which point Sybron was renamed Apogent. Mr. Brown is a member of the Board of
Directors of Sybron Dental Specialties Incorporated, a New York Stock Exchange
company. Mr. Brown is a Fellow of the Chartered Institute of Management
Accountants (England). Mr. Brown has served as a director since May 2003 and
previously served as a director of the Company from the date of its initial
public offering in February 1998 until May 2000.
Michael D. Dunham, 58, a Director, is Senior Vice President of Business
Development of Industrial & Financial Systems, IFS AB, a publicly traded
Sweden-based corporation that markets and supports manufacturing software
systems, since 1999. Mr. Dunham is also the owner and since 2002 has served
as President of Dunham Global Associates, Ltd., which owns three private
companies in the software technology industry. Mr. Dunham co-founded and
served as Chief Executive Officer of publicly traded Effective Management
Systems, Inc. between 1978 and 1999. Mr. Dunham is a director of Heartland
Group, Inc., a mutual funds holding company, and a director of the bank
subsidiary of Merchants & Manufacturers Bancorporation Inc. with which the
Company has its depository accounts and line of credit. Mr. Dunham has also
served as a Director of the Milwaukee Metropolitan Association of Commerce,
since 1991. Mr. Dunham holds a B. S. in Electrical Engineering from the
University of Denver and a M.M.S. from the Stevens Institute of Technology.
Mr. Dunham has been a Director of the Company since its initial public offering
in February 1998.
Robert T. Geras, 66, a Director, has been a Shareholder of the Company
since May 1989 and a Director of the Company prior to its initial public
offering in 1998. Since January 2004, Mr. Geras has been a director of Capital
Growth Systems, Inc., a public reporting holding company for Nexvu Technologies
LLC, an application performance management software company. Mr. Geras has
been a private venture investor for more than 25 years and has participated
as a director of, investor in, and/or advisor to numerous small businesses in
fields ranging from medical equipment, computer software, banking,
telecommunications, industrial distribution and internet. He has also assisted
in corporate planning, capital formation and management for his various
investments. Mr. Geras holds a B.S.B.A. from Northwestern University.
Anna M. Hajek, 55, a Director, has been President and Chief Executive
Officer of Clarity Group, Inc., a business operations and insurance management
firm, since she co-founded the firm in 2000. From 1995 to 2000, Ms. Hajek
served as Executive Vice President and President of the Healthcare Risk
Services Group operating division of MMI Companies, Inc., a New York Stock
Exchange company specializing in risk management and liability insurance to
the healthcare industry. From 1985 to 1994, she served in various other
capacities at MMI. Prior to that time, Ms. Hajek worked in hospital and
academic medical center settings in her capacity as a medical technologist
and educator. Ms. Hajek received her B. A. with honors from the College of
St. Teresa, Winona, Minnesota, and her Masters Degree in Health Professions
Education from the University of Illinois at Chicago. She holds an active
Medical Technologist Certification from the American Society of Clinical
Pathologists. Ms. Hajek joined the Board of Directors in May 2001.
Richard A. Linden, 43, a Director and an executive officer, joined the
Company as its President and Chief Executive Officer and a member of its Board
of Directors in September 2000 with over 17 years of technology and healthcare
industry experience. Prior to joining the Company, Mr. Linden held several
executive positions with MMI Companies, Inc., a New York Stock Exchange
company, specializing in clinical risk management, professional services and
liability insurance to the healthcare industry. From October 1999 to August
2000, Mr. Linden served as President of MMI's Healthcare Consulting Group.
From April 1998 to September 1999, he served as Chief Operating Officer for
MMI's Healthcare Consulting Group and from April 1992 to March 1998, he served
as MMI's Chief Information Officer. Mr. Linden received his B. S. in Systems
Analysis from Miami University, Ohio and his M.B.A. from the University of
Chicago.
Richard A. Reck, 54, a Director, is the President of Business Strategy
Advisors, LLC, a strategy consulting firm, and has served in such capacity since
August 2002. Mr. Reck joined the certified public accounting firm of KPMG LLP
in June 1973 and remained in their employ until his retirement as a Partner in
July 2002. Since March 2004, Mr. Reck has served as a director of Sivex
Technologies, Inc., a privately held software company. Since 2002, Mr. Reck
has served as a director of Greenbrier & Russel, Inc., as Chairman; and Liquid
Generation, Inc., as Vice Chairman; both of which are privately held companies.
Mr. Reck also serves on the boards of three not for profit entities: the
Chicago Software Association, which is a trade association servicing software
companies in the Midwest; the Illinois Coalition, which is a public / private
partnership between businesses and the State of Illinois, with its objective
being to foster economic growth in Illinois; and the Advisory Board of the
Illinois Fatherhood Initiative, to provide focus on the importance of fathers
in the growth and development of children. Mr. Reck holds a B. A. in
Mathematics from DePauw University and an M.B.A. in Accounting from the
University of Michigan. Mr. Reck has been a Director of the Company since
April of 2003.
Frank Seidelmann, D.O., 57, a Director, was appointed to the Board in
August 2003 to satisfy a term in the Merger Agreement with RIS Logic
Incorporated ("RIS Logic"), which was acquired by the Company in July 2003.
Dr. Seidelmann is a diagnostic neuroradiologist, certified by the American
Board of Radiology, with more than 25 years experience in both academic and
private practice radiology. Dr. Seidelmann has been Vice President of Franklin
& Seidelmann since September 2001. From November 1999 to August 2001 he was
President of Seidelmann & Associates and from December 1997 to October 1999
was a physician employed by Team Health. He is also currently President and
Chief Executive Officer of American Teleradiology Management Group and
Precision Diagnostic Imaging. Dr. Seidelmann formerly held the position of
Assistant Professor of Radiology at Upstate Medical Center, SUNY in Syracuse,
and Associate Professor of Radiology at Case Western Reserve University School
of Medicine. Dr. Seidelmann has been Chairman of several hospital radiology
departments. He is also a teleradiologist with licenses in 45 states providing
MRI interpretations throughout the country. He has published more than 40
articles and has contributed to four books. He is presently a Clinical
Professor of Radiology at Ohio University.
BOARD COMMITTEES; INDEPENDENCE OF DIRECTORS
---------------------------------------------
The Board is required to meet at least once per year, either in person
or by telephonic conference. The Board met seven (7) times during the calendar
year 2003. All of the Directors attended at least seventy five percent (75%)
of the number of meetings of the Board of Directors, and the number of meetings
of all committees on which they served.
The Board of Directors has four (4) standing committees: an Audit
Committee; a Compensation Committee; an Executive Committee and a Nominating
Committee.
The Audit Committee recommends engagement of the Company's independent
accountants, approves services performed by these accountants, and reviews and
evaluates the Company's accounting system and its system of internal accounting
controls. The Audit Committee, which met ten (10) times in 2003, is currently
comprised of Dennis Brown, as chair, Michael D. Dunham, and Robert T. Geras.
Mr. Brown is the designated financial expert. All of the members of the Audit
Committee are independent, as independence is defined in Section 4200 of the
rules of the NASD Manual of the National Association of Securities Dealers,
Inc. ("NASD").
The Compensation Committee reviews the compensation of the executive
officers of the Company providing its recommendations to the Board of
Directors with respect to the same. This committee also reviews and
administers the granting of stock options under the Company's Option Plan.
The Compensation Committee met five (5) times in 2003 and is currently
comprised of Anna M. Hajek, as chair, and Richard A. Reck. All of the members
of the Compensation Committee are currently independent, as independence is
defined in Section 4200 of the rules of the NASD Manual.
The Executive Committee provides guidance to management on corporate
matters such as strategic relationships, capital formation and business
planning. The Executive Committee met five (5) times in 2003. It is
currently comprised of Richard A. Linden, as chair, Michael D. Dunham,
Robert T. Geras and William C. Mortimore.
The Nominating Committee nominates candidates for the Board and
will consider nominees recommended by Shareholders. The Nominating Committee,
which met one (1) time in 2003, is currently comprised of Michael D. Dunham,
as chair, Robert A. Barish, M. D. and Anna M. Hajek. All of the members of
the Nominating Committee are independent, as independence is defined in
Section 4200 of the rules of the NASD Manual.
All members of the Board of Directors and all nominees, being the
same persons, are independent other than Messrs. Linden and Mortimore who
are employed as senior executives of the Company. As of the date of the
Company's 2004 Annual Meeting of Shareholders, Mr. Reck will no longer be
independent, as that term is defined in Section 4200 of the rules of the
NASD Manual, as Mr. Reck was associated with the Company's public accounting
firm of KPMG LLP until his retirement as a Partner in July 2002.
The Company strongly encourages its directors to attend the Annual
Meeting of Shareholders. At the 2003 Annual Meeting of Shareholders, eight of
nine directors were in attendance at such meeting.
For a discussion of Directors' compensation, as well as additional
information regarding the management of the Company, see "Management, Executive
Officers" and "Compensation of Directors and Executive Officers."
RECOMMENDATION OF THE BOARD: The Board recommends and nominates
Messrs. Mortimore, Linden, Dr. Barish, Messrs. Brown, Dunham, Geras, Ms.
Hajek, Mr. Reck and Dr. Seidelmann for election as Directors of the Company by
the Shareholders at the Annual Meeting to serve until the next annual meeting
of Shareholders or as otherwise provided in the Bylaws.
VOTE REQUIRED: The nine (9) nominees receiving the highest vote totals
will be elected as Directors of the Company.
AUDIT COMMITTEE REPORT
-----------------------
The Audit Committee adopted a new charter on February 17, 2004, which
charter was ratified and adopted by the Board of Directors on March 2, 2004, to
replace the charter which had previously been in effect. The Audit Committee's
new charter is included herewith as Appendix A.
The Audit Committee has also adopted certain preapproval categories for
each fiscal year. These categories relate to auditor assistance with periodic
filings with the Commission, auditor assistance with Board approved capital
raising or debt financing, auditor assistance with Board approved acquisitions,
auditor assistance with due diligence, required responses to Commission comment
letters, and auditor assistance with routine tax matters.
We, the members of the Audit Committee of the Company, represent the
following:
1. The Audit Committee has reviewed and discussed the Company's
audited financial statements with management of the Company;
2. The Audit Committee has discussed with KPMG LLP, the Company's
independent auditors, the matters required to be discussed by
Statement of Auditing Standards No. 61, as may be modified or
supplemented;
3. The Audit Committee has received the written disclosures and
the letter from KPMG LLP required by Independence Standards
Board Standard No. 1, as may be modified or supplemented, and
has discussed with KPMG LLP its independence; and
4. Based on the review and discussions referred to above, the
Audit Committee recommended to the Board of Directors that the
audited financial statements be included in the Company's
Annual Report on Form 10-K for the year ended December 31,
2003, for filing with the Securities and Exchange Commission.
Dennis Brown, Chair Michael D. Dunham Robert T. Geras
NOMINATING COMMITTEE COMPOSITION AND PROCEDURES
------------------------------------------------
The Nominating Committee adopted a charter on March 2, 2004, which is
included herewith as Appendix B to this Proxy Statement. The Nominating
Committee will consider candidates for nomination as a director recommended by
Shareholders, directors, officers, third party search firms and other sources.
In evaluating candidates, the Committee considers the attributes of the
candidate (including public company background, healthcare/information
technology experience, integrity, strategic contribution, and ability to
devote requisite time) and the needs of the Board, and will review all
candidates in the same manner, regardless of the source of the recommendation.
The Nominating Committee will consider individuals recommended by Shareholders
for nomination as a director in accordance with the procedures described
under "Shareholder Proposals and Nominations."
COMPENSATION COMMITTEE REPORT
------------------------------
The Compensation Committee of the Board of Directors makes
recommendations to the Board of Directors for approval regarding the
compensation of the Company's named executive officers and reviews compensation
of the Company's employees as a whole. Executive officers who are directors,
namely Messrs. Linden and Mortimore, do not participate in decisions involving
any element of their respective compensation. Each member of the Compensation
Committee is independent as defined by applicable law and the Nasdaq Stock
Market listing standards. It is the responsibility of the Compensation
Committee to determine whether in its judgment the executive compensation
policies are reasonable and appropriate and effectively serve the best
interests of the Company and its Shareholders.
Compensation Philosophy and Policies for Executive Officers
------------------------------------------------------------
The Compensation Committee believes that the primary objectives of the
Company's executive compensation policies should be:
* to attract and retain talented executives by providing compensation
that is, overall, highly competitive with the compensation provided to
executives at companies of comparable position in the health care
information technology industry, while maintaining compensation within
levels that are consistent with the Company's annual budget, financial
objectives and operating performance;
* to provide appropriate incentives for executives to work toward the
achievement of the Company's annual financial performance and business
goals based on the Company's annual budget; and
* to more closely align the interests of the executive officers with
those of the Shareholders and the long-term interests of the Company
by providing long-term incentive compensation in the form of stock
options or other equity based long-term incentive compensation.
The Compensation Committee reviews executive compensation policies
annually taking into consideration the Company's financial performance, its
annual budget and its position within the health care information technology
industry, as well as the executive compensation policies of similar companies
in the same industry.
The Compensation Committee believes that in addition to corporate
performance, it is appropriate in setting and reviewing executive compensation
to consider the level of experience and responsibilities of each executive
officer as well as the personal contributions a particular individual may make
to the success of the corporate enterprise.
Compensation of Named Executive Officers
-----------------------------------------
The Compensation Committee believes that the compensation of executive
officers should be comprised of base salary, annual incentive and discretionary
bonuses, and long-term compensation and has applied the policies described
herein to fiscal 2003 compensation for executive officers as described below.
Base Salary. The Compensation Committee determined on the basis of its
experience in business generally, of discussions with the Chief Executive
Officer, and with the Company, specifically, what it viewed to be appropriate
levels of base salary after taking into consideration the contributions of each
executive officer and the performance of the Company. In making its review,
the Compensation Committee determined that an increase in base salary for the
Chief Executive Officer, Richard A. Linden, from $200,000 per annum to $225,000
per annum was appropriate, and presented its recommendation to the Board of
Directors which approved such increase in base salary. In addition, the role
of the Company's Chief Strategist, William C. Mortimore, was changed at the
end of the 2003 fiscal year at the request of such executive officer and, as a
result, the base salary of such executive officer was adjusted from $175,000
per annum to $100,000 per annum, which adjustment was approved by the Board of
Directors. In March 2003, the Compensation Committee recommended to the Board
of Directors an increase in the base salary of its Chief Financial Officer,
Scott T. Veech, from $150,000 to $160,000 per annum and an increase in the base
salary of its Senior Vice President, Operations and Product Innovation, David M.
Noshay, from $120,000 to $127,500 per annum, each of which increase was
approved by the Board of Directors. Also see the discussion of employment
agreements entered into in 2004 under the heading "Compensation of Directors
and Executive Officers."
Annual Incentive Bonuses. In addition to discretionary bonuses, the
Compensation Committee believes that there should be a program for annual
incentive bonuses based on the Company's operating performance in relation to
predetermined objectives and individual executive officer performance for the
year then ended. To achieve this link with regard to current fiscal year
performance, for fiscal 2003, the Compensation Committee relied on cash bonuses
awarded under the Profit Sharing Bonus Plan under which cash awards could be
earned by the executive officers based upon a comparison of revenue growth,
expense management and earnings per share of the Company compared with targets
for such categories approved by the Board of Directors on recommendation by
the Executive Committee at the beginning of the fiscal year.
Long-Term Incentive Compensation. Stock options, contributions under
the Company's 401(k) Profit Sharing Plan and the availability of stock
pursuant to the Company's Employee Stock Purchase Plan are the principal
vehicles for payment of intermediate and long-term incentive compensation.
The 401(k) Profit Sharing Plan, which is based on a calendar year, provides
for a matching contribution by the Company of fifty percent (50%) of base pay
up to two and one half percent (2.5%) of base pay.
The Company has no set policy as to when stock options should be
awarded, although historically the Company has awarded stock options to its
executive officers annually. The Compensation Committee believes that the
Company should continue to make it a part of its regular executive compensation
policies to consider granting awards of stock options to executive officers to
provide long-term incentives as part of the compensation package that is
reviewed annually for each executive officer. The Company's stock option
agreements generally have provided that the exercise price of each stock option
was the closing price on the date on which the options were granted; each grant
was subject to vesting conditions established at the date of the grant; and
stock options vested on an equal basis over a period of four (4) years. The
Compensation Committee's practice is that the material terms of stock options
for executive officers should not be amended after grant. Historically, upon
approval of the Board of Directors, the Compensation Committee has awarded
options intended to be incentive stock options, rather than non-qualified
options to its executive officers.
The Compensation Committee believes that long-term stock-based
incentive compensation should be structured so as to closely align the interests
of the executive officers with the interests of the Company's Shareholders and,
in particular, to provide only limited value (if any) in the event that the
Company's stock price fails to increase over time. The Compensation Committee
recommends for the approval of the Board of Directors the award of stock option
grants to the executive officers and takes into account the recommendations of
the Chief Executive Officer, prior to its recommendation to the Board of
Directors, the approval of annual awards of long-term stock-based incentive
compensation to the other executive officers. These stock options are granted,
in part, to reward the executive officers for their long-term strategic
management of the Company and to motivate the executive officers to improve
Shareholder value by increasing this component of their compensation package,
and reflect the Compensation Committee's objective to provide a greater
portion of compensation for executive officers in the form of long-term equity
based awards.
During February 2003, on recommendation by the Compensation Committee,
the Board of Directors awarded each of Messrs. Veech and Noshay 10,000 options.
During November 2003, on recommendation by the Compensation Committee, the
Board of Directors made a special award of 25,000 stock options to each of
Messrs. Veech and Noshay as an incentive in connection with the internal
reorganization of the Company and the increased responsibilities of such
officers.
Compensation of Chief Executive Officer
-----------------------------------------
The Compensation Committee believes that the compensation of the Chief
Executive Officer is consistent with its general policies concerning executive
compensation and is appropriately taking into consideration the Company's
financial objectives and performance. Awards of long-term incentive
compensation to the Chief Executive Officer are considered concurrently with
awards to other executive officers and follow the same general policies as such
other intermediate and long-term incentive compensation.
In February 2003, based on the recommendation of the Compensation
Committee, the Board of Directors awarded the Chief Executive Officer 100,000
options in recognition of his performance results for the fiscal year 2002. In
May 2003, on recommendation of the Compensation Committee, the Board of
Directors awarded the Chief Executive Officer a discretionary bonus in the
amount of $25,000 in recognition of his performance results for the first
quarter of fiscal year 2003. In reviewing and approving the Chief Executive
Officer's fiscal 2003 compensation, the Compensation Committee determined that
his base salary should be increased, as noted above, and by its recommendation
to the Board of Directors in awarding the Chief Executive Officer an annual
bonus of $43,200, which recommendation was approved by the Board of Directors,
determined that the Chief Executive Officer had achieved virtually all of his
targeted goals for 2003.
Compliance with Internal Revenue Code Section 162(m)
----------------------------------------------------
The Compensation Committee also considers the potential impact of
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
which generally disallows a tax deduction to publicly held companies for
compensation exceeding $1,000,000 in any taxable year paid to the Chief
Executive Officer and any other executive officers. Under Code regulations,
qualifying performance-based compensation will not be subject to the deduction
limit if certain requirements are met. The Compensation Committee considers
that its primary goal is to design compensation strategies that further the
best interests of the Company and its Shareholders. To the extent they are
consistent with that goal, the Compensation Committee attempts, where practical,
to use compensation policies and programs that preserve the deductibility of
compensation expenses.
Anna M. Hajek, Chair Richard A. Reck
MANAGEMENT
------------
Directors
----------
For the names of and biographical information regarding each of the
Directors and a discussion of Board Committees, see "Proposal Regarding Election
of Directors."
Executive Officers
-------------------
The names of the executive officers of the Company, and their
respective ages and positions with the Company, are as follows:
Name Age Position
---------------------------------------------------------------------------------------
Richard A. Linden 43 President and Chief Executive Officer, Director
William C. Mortimore 58 Chief Strategist, Director
Scott T. Veech 42 Chief Financial Officer, Treasurer and Secretary
David M. Noshay 43 Senior Vice President, Product Innovation and Operations
Scott T. Veech, has served as Chief Financial Officer, Treasurer and
Secretary of the Company since August 2002. Prior to joining the Company, Mr.
Veech was Chief Financial Officer of Penn Millers Insurance Company from August
2000 until March 2002 and was Vice President at MMI Companies, Inc. from
September 1987 to August 2000. Mr. Veech has B. A. degrees in Accounting and
Finance from Miami University, Ohio and a M.S.T. from DePaul University.
David M. Noshay, has served as Senior Vice President, Product Innovation
and Operations since November 2003. From December 2001 to November 2003, Mr.
Noshay served as Vice President, Business Development. Mr. Noshay joined the
company is September 1995 and previously served as Vice President, Strategic
Marketing, as Vice President Sales, and Marketing - Systems and as Vice
President, Marketing. Prior to joining the Company, Mr. Noshay was Sales
Manager of Scitex Medical Systems, a manufacturer of medical image printing
equipment, and has worked for such major medical companies as Konica Medical
Corporation, Agfa Corporation and Siemens Medical Systems. Mr. Noshay holds
a B. S. in Electrical Engineering and an M. S. in Biomedical Engineering
from Rutgers University.
The biographies of Mr. Mortimore and Mr. Linden appear above under the
heading "Proposal Regarding Election of Directors."
Code of Ethics and Whistleblower Policy
----------------------------------------
The Company adopted a Code of Ethics for its senior executives and a
Whistleblower Policy for all employees. Such policies have been filed as
exhibits to the Company's Form 10-K for the year ended December 31, 2003, with
the Commission. These documents are available without charge upon request from
the Company. See "Annual Report on Form 10-K" below.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
--------------------------------------------------
Directors' Compensation
------------------------
Directors who are employees of the Company do not receive any cash
compensation for their service as members of the Board of Directors, although
they are reimbursed for certain expenses incurred in connection with attendance
at Board meetings. The Board of Directors may, in its discretion, alter this
policy in the future.
Directors who are not employees of the Company receive (i) $2,500 per
annum, to be increased to $5,000 per annum commencing May 20, 2004, for their
participation on the Board; (ii) immediately exercisable options to purchase
5,000 shares, to be increased to 10,000 shares commencing May 20, 2004, of
Common Stock under the Company's 1998 Stock Option Plan for Directors, as
amended (the "Directors' Plan"), with an exercise price equal to the closing
price of the Company's shares on the day before the Annual Shareholders'
Meeting; and (iii) $1,000 for each Board meeting and for each Board committee
meeting which they attend in person, and $500 for each Board and each Board
committee meeting in which they participate by teleconference. Directors also
are reimbursed for certain expenses incurred in connection with attendance at
Board meetings.
Options granted under the Directors' Plan shall expire at the earliest
to occur of (i) the expiration of the option term (no more than ten (10)
years), or (ii) the expiration of thirty (30) days from the date the Director
ceases to serve on the Company's Board of Directors. Options granted under the
Directors' Plan may be exercised in whole or in part until termination of the
exercise period.
The purposes of the Directors' Plan are to attract and retain the best
available, qualified resources for service as Directors; to provide additional
incentive to individuals to serve as Directors; to motivate Directors to
achieve superior performance for the benefit of the Company's Shareholders;
and to encourage Directors' continued service on the Board. Each option
granted under the Directors' Plan is evidenced by a written agreement between
the Company and the Director.
Executive Compensation
-----------------------
Set forth below is information concerning the compensation for 2003,
2002, and 2001 for the Company's President and Chief Executive Officer and
each other named executive officer of the Company:
Summary Compensation Table
----------------------------
Long Term
Compensation
Annual Compensation Awards
--------------------------------------------------------------------- ------------------------------
Securities
Name and Principal Other Annual Underlying All Other
Position Year Salary Bonus(1) Compensation Options Compensation(2)
--------------------- ------ -------- --------- ------------ ----------- ----------------
Richard A. Linden 2003 $220,833 $68,200 ----- 100,000 $ 5,000
President and Chief 2002 195,833 37,245 ----- ----- 2,625
Executive Officer 2001 177,083 41,125 ----- 30,000 27,375(4)
William C. Mortimore 2003 $162,500 $12,390 ----- ----- $ 3,250
Chief Strategist 2002 175,000 22,750 ----- ----- 3,500
2001 177,083 35,613 ----- ----- 3,541
Scott T. Veech (3) 2003 $158,333 $30,400 ----- 35,000 $ 3,958
Chief Financial
Officer, Secretary
& Treasurer
David M. Noshay 2003 $126,250 $24,480 ----- 35,000 $ 3,106
Senior Vice President 2002 119,167 14,196 ----- 4,000 2,383
Operations and 2001 115,833 2,000 ----- 5,000 2,450
Product Innovation
(1) Includes amounts earned and accrued during calendar year, but not paid until following calendar year.
(2) Represents paid contributions to 401(k) plan for the benefit of employees.
(3) Mr. Veech commenced employment in July 2002 and earned less than $100,000 in salary and bonus during 2002.
(4) Includes the forgiveness of $25,000 in November 2001 of a loan to Mr. Linden used to buy the Company's
Common Stock. This loan was repaid in full in 2003.
Option Grants in Fiscal Year 2003
Number of Percent of Potential Realizable
Securities Total Options Value(4) at Assumed
Underlying Granted to Annual Rates of Stock
Options Employees in Exercise Expiration Price Appreciate for
Granted Fiscal Year(1) Price Date Option Term
---------- ------------ --------- ---------- ---------------------
5%(4) 10%(4)
---------------------
Richard A. Linden.............. 100,000 (2) 15% $ 7.17 02/20/2009 $243,849 $553,209
William C. Mortimore........... ----- ----- ----- ----- ----- -----
Scott T. Veech................. 10,000 (2) 2% $ 7.17 02/20/2009 $ 24,385 $ 55,321
25,000 (3) 4% $ 16.05 11/13/2009 $136,463 $309,589
David M. Noshay................ 10,000 (2) 2% $ 7.17 02/20/2009 $ 24,385 $ 55,321
25,000 (3) 4% $ 16.05 11/13/2009 $136,463 $309,589
(1) Of the 279,697 options granted to the employees of RIS Logic, does not include 127,697 of
which were granted to replace existing options that such employees held in the predecessor
company. All of the options granted to RIS Logic employees at the date of the Company's
acquisition were non-qualified options issued under the 2003 Stock Option Plan of the
Company, an option plan established solely for acquisition purposes whereby only persons
employed by entities acquired by the Company would be able to receive options in place
of their existing options as well as receiving new options negotiated as part of, or
advisable in connection with, such acquisition and thereby to facilitate such acquisition.
(2) Options granted to purchase vest to the extent of 25% on the first, second, third and
fourth anniversaries of the grant date.
(3) Options granted to purchase vest to the extent of 25% on the date of grant, first, second,
and third anniversaries of the grant date.
(4) These hypothetical gains are based entirely on assumed annual growth rates of five
percent (5%) and ten percent (10%) in the value of the Company's stock price over the
entire life of these options. These assumed rates of growth are selected by the Commission
for illustration purposes only and are not intended to predict future stock prices, which
will depend upon market conditions and the Company's future performance. These calculations
do not take into account any taxes or other expenses that might be owed.
Aggregated 2003 Fiscal Year End Option Values
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at Options at
Shares Fiscal Year End Fiscal Year End(2)
Acquired Value ----------------------------- ------------------------------
on Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
----------- ---------- ----------- ------------- ----------- --------------
Richard A. Linden...... ----- ----- 140,000 185,000 $ 2,159,600 $ 2,346,400
William C. Mortimore... 10,000 $ 157,348 106,709 35,569 $ 1,668,929 $ 556,229
Scott T. Veech......... ----- ----- 46,250 68,750 $ 531,138 $ 655,712
David M. Noshay........ 50,791 $ 234,010 29,250 36,750 $ 383,858 $ 258,152
(1) The value realized is the difference between the fair market value of the underlying stock
at the time of the exercise and the exercise price.
(2) Based on year end price of $17.64 per share.
As of March 1, 2004, the Company entered into amended and restated
employment agreements with Richard A. Linden, William C. Mortimore and Scott T.
Veech, and a new employment agreement with David M. Noshay. Each of these
agreements is in effect until terminated by either the employee or the Company
upon thirty (30) days written notice.
Mr. Linden's contract provides for a monthly salary of no less than
$20,833 and an annual performance bonus of up to fifty percent (50%) of salary.
Mr. Veech's contract provides for a monthly salary of no less than $14,166 and
an annual performance bonus of up to twenty five percent (25%) of salary. At
the time the terms of these agreements were reviewed, the Board of Directors
also granted non-qualified stock options to Mr. Linden in the amount of 100,000
shares and to Mr. Veech in the amount of 25,000 shares. Mr. Noshay's contract
provides for a monthly salary of no less than $11,666 and an annual performance
bonus of up to twenty five percent (25%) of salary. Each of these contracts
requires Messrs. Linden, Veech and Noshay to devote their full time and
attention to the Company. Mr. Mortimore's contract provides for part-time
employment at a rate no less than $8,333 per month, and a performance bonus
of up to ten percent (10%) of salary. Each of the four employment agreements
also includes confidentiality provisions, restrict the executive's ability to
compete with the Company for a period of one (1) year (two (2) years for Mr.
Mortimore) after termination. Under Wisconsin law, a non-compete clause in
an employment agreement may be voided if the court determines that the
non-compete clause is unfairly restrictive.
Each of the contracts provides the executive severance pay following
termination of employment under certain conditions. The amount of severance
is twelve (12) months of salary, bonus and benefits in the case of Messrs.
Linden and Veech, and six (6) months of salary, bonus and benefits in the case
of Messrs. Noshay and Mortimore. Each of the contracts also provides for
payment under certain conditions following a change of control. The amount
of such change of control severance payments if the executive's employment
terminates is twelve (12) months of salary, bonus and benefits in the case
of each of Messrs. Linden, Veech, Noshay and Mortimore. All options
previously granted to such executives will also fully vest upon a change
of control. The contracts also provide for transition bonus payments of up
to one (1) year upon a change of control if an acquirer asks the executive
to remain with the Company. Change of control payments are to be grossed up
for the effect of any federal income tax excise payments.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
------------------------------------------------------
The following table sets forth certain information regarding the
beneficial ownership of the Common Shares as of March 19, 2004, by: (i) each
person that is known by the Company to beneficially own or exercise the voting
or dispositive control over five percent (5%) or more of the outstanding
Common Shares; (ii) each Director and named executive officer; and (iii) all
Directors and named executive officers of the Company as a group. Except as
otherwise indicated in the footnotes to the table, the persons named below
have sole voting and investment power with respect to the shares beneficially
owned by such persons. In general, a person is deemed to be a "beneficial
owner" of a security if that person has or shares the power to vote or direct
the voting of such security, or the power to dispose of or to direct the
disposition of such security. A person is also deemed to be a beneficial owner
of any securities of which the person has the right to acquire the beneficial
ownership within sixty (60) days.
Beneficial Ownership of Common Shares on the Record Date
-----------------------------------------------------------
Shares Beneficially
Owned (1)
--------------------------
Name and Address (2) Number Percent
--------------------------------------------------------------------------
RS Investment Management (3)................... 870,250 7%
Harvey L. Poppel (4)........................... 715,782 6%
Robert A. Barish, M.D. (5)..................... 99,181 (*)
Dennis Brown (6)............................... 5,000 (*)
Michael D. Dunham (7).......................... 39,912 (*)
Robert T. Geras (8)............................ 658,180 5%
Anna M. Hajek (9).............................. 22,983 (*)
Richard A. Linden (10)......................... 316,850 2%
William C. Mortimore (11)...................... 277,128 2%
David M. Noshay (12)........................... 40,556 (*)
Richard A. Reck (13)........................... 8,439 (*)
Frank Seidelmann, D.O. (14).................... 163,358 1%
Scott T. Veech (15)............................ 52,250 (*)
All Directors, Director Nominees and
Executive Officers as a Group (11 persons).... 1,683,837 13%
(*) Less than 1% of outstanding Common Stock.
(1) Except pursuant to applicable marital property laws or as indicated in
the footnotes to this table, to the Company's knowledge, each
Shareholder identified in the table possesses sole voting and
investment power with respect to all Common Stock shown as beneficially
owned by such Shareholder.
(2) The business address for RS Investment Management is 388 Market Street,
Suite 1700, San Francisco, California 94111. The business address for
Mr. Poppel is 1391 Sixth Street, Sarasota, Florida 34236. The business
address for each of Messrs. Geras, Mortimore, Linden, Dr. Barish,
Messrs. Brown, Dunham, Ms. Hajek, Mr. Reck and Dr. Seidelmann is Merge
Technologies Incorporated, 1126 South 70th Street, Suite S107B,
Milwaukee, Wisconsin 53214-3151.
(3) The Company has relied on information as provided in the Schedule 13G
filed with the Commission on February 14, 2004, filed jointly pursuant
to Rule 13d-1(f)(1) of the Securities Exchange Act of 1934, by RS
Investment Management Co. LLC, a holding company, and general partner
of RS Investment Management, L. P., a registered investment advisor,
and G. Randall Hecht as a control person of each of RS Investment
Management Co. LLC and RS Investment Management, L. P. (collectively,
"RS Investment Management") with respect to the number of shares
beneficially owned by RS Investment Management. RS Investment
Management has shared voting and dispositive power with respect to
the number of shares beneficially owned.
(4) Includes 425,164 shares held by Poptech L. P., of which Mr. Poppel is
the general partner.
(5) Includes vested options held by Dr. Barish to acquire 10,000 shares.
(6) Includes vested options held by Mr. Brown to acquire 5,000 shares.
(7) Includes vested options held by Mr. Dunham to acquire 32,500 shares.
(8) Reflects 203,164 shares held by trusts for the benefit of Mr. Geras'
adult children, the beneficial ownership of which Mr. Geras disclaims,
and includes vested options held by Mr. Geras to acquire 27,500 shares.
(9) Includes vested options held by Ms. Hajek to acquire 15,000 shares.
(10) Includes vested options held by Mr. Linden to acquire 115,000 shares.
(11) Includes vested options held by Mr. Mortimore to acquire 106,709 shares.
(12) Includes vested options held by Mr. Noshay to acquire 34,000 shares.
(13) Includes vested options held by Mr. Reck to acquire 5,411 shares.
(14) Reflects 63,358 shares held by trusts for the benefit of Dr.
Seidelmann's adult children, the beneficial ownership of which Dr.
Seidelmann disclaims. Reflects 96,284 shares held indirectly in trust
by and for the benefit of Dr. Seidelmann's spouse. Includes vested
options held by Dr. Seidelmann to acquire 3,716 shares.
(15) Includes vested options held by Mr. Veech to acquire 23,750 shares.
The Company is not aware of any arrangements, the operation of which
may at a subsequent date result in a change of control of the Company.
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers and Directors, and persons who own
more than ten percent (10%) of a registered class of the Company's equity
securities, to file initial statements of beneficial ownership (Form 3), and
statements of changes in beneficial ownership (Forms 4 or 5), of equity
securities of the Company with the Commission and the NASD. The Commission
requires executive officers, Directors and greater than ten percent (10%)
Shareholders to furnish the Company with copies of all these forms filed with
the SEC or the NASD.
To the Company's knowledge, based solely upon its review of the copies
of these forms received by it, or written representations from certain reporting
persons that no additional forms were required for those persons, the Company
believes, with the exception of the filings that were not made on a timely
basis as noted below, that all filing requirements applicable to its executive
officers, Directors, and greater than ten percent (10%) beneficial owners have
been complied with during 2003. During 2003, three late filings were made on
behalf of Catherine McCallum, a former officer of the Company, due to broker
accountability; and one late filing was made on behalf of each of Mr. Noshay
and Mr. Veech with respect to the reporting of option grants (derivative
securities).
PERFORMANCE GRAPH
-------------------
The following graph sets forth a five (5) year comparison of the
cumulative total Shareholder returns for the following: (a) the Company's
Common Stock; (b) the Russell 2000(r); and (c) the NASDAQ Computer and Data
Processing Index. All returns were calculated assuming dividend reinvestment
on a quarterly basis for companies paying dividends.
MRGE (1) RUT (2) IXCO (3)
----------- ---------- ----------
Relative Relative Relative
Date Price Price Price
----------- ----------- ---------- ----------
1/29/1998* $100.00 $100.00 $100.00
12/31/1998 $ 29.17 97.05 201.89
12/31/1999 $ 43.68 116.09 413.92
12/31/2000 $ 15.17 111.21 230.50
12/31/2001 $ 86.68 112.36 174.53
12/31/2002 $114.69 88.11 110.82
12/31/2003 $294.06 128.09 166.41
* Indicates Company Initial Public Offering date of January 29, 1998.
The above comparison assumes $100 was invested on January 29, 1998 in:
(1) Merge Technologies Incorporated; (2) Russell 2000 Index; (3) NASDAQ
Computer and Data Processing Index and assumes reinvestment of dividends.
RELATED PARTY TRANSACTIONS
----------------------------
On July 17, 2003, the Company acquired RIS Logic. In connection with
this merger, trusts for the benefit of Dr. Seidelmann's adult children received
aggregate cash consideration in the amount of $295,290 and 63,358 shares of
the Company's Common Stock. Dr. Seidelmann has disclaimed beneficial ownership
of the shares held by these trusts. Also in connection with this merger, a
trust for the benefit of Dr. Seidelmann's spouse received aggregate cash
consideration in the amount of $422,892 cash and 96,284 of the Company's
Common Stock. Dr. Seidelmann was a director and Chairman of RIS Logic.
Comparable consideration was made to every other former shareholder, warrant
holder and option holder of RIS Logic as was made to the aforementioned
trusts.
INDEPENDENT PUBLIC ACCOUNTANTS
--------------------------------
The firm of KPMG LLP was the Company's independent public accountants
for the 2003 fiscal year. Representatives of KPMG LLP will be present at the
Annual Meeting. They will have the opportunity to make a statement if they so
desire and to respond to appropriate questions.
KPMG LLP continues to serve as the Company's independent public
accountants of record for 2004.
The following table presents fees for professional audit services
rendered by KPMG LLP for the audit of the Company's annual financial statement
for 2002 and 2003 and fees billed for other services rendered by KPMG LLP in
such fiscal years.
2002 2003
-------- --------
Audit fees (1)....................... $309,000 $295,700
Audit related fees.................. 0 35,000
-------- --------
Audit and audit related fees......... $309,000 $330,700
Tax fees (2)........................ 37,000 10,700
All other fees...................... 0 0
-------- --------
Total fees........................... $346,000 $341,400
(1) Audit fees include fees for the annual audit, quarterly reviews, consents,
review of registration statements and review of and assistance with Form
8-K filings.
(2) Tax fees consist of fees for tax compliance and tax consulting.
The Audit Committee of the Board of Directors has considered whether the
provision of the services not related to the audit of the financial statements
acknowledged above, other than audit fees, is compatible with maintaining the
independence of KPMG LLP.
ANNUAL REPORT ON FORM 10-K
----------------------------
The Company hereby undertakes to provide without charge to each person
to whom a copy of this Proxy Statement has been delivered, upon written or
oral request of the person, a copy of the Company's Form 10-K Annual Report
for the fiscal year ended December 31, 2003. Requests should be made to the
Investor Relations Department at the Company's principal executive offices
located at 1126 South 70th Street, Suite S107B, Milwaukee, Wisconsin
53214-3151; telephone number (414) 977-4000.
SHAREHOLDER PROPOSALS AND NOMINATIONS
---------------------------------------
No Shareholder proposals were received by the Company for inclusion in
this year's Proxy Statement. If a Shareholder wishes to present a proposal to
be included in the Proxy Statement for the next Annual Meeting of Shareholders,
the proposal must be submitted in writing and received by the Company's
Secretary at the Company's offices no later than December 10, 2004.
If a Shareholder wishes to nominate a director, notice of a nomination
for director must be received no later than February 1, 2005. The notice must
include your name, address, the number of shares you own; the name, age,
business address, residence address and principal occupation of the nominee;
and the number of shares beneficially owned by the nominee. It must also
include the information that would be required to be disclosed in the
solicitation of proxies for election of directors under the federal securities
laws. You must submit the nominee's consent to be elected and to serve. The
Company may require any nominee to furnish any other information, within
reason, that may be needed to determine the eligibility of the nominee.
SHAREHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS
--------------------------------------------------------
Shareholders who wish to communicate with the Board of Directors may
send correspondence to the Corporate Secretary, Merge Technologies
Incorporated, 1126 South 70th Street, Milwaukee, Wisconsin 53214-3151. The
Secretary will submit your correspondence to the Board or the appropriate
Board committee, as applicable. Shareholders may communicate directly with
the Chairman of the Board by sending correspondence to Chairman of the Board
of Directors, Merge Technologies Incorporated, 1126 South 70th Street,
Milwaukee, Wisconsin 53214-3151.
------------
Appendix A
------------
MERGE TECHNOLOGIES INCORPORATED
AUDIT COMMITTEE CHARTER
Organization
-------------
The audit committee shall be composed of board members who are
independent of the management of Merge Technologies Incorporated (the
"Company") and are free of any relationship that would interfere with their
exercise of independent judgment as a committee member. Such members of the
audit committee shall be able to read and understand fundamental financial
statements or will become able to do so in a reasonable period of time after
the appointment to the audit committee. At least one (1) member of the audit
committee shall have past employment experience in finance or requisite
professional certificate in accounting or other comparable experience or
background.
The audit committee shall meet at least four (4) times annually, or
more frequently as circumstances require.
Statement of Policy
--------------------
Senior operating management of the Company, as overseen by the board of
directors, is responsible for the Company's internal controls. The audit
committee shall assist the Company's board members in fulfilling their
responsibility to the Shareholders, potential Shareholders and investment
community relating to the reliability of financial reporting, the effectiveness
and efficiency of operations and compliance with applicable laws and
regulations. In so doing, the audit committee shall be responsible for
maintaining open communication among board members, the independent auditors
and the management of the Company.
Responsibilities
-----------------
In carrying out its responsibility, the audit committee will:
* Review and recommend to the board the independent auditors to
be selected to audit the financial statements of the Company.
In addition, the committee will review the auditors' fees to
determine whether they are appropriate for the services they
render.
* Meet with the independent auditors and management of the
Company to review the scope of the proposed audit for the
current year and the audit procedures to be performed.
* Meet with the independent auditors and management of the
Company at the conclusion of the audit to review the results of
the audit, including any comments or recommendations of the
independent auditors, especially the contents of any auditors'
letter to management.
* Confirm and assure the independence of the independent auditors
and review any management consulting services provided by the
independent auditors and related fees.
* Review and approve in advance the scope of the fiscal year's
independent audit and the audit fee, establish policies for the
independent auditors' activities and any fees beyond the core
audit, approve in advance all non-audit services to be performed
by the independent auditors that are not otherwise prohibited by
law and associated fees, and monitor the usage and fees paid to
the independent auditors. The committee may delegate to the
chair of the committee, or another member of the committee, the
authority to pre-approve non-audit services not prohibited by
law to be performed by the independent auditors. The chair shall
report any decisions to pre-approve such services to the full
committee at its next meeting.
* Verify that no member of the Company's management has been a
member of the independent auditors' audit engagement team within
the one (1) year period preceding the commencement of audit
procedures by the independent auditors.
* Require that the Company's independent auditors inform the
audit committee of what the independent auditors consider to
be critical accounting policies relating to the preparation of
the Company's financial statements.
* Review with the independent auditors and with the financial and
accounting personnel the adequacy and effectiveness of the
Company's internal controls and elicit any recommendations
for improving the internal controls or particular areas where
new or more detailed controls or procedures are desirable.
* Review legal and regulatory matters that may have a material
effect on the financial statements.
* Inquire of management and the independent auditors regarding
significant risks or exposures and assess the steps management
has taken to minimize such risks and exposures to the Company.
* Review the financial statements contained in the Form 10-K
annual report and the annual report to shareholders with
management and the independent auditors and recommend to the
Board of Directors that such financial statements be approved.
* Verify that the Company's auditors have reviewed the Company's
financial information prior to filing the Company's Form 10-Q
Reports.
* Inquire of the independent auditors regarding their qualitative
judgments about the appropriateness, not just the acceptability,
of the accounting principles and the clarity of the financial
disclosures. Also inquire of the auditors regarding their
reasoning in accepting or questioning management's significant
estimates, changes or proposed changes in accounting principles
and disclosure practices management employs for new transactions
or events.
* Provide sufficient opportunity at all meetings of the audit
committee for the independent auditors to meet with the members
of the audit committee without members of management present.
Among the items to be discussed in these meetings are the
independent auditors' evaluation of the Company's financial
personnel and the cooperation which the independent auditors
received during the course of the audit.
* Consider whether audit committee members are provided with
appropriate background information and training and, when
necessary, seek such information and training from management
or the independent auditors.
* Submit the minutes of all meetings of the audit committee to
the board.
* Investigate any matter brought to its attention within the
scope of its duties, with the power to retain outside counsel
for this purpose if, in its judgment, that is appropriate.
* Review the Company's proxy statement disclosure concerning the
report of the audit committee and the independence of the
members of the audit committee, include the audit committee
charter as an exhibit to the Company's proxy statement at least
once every three (3) years, review and reassess the adequacy
of the audit committee charter on an annual basis and recommend
any changes to the audit committee charter to the board.
* Review the disclosure made to Shareholders related to audit and
non-audit services provided by, and fees paid to, the
independent auditors.
* Discuss earnings press releases, as well as financial
information and earnings guidance provided to analysts and
rating agencies.
* When deemed appropriate, obtain advice and assistance from
outside legal, accounting and other advisers.
* Determine that the members of the audit committee satisfy
all requirements of the rules of The Nasdaq Stock Market,
Inc. ("Nasdaq"), or other principal exchange on which the
Company's securities are traded, relating to audit committee
members, as amended from time to time and as interpreted by
the Board in its business judgment, within the time frames
established in the rules, regardless of whether such rules
would otherwise be applicable to the Committee. The Committee
shall establish and maintain practices to provide reasonable
assurance of the Company's compliance with the Nasdaq or
other applicable rules relating to audit committee members.
* Establish a policy that is disseminated throughout the
Company which provides that any employee of the Company may
inform any officer or director of the Company of any complaints
concerning, or the occurrence of any activity which the
employee believes relates to, misleading accounting, internal
accounting or auditing matters.
------------
Appendix B
------------
NOMINATING COMMITTEE CHARTER
OF MERGE TECHNOLOGIES INCORPORATED
The Nominating Committee's responsibilities and powers as delegated by the
board of directors are set forth in this charter. The Committee relies to a
significant extent on information and advice provided by management and
independent advisors. Whenever the Committee takes an action, it exercises
its independent judgment on an informed basis that the action is in the best
interests of the company and its Shareholders.
STATUS
--------
* The Nominating Committee (the "Committee") is a committee of the
board of directors.
PURPOSE
--------
* As set forth herein, the Committee shall, among other things,
discharge the responsibilities of the board of directors relating to
the appropriate size, functioning and needs of the board including,
but not limited to, recruitment and retention of high quality board
members.
MEMBERSHIP
----------
* The Committee shall consist of at least three (3) members of the
board of directors as determined from time to time by the board.
Each member shall be "independent" in accordance with the listing
standards of The Nasdaq Stock Market, Inc., as amended from time to
time, or as defined in the Corporation's bylaws, as amended from time
to time.
* The board of directors shall appoint the members of this Committee at
the first board meeting practicable following the annual meeting of
Shareholders and may make changes from time to time pursuant to the
provisions below. Unless a chair is appointed by the board of
directors, the members of the Committee shall designate a chair by
majority vote of the full Committee membership.
* A Committee member may resign by delivering his or her written
resignation to the chairman of the board of directors, or may be
removed by majority vote of the board of directors by delivery to
such member of written notice of removal, to take effect at a date
specified therein, or upon delivery of such written notice to such
member if no date is specified.
MEETINGS AND COMMITTEE ACTION
------------------------------
* The Committee shall meet as often as may be required to fulfill its
responsibilities. Meetings of the Committee shall be called by the
chairman of the Committee upon such notice as is provided for in the
bylaws of the Corporation with respect to meetings of the board of
directors. A majority of the members shall constitute a quorum.
Actions of the Committee may be taken in person or via
teleconference at a meeting, or in writing without a meeting. Actions
taken at a meeting, to be valid, shall require the approval of a
majority of the members present and voting. Actions taken in
writing, to be valid, shall be signed by all members of the
committee. The Committee shall report its minutes from each meeting
to the board of directors.
* The chairman of the Committee shall establish such rules as may from
time to time be necessary or appropriate for the conduct of the
business of the Committee. At each meeting, the chairman shall
appoint as secretary a person who may, but need not, be a member of
the Committee. A certificate of the secretary of the Committee
setting forth the names of the members of the Committee or actions
taken by the Committee shall be sufficient evidence at all times as
to the persons constituting the Committee, or such actions taken.
DUTIES AND RESPONSIBILITIES
----------------------------
The Committee's duties and responsibilities include:
* Developing qualifications and guidelines for membership on the board.
* Recommending members for the various board committees.
* Developing programs for the continuing education of all directors and
for the orientation of new directors.
POWERS AND AUTHORITY
---------------------
Subject to such specific constraints as may be imposed by the board of
directors, the board of directors delegates to the Committee all powers
and authority that are necessary or appropriate to fulfill its duties
and responsibilities hereunder, including but not limited to:
* Recruiting, reviewing, conducting appropriate inquiries into the
background and qualifications, and nominating candidates for election
to the board of directors or to fill vacancies on the board of
directors.
* Reviewing candidates proposed by Shareholders, and conducting
appropriate inquiries into the background and qualifications of
any such candidates.
===================================================
YOUR VOTE IS IMPORTANT. THE PROMPT RETURN
OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES. PLEASE
PROMPTLY MARK, SIGN, DATE AND RETURN THE
ENCLOSED PROXY IN THE ENCLOSED ENVELOPE.
===================================================
MERGE TECHNOLOGIES INCORPORATED
1126 SOUTH 70TH STREET
SUITE S107B
MILWAUKEE, WISCONSIN 53214-3151
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Richard A. Linden and Scott T. Veech,
and each of them, as Proxies, with the power to appoint their substitutes, and
hereby authorizes them to represent and to vote, as designated below, all of
the shares of common stock, par value $0.01 per share (the "Common Stock"), of
Merge Technologies Incorporated (the "Company") held of record by the
undersigned on March 19, 2004, at the Annual Meeting of Shareholders to be held
on May 20, 2004, or any adjournment thereof.
This proxy, when properly executed, will be voted in the manner
directed herein by the undersigned Shareholder. If no direction is made, this
proxy will be voted FOR the proposals set forth herein.
(Continued and to be signed on the reverse side)
ANNUAL MEETING OF SHAREHOLDERS OF
MERGE TECHNOLOGIES INCORPORATED
MAY 20, 2004
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
** Please detach along perforated line and mail in the envelope provided. **
===============================================================================
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK
YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE X
-----
===============================================================================
1. Elect nine individuals to serve as Directors until the next annual meeting
of Shareholders or otherwise as provided in the Amended and Restated Bylaws
(check one box).
NOMINEES
--------
[ ] For all Nominees [ ] 1. William C. Mortimore
[ ] 2. Robert A. Barish, M.D.
[ ] 3. Dennis Brown
[ ] Withold Authority [ ] 4. Michael D. Dunham
For all [ ] 5. Robert T. Geras
Nominees [ ] 6. Anna M. Hajek
[ ] 7. Richard A. Linden
[ ] For All Except [ ] 8. Richard A. Reck
(See Instructions [ ] 9. Frank E. Seidelmann, D.O.
Below)
Instructions: To withhold authority to vote for any individual nominee(s),
mark "FOR ALL EXCEPT" and fill in the circle next to each nominee you wish to
withhold, as shown here: [XX]
-------------------------------------------------------------------------------
2. In their discretion, the Proxies are authorized to transact any
other business as may properly come before the Meeting or any
adjournment thereof.
[ ] For
[ ] Against
[ ] Abstain
===============================================================================
To change the address on your account, please check the box at right and [ ]
indicate your new address in the address space above. Please note that
changes to the registered name(s) on the account may not be submitted via
this method.
Signature of Shareholder:_____________________________________ Date:___________
Signature of Shareholder:_____________________________________ Date:___________
NOTE: Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as an
executor, administrator, attorney, trustee or guardian, please give full title
as such. If the signer is a corporation, please sign full corporate name by
duly authorized officer, giving full title as such. Is signer is a partnership,
please sign in partnership name by authorized person.