UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION

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NxSTAGE MEDICAL, INC.

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NxSTAGE MEDICAL, INC.
439 South Union Street, 5^th Floor
Lawrence, Massachusetts 01843

 

NOTICE OF 2006 ANNUAL MEETING OF STOCKHOLDERS

To Be Held on May 30, 2006

 

To our stockholders:

 

We invite you to our 2006 Annual Meeting of Stockholders, or Annual Meeting, which will be held at the offices of Wilmer Cutler Pickering Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109, on Tuesday, May 30, 2006 at 10:00 a.m., local time. At the meeting, stockholders will consider and act upon the following matters:

 

1. The election of seven members to our Board of Directors, each director to serve for a term ending on the date of our 2007 Annual Meeting of Stockholders, or until each such director’s earlier death, resignation or removal;

 

2. The ratification of the selection by our Audit Committee of Ernst & Young LLP as our independent registered public accounting firm for the 2006 fiscal year; and

 

3. The transaction of such other business as may properly come before the meeting or any adjournment thereof.

 

Stockholders of record at the close of business on April 3, 2006, the record date for the Annual Meeting, are entitled to notice of, and to vote at, the Annual Meeting. Your vote is important regardless of the number of shares you own. Whether or not you expect to attend the Annual Meeting, we hope you will take the time to vote your shares. If you are a stockholder of record, you may vote over the Internet, by telephone or by completing and mailing the enclosed proxy card in the envelope provided. If your shares are held in “street name,” that is, held for your account by a broker or other nominee, you will receive instructions from the holder of record that you must follow for your shares to be voted.

 

Our stock transfer books will remain open for the purchase and sale of our common stock.

 

By Order of the Board of Directors,

 

 

WINIFRED L. SWAN

Secretary

 

Lawrence, Massachusetts

April 28, 2006

 

TABLE OF CONTENTS

 

NxSTAGE MEDICAL, INC.
439 South Union Street, 5^th Floor
Lawrence, Massachusetts 01843

 

Proxy Statement for the 2006 Annual Meeting of Stockholders

To Be Held on May 30, 2006

 

This Proxy Statement contains information about the 2006 Annual Meeting of Stockholders, or Annual Meeting, of NxStage Medical, Inc., including postponements and adjournments of the meeting. We are holding the meeting at the offices of Wilmer Cutler Pickering Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109 on Tuesday, May 30, 2006 at 10:00 a.m., local time.

 

In this Proxy Statement, we refer to NxStage Medical, Inc. as “NxStage,” “we” and “us.”

 

We are sending you this Proxy Statement in connection with the solicitation of proxies by our Board of Directors for use at the Annual Meeting.

 

We are mailing our Annual Report to Stockholders for the year ended December 31, 2005 with these proxy materials on or about April 28, 2006.

 

You can find our Annual Report on Form 10-K for the year ended December 31, 2005 on our website at www.nxstage.com or through the Securities and Exchange Commission’s electronic data system, called EDGAR, at www.sec.gov. You may also obtain a printed copy of our Annual Report on Form 10-K, free of charge, from us by sending a written request to: Investor Relations, NxStage Medical, Inc., 439 South Union Street, 5^th Floor, Lawrence, Massachusetts 01843.

 

 

 

STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth certain information, as of February 1, 2006, or such earlier date as indicated below, with respect to the beneficial ownership of our common stock by:

 

 

 

The number of shares of our common stock owned by each person is determined under the rules of the Securities and Exchange Commission, or SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under these rules, beneficial ownership includes any shares as to which the individual has sole or shared voting power or investment power and also any shares which the individual has the right to acquire within 60 days after February 1, 2006 through the exercise of any stock option or other right. Unless otherwise indicated, each person has sole investment and voting power, or shares such power with his or her spouse, with respect to the shares set forth in the following table. The inclusion in this table of any shares deemed beneficially owned does not constitute an admission of beneficial ownership of those shares.

 

Unless otherwise indicated below, the address for each person is to the care of NxStage Medical, Inc., 439 South Union Street, 5^th Floor, Lawrence, Massachusetts 01843.

 

 

 

 

 

Our Board of Directors currently consists of eight members, each serving one-year terms. We are proposing the election of seven members at the Annual Meeting. Dr. Jean-Francois Formela has declined to stand for re-election to our Board of Directors due to his other business obligations, and his term of office as a director will not continue after the Annual Meeting. Our Nominating and Corporate Governance Committee has not yet identified a replacement to fill the vacancy created by Dr. Formela’s decision not to stand for re-election. The vacancy will be filled by the vote of our Board of Directors following the Annual Meeting after a suitable candidate is identified. Our bylaws provide that any vacancies in our Board of Directors and newly created directorships may be filled only by our Board of Directors and the authorized number of directors may be changed only by our Board of Directors.

 

The persons named in the enclosed proxy will vote to elect as directors each of Jeffrey H. Burbank, Philippe O. Chambon, Daniel A. Giannini, Craig W. Moore, Reid S. Perper, Peter P. Phildius and David S. Utterberg, unless you indicate on your proxy that your shares should be withheld from one or more of these nominees. All nominees are currently members of our Board of Directors.

 

If elected, nominees will hold office until our annual meeting of stockholders in 2007 and until their successors are duly elected and qualified. Each of the nominees has indicated his willingness to serve, if elected; however, if any nominee should be unable to serve, the shares of our common stock represented by proxies may be voted for a substitute nominee designated by the Board of Directors.

Below are the names, ages and certain other information of each member of the Board of Directors. Information with respect to the number of shares of our common stock beneficially owned by each director, directly or indirectly, as of February 1, 2006 appears above under the heading “Stock Ownership of Certain Beneficial Owners and Management.”

 

Jeffrey H. Burbank, age 43, has been our President and Chief Executive Officer and a director of NxStage since 1999. Prior to joining NxStage, Mr. Burbank was a founder and the Chief Executive Officer of Vasca, Inc., a medical device company that developed and marketed a blood access device for dialysis patients; he is currently a director of Vasca. Mr. Burbank is on the Board of the National Kidney Foundation. He holds a B.S. from Lehigh University.

 

Philippe O. Chambon, M.D., Ph.D., age 48, has served as a director of NxStage since 1998 and has been Chairman of our Board of Directors since December 2004. Since 1995, Dr. Chambon has been a General Partner and Managing Director of the Sprout Group, an institutional venture capital firm. From 1993 to 1995, he was employed as a manager in the healthcare practice of The Boston Consulting Group. He is a director of Auxilium Pharmaceuticals, Inc. and PharSight Corporation, as well as several private companies. Dr. Chambon received an M.D. and Ph.D. from the University of Paris and an M.B.A. from Columbia University.

 

Daniel A. Giannini, age 56, has served as a director of NxStage since October 2005. Mr. Giannini is currently an executive advisor at the Advanced Technology Development Center of the Georgia Institute of Technology. He retired in June 2005 after a more than 30-year career as a Certified Public Accountant with PricewaterhouseCoopers LLP. For the most recent five years, Mr. Giannini served as an audit partner with PricewaterhouseCoopers LLP and led its Atlanta office’s Technology, Information, Communications and Entertainment practice. Mr. Giannini received a B.S. degree in Business Administration from LaSalle University.

 

Craig W. Moore, age 61, has served as a director of NxStage since 2002. From 1997 to 2001, Mr. Moore was chairman of the board and chief executive officer at Everest Healthcare Services Corporation, a provider of dialysis to patients with renal failure. Since 2001, Mr. Moore has acted as a consultant to various companies in the healthcare services industry. From 1986 through 2001, Mr. Moore was President of Continental Health Care, Ltd., an extracorporeal services and supply company and, from 1990 through 2004, he was President of New York Dialysis Management, a dialysis management business. He is a director of Bio-logic Systems Corporation.

 

Reid S. Perper, age 46, has served as a director of NxStage since September 2005. Since January 2004, Mr. Perper has been a Managing Director of Healthcare Investment Partners LLC. From November 2000 through June 2003, Mr. Perper was a Managing Director and Co-Head of Europe for CSFB Private Equity. Prior to joining CSFB, Mr. Perper was a Managing Director of DLJ Merchant Banking Partners. Mr. Perper joined Donaldson, Lufkin & Jenrette in 1988.

 

Peter P. Phildius, age 76, has served as a director of NxStage since 1998 and served as Chairman of our Board of Directors from 1998 until December 2004. Since 1986, Mr. Phildius has been the Chairman and Chief Executive Officer of Avitar, Inc., which develops, manufactures and markets products for the oral fluid diagnostic and clinical testing markets, as well as customized polyurethane applications used in wound dressings. Since 1985, Mr. Phildius has been a partner in PKS Consulting Services. Mr. Phildius also previously served as the President and Chief Operating Officer of National Medical Care, Inc. (now Fresenius Medical Care) and Vice President and President of the Parenteral, Artificial Organs and Fenwal Divisions of Baxter Laboratories, the predecessor of Baxter Healthcare Corp.

 

David S. Utterberg, age 59, has served as a director of NxStage since 1998. Since 1981, Mr. Utterberg has been the Chief Executive Officer, President and sole stockholder of Medisystems Corporation, which is a primary supplier of the disposable cartridges used with our NxStage System One product, and since 1996, he has been the President and sole stockholder of DSU Medical Corporation. Medisystems Corporation is a designer, manufacturer and supplier of disposable medical devices for the extracorporeal blood therapy market

and DSU Medical Corporation holds and licenses over 90 U.S. and foreign patents and other intellectual property in medical technology focused on extracorporeal therapy devices. Mr. Utterberg is also a director of Vasca, Inc.

 

Our Board of Directors believes that good corporate governance is important to ensure that NxStage is managed for the long-term benefit of our stockholders. This section describes key corporate governance guidelines and practices that we have adopted. Complete copies of our corporate governance guidelines, committee charters and code of conduct described below are available on our website at www.nxstage.com, and our Audit Committee Charter is appended to this Proxy Statement in Appendix A. Alternatively, you can request a copy of any of these documents by writing to: Investor Relations, NxStage Medical, Inc., 439 South Union Street, 5^th Floor, Lawrence, Massachusetts 01843.

 

Our Board of Directors has adopted corporate governance guidelines to assist it in the exercise of its duties and responsibilities and to serve the best interests of NxStage and our stockholders. These guidelines, which provide a framework for the conduct of our Board’s business, provide that:

 

 

Under applicable Nasdaq rules, a director will only qualify as an “independent director” if, in the opinion of our Board of Directors, that person does not have a relationship which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Our Board of Directors has determined that none of Messrs. Giannini, Perper, Phildius and Moore or Dr. Chambon has a relationship which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is an “independent director” as defined under Rule 4200(a)(15) of the Nasdaq Stock Market, Inc. Marketplace Rules.

 

The process followed by our Nominating and Corporate Governance Committee to identify and evaluate candidates includes requests to members of our Board of Directors and others for recommendations, meetings from time to time to evaluate biographical information and background material relating to potential candidates and interviews of selected candidates by members of the Nominating and Corporate Governance Committee and our Board of Directors.

 

In considering whether to recommend any candidate for inclusion in the Board of Directors’ slate of recommended director nominees, including candidates recommended by stockholders, the Nominating and Corporate Governance Committee applies the criteria that are set forth in our Corporate Governance Guidelines. These criteria include the candidate’s integrity, business acumen, knowledge of our business and industry, experience, diligence, conflicts of interest and the ability to act in the interests of all stockholders.

The Nominating and Corporate Governance Committee does not assign specific weights to particular criteria and no particular criterion is a prerequisite for each nominee. We believe that the backgrounds and qualifications of the directors, considered as a group, should provide a significant composite mix of experience, knowledge and abilities that will allow our Board of Directors to fulfill its responsibilities.

 

Stockholders may recommend individuals to the Nominating and Corporate Governance Committee for consideration as potential director candidates by submitting their names, together with appropriate biographical information and background materials and a statement as to whether the stockholder or group of stockholders making the recommendation has beneficially owned more than 5% of our common stock for at least a year as of the date such recommendation is made, to the Nominating and Corporate Governance Committee, c/o Winifred L. Swan, Senior Vice President and General Counsel, NxStage Medical, Inc., 439 South Union Street, 5^th Floor, Lawrence, Massachusetts 01843. Assuming that appropriate biographical and background material has been provided on a timely basis, the Nominating and Corporate Governance Committee will evaluate stockholder-recommended candidates by following substantially the same process, and applying substantially the same criteria, as it follows for candidates submitted by others.

 

Our stockholders also have the right to nominate director candidates themselves, without any prior review or recommendation by the Nominating and Corporate Governance Committee or our Board of Directors, by following the procedures set forth under the heading “Stockholder Proposals for the 2007 Annual Meeting.”

 

Our Board of Directors met five times, either in person or by teleconference, during the fiscal year ended December 31, 2005, or fiscal 2005. During fiscal 2005, each of our directors attended at least 75% of the aggregate number of Board meetings and meetings held by all committees on which he then served, other than Jean-Francois Formela, who attended two of the five meetings of the full Board of Directors during fiscal 2005.

 

Our Corporate Governance Guidelines provide that directors are expected to attend the Annual Meeting. We completed our initial public offering in October 2005 and, thus, this Annual Meeting will be the first held by us as a public company.

 

Our Board of Directors has established three standing committees — Audit, Compensation and Nominating and Corporate Governance — each of which operates under a charter that has been approved by our Board of Directors. Current copies of each committee’s charter are posted on the Corporate Governance section of our website, www.nxstage.com. In addition, a copy of the Audit Committee Charter as in effect on the date of this Proxy Statement is provided in Appendix A.

 

The Board of Directors has determined that all of the members of each of the Board’s three standing committees are independent as defined under the rules of the Nasdaq Stock Market, including, in the case of all members of the Audit Committee, the independence requirements contemplated by Rule 10A-3 under the Securities Exchange Act of 1934, or the Exchange Act.

 

Audit Committee

 

The Audit Committee’s responsibilities include:

 

 

 

The members of the Audit Committee are Messrs. Giannini (Chair), Moore and Perper. The Board of Directors has determined that Mr. Giannini is an audit committee financial expert as defined in Item 401(h) of Regulation S-K under the Exchange Act. The Audit Committee met four times during fiscal 2005.

 

Compensation Committee

 

Our Compensation Committee, among other things, provides recommendations to the Board of Directors regarding our compensation programs, and has the following principal duties:

 

 

The members of the Compensation Committee are Messrs. Moore (Chair) and Phildius and Dr. Chambon. The Compensation Committee met three times during fiscal 2005.

 

Nominating and Corporate Governance Committee

 

Our Nominating and Corporate Governance Committee has the following principal responsibilities:

 

 

The members of the Nominating and Corporate Governance Committee are currently Mr. Phildius (Chair) and Drs. Formela and Chambon; however, following the Annual Meeting Dr. Formela will no longer serve on the Nominating and Corporate Governance Committee. The members of the Nominating and Corporate

Governance Committee met informally and discussed matters relating to governance and the nominating process but did not hold formal meetings during fiscal 2005.

 

Our Board of Directors will give appropriate attention to written communications that are submitted by stockholders and other interested parties, and will respond if and as appropriate. Dr. Chambon, the Chairman of our Board of Directors, with the assistance of our General Counsel, is primarily responsible for monitoring communications from stockholders and for providing copies or summaries to the other directors.

 

Under procedures approved by a majority of the independent directors, communications will be forwarded to all directors if they relate to important substantive matters and include suggestions or comments that the Chairman of our Board considers to be important for the directors to know. In general, communications relating to corporate governance and corporate strategy are more likely to be forwarded than communications relating to ordinary business affairs, personal grievances and matters as to which we may in the future receive repetitive or duplicative communications.

 

Stockholders who wish to send communications on any topic to the Board of Directors should address such communications to Board of Directors, c/o Winifred L. Swan, Esq., Senior Vice President and General Counsel, NxStage Medical, Inc., 439 South Union Street, 5^th Floor, Lawrence, Massachusetts 01843.

 

We have adopted a written Code of Business Conduct and Ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer and controller, or persons performing similar functions. We have posted a copy of the code on our website, www.nxstage.com. In addition, we intend to post on our website all disclosures that are required by law or Nasdaq Stock Market listing standards concerning any amendments to, or waivers of, our code.

 

The purpose of the Audit Committee is to assist the Board of Directors’ oversight of NxStage’s accounting and reporting processes and the audits of NxStage’s consolidated financial statements. The Audit Committee is composed of three members and acts under a written charter first adopted and approved on September 7, 2005. A copy of the Audit Committee Charter is attached to this proxy statement as Appendix A and is also available on NxStage’s website (www.nxstage.com). The Audit Committee Charter governs the operations of the Audit Committee.

 

The Audit Committee has reviewed NxStage’s audited financial statements for the fiscal year ended December 31, 2005 and has discussed these financial statements with NxStage’s management and independent registered public accounting firm.

 

The Audit Committee has also received from, and discussed with, Ernst & Young LLP, NxStage’s independent registered public accounting firm, various communications that NxStage’s independent registered public accounting firm is required to provide to the Audit Committee under Statement on Auditing Standards No. 61 (as amended) (Communication with Audit Committees), other standards of the Public Company Accounting Oversight Board, the rules and regulations of the Securities and Exchange Commission, and other applicable regulations.

 

NxStage’s independent registered public accounting firm also provided the Audit Committee with the written disclosures and the letter required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees). The Audit Committee has discussed with the independent registered public accounting firm the matters discussed in this letter, including their provision of tax and other non-audit related services, and their independence from NxStage.

 

Based on its discussions with management and the independent registered public accounting firm, and its review of the representations and information provided by management and the independent registered public

accounting firm, the Audit Committee recommended to NxStage’s Board of Directors that the audited financial statements be included in the Annual Report on Form 10-K for NxStage Medical, Inc. for the year ended December 31, 2005.

 

By the Audit Committee of the Board of Directors

 

Daniel A. Giannini, Committee Chair

Craig W. Moore

Reid S. Perper

 

The following table summarizes the fees of Ernst & Young LLP, our independent registered public accounting firm, billed to us for each of the last two fiscal years.

 

 

 

 

The Audit Committee has adopted policies and procedures relating to the approval of all audit and non-audit services that are to be performed by our independent registered public accounting firm. This policy generally provides that we will not engage our independent registered public accounting firm to render audit or non-audit services unless the service is specifically approved in advance by the Audit Committee or the engagement is entered into pursuant to the pre-approval procedures described below.

 

From time to time, the Audit Committee may pre-approve specific audit-related services to be provided by our independent registered public accounting firm. At the time of such pre-approval, the type of services to be provided and the fees relating to those services, are detailed.

 

Before the commencement of any audit, tax or other services, our management obtains an engagement letter from our independent registered public accounting firm that is signed by both our Chief Financial Officer and the Chairperson of the Audit Committee. Our Chief Financial Officer has the ability, without obtaining prior Audit Committee approval, to engage our independent registered public accounting firm to perform general pre-approved services on projects, up to a maximum of $25,000 per single project, and

$50,000 annually. The Audit Committee reviews with management all services provided by our independent registered public accounting firm, whether the services were pre-approved or not, and all related fees charged on a quarterly and annual basis.

 

Under our current non-employee director compensation policy, our non-employee directors receive:

 

 

No director shall receive more than $50,000 in any calendar year for Board fees, without the prior approval of the Compensation Committee.

 

In March 2006, our Board of Directors amended our non-employee director compensation policy so that directors may elect to receive shares of our common stock in lieu of the cash compensation described above. A director must make his or her election to receive equity in lieu of cash compensation on the date of the annual meeting of stockholders at which such director is elected. A director’s election to receive equity in lieu of cash compensation will apply to all cash compensation to be paid after the date of the election and will remain in effect until the next annual meeting of stockholders. If a non-employee director elects to receive equity in lieu of cash, we will issue the director shares of our common stock on the last business day of each calendar quarter in an amount equal to the quotient of the total cash consideration due as of the last business day of each calendar quarter and the closing price of our common stock on the last trading day of that quarter.

 

During fiscal 2005, in addition to cash compensation received pursuant to our non-employee director compensation policy, we granted each of Messrs. Moore, Perper, Phildius and Utterberg and Drs. Chambon and Formela, a stock option to purchase 12,000 shares of our common stock, and we granted Mr. Giannini a stock option to purchase 15,000 shares of our common stock. Each of these stock options were fully vested at the time of grant and have a per share exercise price of $12.59, the fair market value of our common stock as determined by the closing price of our common stock on the date of grant.

 

We do not compensate directors who are also employees for their services as directors.

 

The following table sets forth certain information with respect to the annual and long-term compensation for each of the last three years of our Chief Executive Officer and our four other most highly compensated executive officers whose total annual salary and bonus exceeded $100,000 in fiscal 2005.

 

Summary Compensation Table

 

 

 

 

We granted the following stock options to our named executive officers during the fiscal year ended December 31, 2005:

 

 

 

 

 

 

The following table sets forth certain information regarding the exercise of stock options during fiscal 2005 and the number and value of unexercised stock options held as of December 31, 2005 by our named executive officers.

 

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values

 

 

 

 

In October 2005, we entered into employment agreements with each of our named executive officers. Each agreement superceded existing agreements with these executive officers. The terms of the employment agreements are set forth below.

 

Jeffrey H. Burbank.  Pursuant to the terms of his employment agreement, Mr. Burbank is entitled to receive an annual base salary of $290,000. During 2005, we paid Mr. Burbank an annual base salary of $277,962, and approved an aggregate cash bonus of $46,052, $23,923 of which was not paid to Mr. Burbank pursuant to a Board action requiring that bonuses earned between 2004 and 2006 be offset against a portion of the tax gross-up paid to Mr. Burbank in connection with the forgiveness of all of his indebtedness to NxStage in 2004. Effective March 16, 2006, our Compensation Committee approved an increase in Mr. Burbank’s annual base salary to $298,700. If, before a change in control of NxStage, as defined in the agreement, we terminate Mr. Burbank’s employment without cause or he resigns for good reason, each as defined in the agreement, then Mr. Burbank will be entitled to receive:

 

 

 

If, following a change in control, (i) we terminate Mr. Burbank’s employment, or (ii) we had terminated Mr. Burbank’s employment at any time three months prior to announcement of the change in control and we cannot reasonably demonstrate that such termination did not arise in connection with such change in control, or if Mr. Burbank resigns for good reason within 12 months following a change in control, then he will be entitled to:

 

 

David N. Gill.  Pursuant to the terms of his employment agreement, Mr. Gill is entitled to receive an annual base salary of $225,000. During 2005, we paid Mr. Gill an annual base salary of $107,498, which reflects the pro-rated amount of his salary from the commencement of his employment in July 2005 through December 31, 2005, and an aggregate cash bonus of $27,150. Effective March 16, 2006, our Compensation Committee approved an increase in Mr. Gill’s annual base salary to $250,000. If, before a change in control of NxStage, as defined in the agreement, we terminate Mr. Gill’s employment without cause or he resigns for good reason, each as defined in the agreement, (i) prior to October 8, 2006, Mr. Gill’s stock options granted on July 8, 2005 will vest and become exercisable to the extent necessary such that 50% of such stock options will be fully exercisable as of the end of his nine-month severance period and (ii) Mr. Gill will have up to 180 days from the end of his nine-month severance period to exercise such stock options. In addition, in the event of such termination of his employment, Mr. Gill will be entitled to receive:

 

 

If, following a change in control, (i) we terminate Mr. Gill’s employment, or (ii) we had terminated Mr. Gill’s employment at any time three months prior to announcement of the change in control and we cannot reasonably demonstrate that such termination did not arise in connection with such change in control, or if Mr. Gill resigns for good reason within 12 months following a change in control, then he will be entitled to:

 

 

Philip R. Licari.  Pursuant to the terms of his employment agreement, Mr. Licari is entitled to receive an annual base salary of $225,000. During 2005, we paid Mr. Licari an annual base salary of $225,000, and a cash bonus of $20,609. Effective March 16, 2006, our Compensation Committee approved an increase in Mr. Licari’s annual base salary to $231,750. If, before a change in control of NxStage, as defined in the agreement, we terminate Mr. Licari’s employment without cause or he resigns for good reason, each as defined in the agreement, then Mr. Licari will be entitled to receive:

 

 

If, following a change in control, (i) we terminate Mr. Licari’s employment, or (ii) we had terminated Mr. Licari’s employment at any time three months prior to announcement of the change in control and we cannot reasonably demonstrate that such termination did not arise in connection with such change in control, or if Mr. Licari resigns for good reason within 12 months following a change in control, then he will be entitled to:

 

 

Joseph E. Turk.  Pursuant to the terms of his employment agreement, Mr. Turk is entitled to receive an annual base salary of $217,350. During 2005, we paid Mr. Turk an annual base salary of $217,350 and approved an aggregate bonus of $28,151, none of which was paid to Mr. Turk pursuant to a Board action requiring that bonuses earned between 2004 and 2006 be offset against a portion of the tax gross-up paid to Mr. Turk in connection with the forgiveness of all of Mr. Turk’s indebtedness to NxStage in 2004. Effective March 16, 2006, our Compensation Committee approved an increase in Mr. Turk’s annual base salary to $223,870. If, before a change in control of NxStage, as defined in the agreement, we terminate Mr. Turk’s employment without cause or he resigns for good reason, each as defined in the agreement, then Mr. Turk will be entitled to receive:

 

 

If, following a change in control, (i) we terminate Mr. Turk’s employment, or (ii) we had terminated Mr. Turks employment at any time three months prior to announcement of the change in control and we cannot reasonably demonstrate that such termination did not arise in connection with such change in control,

or if Mr. Turk resigns for good reason within 12 months following a change in control, then he will be entitled to:

 

 

Winifred L Swan.  Pursuant to the terms of her employment agreement, Ms. Swan is entitled to receive an annual base salary of $203,000. During 2005, we paid Ms. Swan an annual base salary of $203,000, and an aggregate cash bonus of $18,603. Effective March 16, 2006, our Compensation Committee approved an increase in Ms. Swan’s annual base salary to $210,000. If, before a change in control of NxStage, as defined in the agreement, we terminate Ms. Swan’s employment without cause or she resigns for good reason, each as defined in the agreement, then Ms. Swan will be entitled to receive:

 

 

If, following a change in control, (i) we terminate Ms. Swan’s employment, or (ii) we had terminated Ms. Swan’s employment at any time three months prior to announcement of the change in control and we cannot reasonably demonstrate that such termination did not arise in connection with such change in control, or if Ms. Swan resigns for good reason within 12 months following a change in control, then she will be entitled to:

 

 

In addition to the terms set forth above, the executive officers’ employment agreements also provide that each executive officer is entitled to:

 

 

Each of Messrs. Burbank, Gill, Licari, Manos, Turk and Ms. Swan have signed agreements providing for the protection of our confidential information and the transfer of ownership rights to intellectual property

developed by such executive officer while he or she was employed by us. If the executive officer fails to comply with the provisions of the proprietary information agreement between NxStage and the executive officer, the payments and benefits described above will cease. If the executive officer terminates employment with NxStage voluntarily, other than for good reason, if we terminate the executive officer’s employment as a result of physical or mental disability or for cause, each as defined in the agreement, or if the executive officer dies, the executive officer will receive compensation and benefits through the last day of employment.

 

Christopher G. Manos.  We entered into an employment agreement with Mr. Manos, our former Senior Vice President, Finance, Chief Financial Officer and Treasurer, dated November 1, 2002. Pursuant to this agreement, Mr. Manos received an annual base salary subject to annual increases upon review by our President and Chief Executive Officer. For fiscal year 2005, Mr. Manos’ salary was $207,000. Beginning in 2003, Mr. Manos became eligible to receive a bonus of up to 20% of his then-current salary at the discretion of our Board of Directors, based on his achievement of certain objectives and NxStage’s overall performance. Pursuant to the agreement, we granted Mr. Manos a stock option, exercisable at any time during his employment and within ten years after the grant, to purchase an aggregate of 234,886 shares of our common stock at a price of $4.10 per share. The terms of the option are governed by an option agreement between NxStage and Mr. Manos.

 

Mr. Manos resigned as Chief Financial Officer in July 2005. Pursuant to his employment agreement and option agreements with NxStage, Mr. Manos received six months salary continuation and a lump sum bonus payment equivalent to three months of continuation of his base salary, less applicable state and federal taxes. Pursuant to these agreements, Mr. Manos’ options expire on May 1, 2006.

 

Each of Messrs. Burbank, Gill, Licari, Manos and Turk and Ms. Swan have signed agreements providing for the protection of our confidential information and the transfer of ownership rights to intellectual property developed by such executive officer while he or she was employed by us.

 

The following table provides information about the securities authorized for issuance under our equity compensation plans as of December 31, 2005:

 

Equity Compensation Plan Information

 

 

 

 

The Compensation Committee determines the compensation of the Company’s executive officers and oversees our executive compensation programs. The Compensation Committee operates under a charter that can be found on our website at www.nxstage.com. This report of the Compensation Committee addresses our

compensation policies for 2005 as they affected Mr. Burbank, our President and Chief Executive Officer, and our other executive officers.

 

Compensation Philosophy

 

Our executive compensation philosophy is to pay executives performance-oriented compensation determined by reference to the market in which we compete for talent. Executive compensation is determined by NxStage’s performance as well as the individual executive’s contribution to that performance. Our compensation programs are designed to attract, retain and reward executives who can help us achieve our business objectives, incentivize executives to provide long-term growth opportunities for our stockholders and align executives’ long-term interests with those of our stockholders.

 

Our executive officers are principally compensated through base salary, performance-based annual bonuses and periodic equity incentive grants. This three-part compensation approach enables us to keep executive compensation competitive while ensuring that executive officers are appropriately incentivized to deliver short-term results while creating sustainable long-term stockholder value. The Compensation Committee has chosen to put a substantial portion of each executive’s pay at risk contingent upon the achievement of objectives pre-determined by the Committee.

 

In evaluating and establishing rates of base salary, bonus and incentive pay, the Compensation Committee has periodically sought the assistance of external compensation consultants who, among other things, have assembled information concerning compensation levels and philosophies adopted by comparable companies. In 2005, we engaged an external compensation consultant to assess our executive compensation relative to other companies, including companies in our peer group. We set our fiscal 2005 executive compensation levels and targets giving due consideration to these comparisons and the size and complexity of our business.

 

This Committee has reviewed the elements of the compensation of our Chief Executive Officer and other executive officers, including salary, bonus, and incentive compensation, and the terms of executive employment agreements, including severance and change of control benefits. Based on this review and in light of all of the circumstances, this Committee has determined the Chief Executive Officer’s and our other executive officers’ total compensation to be reasonable.

 

Executive Base Salary for 2005

 

We base the salaries paid to our executive officers (other than the Chief Executive Officer) upon the recommendations of the Chief Executive Officer presented to this Committee for approval or modification. In general, the Compensation Committee sets base salaries at levels consistent with the average rate paid for equivalent positions by our competitors. In addition, this Committee considers each executive’s current and prior year salary and the executive’s actual performance compared to the goals and objectives established for the executive at the beginning of the year. To remain competitive in the industry and to acknowledge individual officers’ contributions and objectives, the Committee approved competitive base salary increases for executive officers for 2005, as recommended by the Chief Executive Officer.

 

Performance-Based Annual Bonus for 2005

 

We paid a performance-based annual bonus to our executive officers for the first time in 2005. Our 2005 Bonus Plan sought to provide pay for performance by linking bonus awards to both corporate and individual performance. Rewards were weighted heavily towards the achievement of corporate objectives pre-set by the Committee, based on the Committee’s belief that a principal function of executive personnel is to increase overall stockholder value. The Compensation Committee measured corporate achievement on an annual basis against revenue goals. The Compensation Committee measured individual achievement for an executive officer by comparing the actual performance of the executive to the goals and objectives established for the executive at the beginning of the year.

Long-Term Incentive Grants in 2005

 

The Company’s stock option award program is intended to attract, retain and motivate key employees for the long-term. Options are typically granted at fair market value as of the date of grant and vest over a period of four years. They are exercisable until the seventh to tenth anniversary of the date of grant or until the expiration of various limited time periods following termination of employment. During 2005, we granted stock options to purchase an aggregate of 553,776 shares of our common stock to executive officers. All stock options granted to executive officers during 2005 were granted at fair market value as of the date of grant.

 

Compensation of our Chief Executive Officer for 2005

 

Mr. Burbank is a founder of NxStage and has been our President and Chief Executive Officer since 1999. Mr. Burbank is eligible to participate in the same executive compensation plans available to our other executive officers. Mr. Burbank’s salary was $277,962 for fiscal 2005 and $269,100 for the fiscal year ended December 31, 2004. Mr. Burbank was awarded a bonus of $46,052 in February 2006 for his performance in 2005. Additionally, Mr. Burbank was awarded options to purchase 219,360 shares of NxStage common stock in 2005, all of which were granted at fair market value as of the date of grant. In determining Mr. Burbank’s compensation, the Compensation Committee considered a number of factors, including competitive compensation information and NxStage’s performance in 2005 versus the goals and objectives established for the year.

 

Compliance with Section 162(m) of the Code

 

Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public companies for certain compensation in excess of $1 million paid to a company’s chief executive officer and the four other most highly compensated executive officers. Certain compensation, including qualified performance-based compensation, will not be subject to the deduction limit if certain requirements are met. The Compensation Committee reviews the potential effect of Section 162(m) periodically and generally seeks to structure the long-term incentive compensation granted to its executive officers through option issuances in a manner that is intended to avoid disallowance of deductions under Section 162(m). Nevertheless, there can be no assurance that compensation attributable to awards granted under our equity incentive plans will be treated as qualified performance-based compensation under Section 162(m).

 

By the Compensation Committee of the Board

of Directors of NxStage

 

Philippe O. Chambon

Peter P. Phildius

Craig W. Moore, Committee Chair

 

The current members of the Compensation Committee are Messrs. Phildius and Moore and Dr. Chambon. No member of the Compensation Committee was at any time during 2005, or formerly, an officer or employee of ours or any subsidiary of ours, nor has any member of the Compensation Committee had any relationship with us requiring disclosure under Item 404 of Regulation S-K under the Exchange Act.

 

No executive officer of NxStage has served as a director or member of the compensation committee (or other committee serving an equivalent function) of any other entity, one of whose executive officers served as a director of or member of our Compensation Committee.

 

The comparative stock performance graph below compares the cumulative stockholder return on our common stock for the period from the first day that our common stock was publicly traded, October 27, 2005, through February 28, 2006 with the cumulative total return on (i) the Total Return Index for the Nasdaq Stock Market (U.S. Companies), which we refer to as the Nasdaq Composite Index, and (ii) the Nasdaq Medical Equipment Index. This graph assumes the investment of $100 on October 27, 2005 in our common stock, the Nasdaq Composite Index and the Nasdaq Medical Equipment Index and assumes all dividends are reinvested. Measurement points are the last trading days of each of the months ended October 31, 2005, November 30, 2005, December 31, 2005, January 31, 2006 and February 28, 2006.

 

 

 

Medisystems Corporation is our primary supplier of the disposable cartridges used with our NxStage System One and our only supplier of cartridge subassemblies. The chief executive officer and sole stockholder of Medisystems, David S. Utterberg, is a member of our Board of Directors and owns approximately 9.4% of our outstanding common stock. We purchased approximately $896,000 of products during fiscal 2005 from Medisystems. We are currently negotiating a long-term supply agreement with Medisystems covering components, subassemblies and completed cartridges, and are hopeful that we will be able to complete our negotiations and enter into a definitive agreement with Medisystems in the near term. We believe that our purchases from Medisystems have been on terms no less favorable to us than could be obtained from unaffiliated third parties.

 

The following directors, officers and holders of more than five percent of our voting securities and their affiliates have been granted registration rights with respect to shares of our common stock:

 

 

 

 

Please see discussion under the heading “Compensation for Directors” and the heading “Compensation for Executive Officers.”

 

Our Audit Committee has selected the firm of Ernst & Young LLP as our independent registered public accounting firm for the current fiscal year. Ernst & Young LLP has served as our independent registered public accounting firm since 2002. Although stockholder approval of the selection of Ernst & Young LLP is not required by law, the Board of Directors believes that it is advisable to give stockholders an opportunity to ratify this selection. If this proposal is not approved at our Annual Meeting, our Audit Committee will reconsider its selection of Ernst & Young LLP. Representatives of Ernst & Young LLP are expected to be present at the Annual Meeting and will have the opportunity to make a statement if they desire to do so and will also be available to respond to appropriate questions from stockholders.

 

The Board of Directors believes that the selection of Ernst & Young LLP as our independent registered public accounting firm is in our best interests and the best interests of our stockholders and therefore recommends a vote FOR this proposal.

 

 

Some banks, brokers and other nominee record holders may be participating in the practice of “householding” proxy statements and annual reports. This means that only one copy of our Proxy Statement and Annual Report to Stockholders may have been sent to multiple stockholders in your household. We will promptly deliver a separate copy of either document to you if you call or write us at the following address: 439 South Union Street, 5^th Floor, Lawrence, Massachusetts 01843, Attention: Investor Relations. If you want to receive separate copies of the Proxy Statement or Annual Report to Stockholders in the future, or if you are receiving multiple copies and would like to receive only one copy for your household, you should contact your bank, broker or other nominee record holder, or you may contact us at the above address.

 

 

Section 16(a) of the Exchange Act requires our directors, executive officers and holders of more than 10% of our common stock to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other of our equity securities. Based solely on our review of copies of Section 16(a) reports furnished to us and representations made to us, we believe that during 2005 our officers, directors and holders of more than 10% of our common stock complied with all Section 16(a) filing requirements.

 

 

Proposals of stockholders intended to be presented at the 2007 Annual Meeting of Stockholders must be received by us at our principal office in Lawrence, Massachusetts not later than December 29, 2006 for inclusion in the proxy statement for that meeting.

 

In addition, our bylaws require that we be given advance notice of stockholder nominations for election to our Board of Directors and of other matters which stockholders wish to present for action at an annual meeting of stockholders, other than matters included in our proxy statement in accordance with Rule 14a-8. The required notice must be in writing and received by our Corporate Secretary, Winifred L. Swan, at our principal offices not later than 90 days nor more than 120 days prior to the first anniversary of our 2006 Annual Meeting of Stockholders. However, if the 2007 Annual Meeting of Stockholders is advanced by more than 20 days, or delayed by more than 60 days, from the first anniversary of the 2006 Annual Meeting of Stockholders, notice must be received not earlier than the 120th day prior to such annual meeting and not later than the close of business on the later of (1) the 90th day prior to such annual meeting and (2) the 10th day following the date on which notice of the date of such annual meeting was mailed or public disclosure of the date of such annual meeting was made, whichever occurs first. Our bylaws also specify requirements relating to the content of the notice which stockholders must provide, including a stockholder nomination for election to the Board of Directors, to be properly presented at the 2007 Annual Meeting of Stockholders.

 

 

The purpose of the Audit Committee is to assist the Board of Directors’ oversight of the Company’s accounting and financial reporting processes and the audits of the Company’s financial statements.

 

This charter governs the operations of the Audit Committee.

 

Although the Committee has the powers and responsibilities set forth in this charter, the role of the Committee is oversight.

 

 

1. Number.  Except as otherwise permitted by applicable NASDAQ rules, the Audit Committee shall consist of at least three members of the Board.

 

2. Independence.  Except as otherwise permitted by applicable NASDAQ rules, each member of the Audit Committee shall be independent as defined by NASDAQ Stock Market Rule 4200, meet the criteria for independence set forth in Rule 10A-3(b)(1) under the Securities Exchange Act of 1934 (subject to the exemptions provided in Rule 10A-3(c)), and not have participated in the preparation of the financial statements of the Company or any current subsidiary of the Company at any time during the past three years.

 

3. Financial Literacy.  Each member of the Audit Committee must be able to read and understand fundamental financial statements, including the Company’s balance sheet, income statement, and cash flow statement, at the time of his or her appointment to the Audit Committee. In addition, at least one member must have past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background which results in the individual’s financial sophistication, including being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities. Unless otherwise determined by the Board (in which case disclosure of such determination shall be made in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”)), at least one member of the Audit Committee shall be an “audit committee financial expert” (as defined by applicable SEC rules).

 

4. Chair.  Unless the Board elects a Chair of the Audit Committee, the Audit Committee shall elect a Chair by majority vote.

 

5. Compensation.  The compensation of Audit Committee members shall be as determined by the Board. No member of the Audit Committee may receive, directly or indirectly, any consulting, advisory or other compensatory fee from the Company or any of its subsidiaries, other than fees paid in his or her capacity as a member of the Board or a committee of the Board.

 

6. Term.  The members of the Audit Committee shall serve for one-year terms or until their successors are duly appointed, subject to their earlier resignation, retirement or removal by the Board.

 

7. Selection and Removal.  The Board, upon the recommendation of the Nominating and Corporate Governance Committee, shall appoint members of the Audit Committee. The Board may remove members of the Audit Committee from such Committee, with or without cause.

 

8. Other Audit Committee Memberships.  Generally, no member of the Audit Committee may serve on the audit committees of more than three public companies without a specific Board determination that such simultaneous service will not impair the ability of such Committee members to serve on the Audit Committee.

 

General

 

The Audit Committee shall discharge its responsibilities, and shall assess the information provided by the Company’s management and the independent auditor, in accordance with its business judgment. Management is responsible for the preparation, presentation, and integrity of the Company’s financial statements and for the appropriateness of the accounting principles and reporting policies that are used by the Company. The independent auditors are responsible for auditing the Company’s financial statements. The authority and responsibilities set forth in this Charter do not reflect or create any duty or obligation of the Audit Committee to plan or conduct any audit, to determine or certify that the Company’s financial statements are complete, accurate, fairly presented, or in accordance with generally accepted accounting principles or applicable law, or to guarantee the independent auditor’s report.

 

Oversight of Independent Auditors

 

1. Selection.  The Audit Committee shall be solely and directly responsible for appointing, evaluating, retaining and, when necessary, terminating the engagement of the independent auditor. The Audit Committee may, in its discretion, seek stockholder ratification of the independent auditor it appoints.

 

2. Independence.  The Audit Committee shall take, or recommend that the full Board take, appropriate action to oversee the independence of the independent auditor. In connection with this responsibility, the Audit Committee shall obtain and review a formal written statement from the independent auditor describing all relationships between the auditor and the Company, including the disclosures required by Independence Board Standard No. 1. The Audit Committee shall actively engage in dialogue with the auditor concerning any disclosed relationships or services that might impact the objectivity and independence of the auditor.

 

3. Compensation.  The Audit Committee shall have sole and direct responsibility for setting the compensation of the independent auditor. The Audit Committee is empowered, without further action by the Board, to cause the Company to pay the compensation of the independent auditor established by the Audit Committee.

 

4. Preapproval of Services.  The Audit Committee shall preapprove all audit services to be provided to the Company, whether provided by the principal auditor or other firms, and all other services (review, attest and non-audit) to be provided to the Company by the independent auditor; provided, however, that de minimis nonaudit services may instead be approved in accordance with applicable SEC rules and the Company’s pre-approval policies and procedures. The Company’s preapproval policies and procedures shall be set forth in the Audit Committee Policy Statement “Pre-Approval Policies and Procedures for Audit and Non-Audit Services.”

 

5. Oversight.  The independent auditor shall report directly to the Audit Committee, and the Audit Committee shall have sole and direct responsibility for overseeing the work of the independent auditor, including resolution of disagreements between Company management and the independent auditor regarding financial reporting. In connection with its oversight role, the Audit Committee shall, from time to time as the Committee determines appropriate, receive and consider the reports required to be made by the independent auditor regarding:

 

 

In connection with its oversight role, the Audit Committee should also review with the independent auditors, from time to time as the Committee determines appropriate:

 

 

Audited Financial Statements

 

6. Review and Discussion.  The Audit Committee shall review and discuss with the Company’s management and independent auditor the Company’s audited financial statements, including the matters about which Statement on Auditing Standards No. 61 (Codification of Statements on Auditing Standards, AU §380) requires discussion.

 

7. Recommendation to Board Regarding Financial Statements.  The Audit Committee shall consider whether it will recommend to the Board that the Company’s audited financial statements be included in the Company’s Annual Report on Form 10-K.

 

8. Audit Committee Report.  The Audit Committee shall prepare an annual committee report for inclusion where necessary in the proxy statement of the Company relating to its annual meeting of security holders.

 

Review of Other Financial Disclosures

 

9. Independent Auditor Review of Interim Financial Statements.  The Audit Committee shall direct the independent auditor to use its best efforts to perform all reviews of interim financial information prior to disclosure by the Company of such information and to discuss promptly with the Audit Committee and the Chief Financial Officer any matters identified in connection with the auditor’s review of interim financial information which are required to be discussed by applicable auditing standards. The Audit Committee shall direct management to advise the Audit Committee in the event that the Company proposes to disclose interim financial information prior to completion of the independent auditor’s review of interim financial information.

 

10. Earnings Release and Other Financial Information.  The Audit Committee shall discuss generally the type and presentation of information to be disclosed in the Company’s earnings press releases, as well as other financial information and earnings guidance provided by the Company.

 

11. Quarterly Financial Statements.  The Audit Committee shall discuss with the Company’s management and independent auditor the Company’s quarterly financial statements, including the Company’s disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Controls and Procedures

 

12. Oversight.  The Audit Committee shall

 

 

13. Procedures for Complaints.  The Audit Committee shall establish procedures for (i) the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters or violations of the Company’s Code of Business Conduct and Ethics, any Company policy or any applicable law, rule or regulation; and (ii) the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters or violations of the Company’s Code of Business Conduct and Ethics, any Company policy or any applicable law, rule or regulation .

 

14. Internal Audit Function.  The Audit Committee shall oversee the Board’s oversight of the performance of the Company’s internal audit function.

 

15. Hiring Policies.  The Audit Committee shall establish policies regarding the hiring of employees or former employees of the Company’s independent auditors.

 

16. Evaluation of Financial Management.  The Audit Committee shall coordinate, in conjunction with the Compensation Committee, the evaluation of the Company’s Chief Financial Officer.

 

17. Related-Party Transactions.  The Audit Committee shall review all “related party transactions” (defined as transactions required to be disclosed pursuant to Item 404 of Regulation S-K) on an ongoing basis, and all such transactions shall be approved by the Audit Committee.

 

18. Additional Powers.  The Audit Committee shall have such other duties as may be delegated from time to time by the Board.

 

 

1. Meetings.  The Audit Committee shall meet as often as it deems necessary in order to perform its responsibilities. The Audit Committee may also act by unanimous written consent in lieu of a meeting. The Audit Committee shall periodically meet separately with: (i) the independent auditor, (ii) Company management, and (iii) the Company’s internal auditors. The Audit Committee shall keep such records of its meetings as it shall deem appropriate.

 

Any member of the Audit Committee may call a meeting of the Committee.

 

2. Subcommittees.  The Audit Committee may form and delegate authority to one or more subcommittees, as it deems appropriate from time to time under the circumstances (including a subcommittee consisting of a single member).

3. Reports to Board.  The Audit Committee shall report regularly to the Board.

 

4. Charter.  At least annually, the Audit Committee shall review and reassess the adequacy of this Charter and recommend any proposed changes to the Board for approval.

 

5. Independent Advisors.  The Audit Committee is authorized to engage such independent legal, accounting and other advisors as it deems necessary or appropriate to carry out its responsibilities. Such independent advisors may be the regular advisors to the Company. The Audit Committee is empowered, without further action by the Board, to cause the Company to pay the compensation of such advisors as established by the Audit Committee.

 

6. Investigations.  The Audit Committee shall have the authority to conduct or authorize investigations into any matters within the scope of its responsibilities as it shall deem appropriate.

 

7. Funding.  The Audit Committee is empowered, without further action by the Board, to cause the Company to pay the ordinary administrative expenses of the Audit Committee that are necessary or appropriate in carrying out its duties.

 

8. Rules of Procedure.  The Audit Committee shall fix its own rules of procedure, which shall be consistent with the Amended and Restated By-laws of the Company and this charter.

 

9. Counsel of Directors, Officer or Employees.  The Audit Committee may request that any directors, officers or employees of the Company, or other persons whose advice and counsel are sought by the Audit Committee, attend any meeting to provide such information as the Audit Committee requests.

 

10. Annual Self-Evaluation.  At least annually, the Audit Committee shall evaluate its own performance.

Annual Meeting Proxy Card				C0123456789			12345

	Reduce paper flow to your home and help the environment, too. If you have access to the Internet, we encourage you to consider receiving NxStage’s future Annual Reports and Proxy Statements in electronic format rather than in printed form. To sign up for electronic delivery service, go to our transfer agent’s website at http://www.econsent.com/nxtm at any time and follow instructions. If you vote by Internet, you can also sign up for electronic delivery service at the same time. Act Now!

PLEASE REFER TO THE REVERSE SIDE FOR TELEPHONE AND INTERNET VOTING INSTRUCTIONS.

A

Election of Director

	1.	The Board of Directors recommends a vote FOR the listed nominees. 01 - Jeffrey H. Burbank, 02 - Philippe O. Chambon, M.D., Ph.D., 03 - Daniel A. Giannini, 04 - Craig W. Moore, 05 - Reid S. Perper, 06 - Peter P. Phildius, 07 - David S. Utterberg

	o	To Vote FOR All Nominees				o		To WITHHOLD Vote From All Nominees	01 -  o          02 -   o          03 -   o           04 -   o

	o	For All Except -		To withhold a vote for a specific nominee, mark this box with an X and the appropriately numbered box at the right.		05 -   o            06 -    o            07 -    o

B

Issues

The Board of Directors recommends a vote FOR the following proposal.

C

Authorized Signatures - Sign Here - This section must be completed for your instructions to be executed.

Please sign this proxy exactly as your name appears hereon. Joint owners should each sign personally. Trustees and other fiduciaries should indicate the capacity in which they sign. If a corporation or partnership, this signature should be that of an authorized officer who should state his or her title.

	Signature 1 - Please keep signature within the box		Signature 2 - Please keep signature within the box		Date (mm/dd/yyyy)
					oo/oo/oooo

n		0 0 8 4 7 0 1		1 U P X		C O Y		+

Proxy - NxStage Medical, Inc.

ANNUAL MEETING OF STOCKHOLDERS
10:00 A.M. TUESDAY, MAY 30, 2006

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

Those signing on the reverse side, revoking any prior proxies, hereby appoint(s) David N. Gill and Winifred L. Swan, or each of them with full power of substitution, as proxies for those signing on the reverse side to act and vote at the 2006 Annual Meeting of Stockholders of NxStage Medical, Inc. and at any adjournments thereof as indicated upon all matters referred to on the reverse side and described in the Proxy Statement for the Annual Meeting, and, in their discretion, upon any other matters which may properly come before the Annual Meeting.

THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF NO SUCH DIRECTIONS ARE MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES LISTED ON THE REVERSE SIDE FOR THE BOARD OF DIRECTORS AND FOR PROPOSAL NUMBER 2.

UNLESS YOU INTEND TO VOTE YOUR SHARES BY INTERNET OR TELEPHONE, PLEASE MARK, SIGN, DATE, AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED REPLY ENVELOPE.

NxStage Medical, Inc. shareholders may elect to receive the Company’s future annual reports and proxy statements and to vote their shares through the Internet instead of receiving copies through the mail. NxStage is offering this service to provide added convenience to its shareholders and to reduce annual report printing and mailing costs.

To take advantage of this option, shareholders must subscribe to one of the various commercial services that offer access to the Internet World Wide Web. Costs normally associated with electronic access, such as usage and telephone charges, will be bourne by the shareholder.

To elect this option, go to website http://www.econsent.com/nxtm. Shareholders who elect this option will be notified each year by e-mail how to access the proxy materials and how to vote their shares on the Internet.

If you consent to receive the Company’s future proxy materials electronically, your consent will remain in effect unless it is withdrawn by revoking your consent at www.econsent.com/nxtm. Also, if while this consent is in effect you decide you would like to receive a hard copy of the proxy materials, you may call, write or e-mail our Transfer Agent, at: 1-781-575-3100; P.O. Box 43010, Providence, RI 02940-3010; http://www.computershare.com/equiserve.

Telephone and Internet Voting Instructions

You can vote by telephone or Internet! Available 24 hours a day 7 days a week!

Instead of mailing your proxy, you may choose one of the two voting methods outlined below to vote your proxy.

•

Call toll free 1-800-652-VOTE (8683) in the United States or Canada any time on a touch tone telephone. There is NO CHARGE to you for the call.

•

Go to the following web site: WWW.COMPUTERSHARE.COM/EXPRESSVOTE

•

Mark, sign and date the proxy card.

•

Follow the simple instructions provided by the recorded message.

•

Enter the information requested on your computer screen and follow the simple instructions.

•

Return the proxy card in the postage-paid envelope provided.

If you vote by telephone or the Internet, please DO NOT mail back this proxy card.

Proxies submitted by telephone or the Internet must be received by 11:59 p.m., Eastern Time, on May 29, 2006.

THANK YOU FOR VOTING