SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/ / Confidential, for use of the Commission only (as permitted by
Rule 14a-6(e)(2))
/x/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
ARTERIAL VASCULAR ENGINEERING, INC.
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(Name of Registrant as Specified in Its Charter)
ARTERIAL VASCULAR ENGINEERING, INC.
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) or Schedule 14A
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transactions applies:
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(2) Aggregate number of securities to which transactions applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing
fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing party:
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(4) Date filed:
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ARTERIAL VASCULAR ENGINEERING, INC.
5355 Skylane Boulevard
Santa Rosa, California 95403
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 4, 1996
TO THE STOCKHOLDERS OF ARTERIAL VASCULAR ENGINEERING, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Arterial Vascular Engineering, Inc., a Delaware corporation (the "Company"),
will be held on Wednesday, December 4, 1996 at 10:00 a.m. local time at the
Luther Burbank Center for the Arts, East Auditorium, 50 Mark West Springs Road,
Santa Rosa, California for the following purposes:
1. To elect directors to serve for the ensuing year and until their
successors are elected.
2. To ratify the selection of Ernst & Young LLP as independent
auditors of the Company for its fiscal year ending June 30,
1997.
3. To approve the Company's 1996 Equity Incentive Plan, as
amended, to increase the number of shares of Common Stock
authorized for issuance under such plan by 700,000 shares for
an aggregate total of 1,500,000 shares.
4. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on October 16,
1996 as the record date for the determination of stockholders entitled to notice
of and to vote at this Annual Meeting and at any adjournment or postponement
thereof.
By Order of the Board of Directors
/s/ John D. Miller
JOHN D. MILLER
Secretary
Santa Rosa, California
November 4, 1996
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE>
ARTERIAL VASCULAR ENGINEERING, INC.
5355 Skylane Boulevard
Santa Rosa, California 95403
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PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
DECEMBER 4, 1996
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Arterial Vascular Engineering, Inc., a Delaware corporation (the "Company"), for
use at the Annual Meeting of Stockholders to be held on Wednesday, December 4,
1996, at 10:00 a.m local time (the "Annual Meeting"), or at any adjournment or
postponement thereof, for the purposes set forth herein and in the accompanying
Notice of Annual Meeting. The Annual Meeting will be held at the Luther Burbank
Center for the Arts, East Auditorium, 50 Mark West Springs Road, Santa Rosa,
California. The Company intends to mail this proxy statement and accompanying
proxy card on or about November 4, 1996 to all stockholders entitled to vote at
the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies,
including preparation, assembly, printing and mailing of this proxy statement,
the proxy and any additional information furnished to stockholders. Copies of
solicitation materials will be furnished to banks, brokerage houses, fiduciaries
and custodians holding in their names shares of Common Stock beneficially owned
by others to forward to such beneficial owners. The Company may reimburse
persons representing beneficial owners of Common Stock for their costs of
forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram or
personal solicitation by directors, officers or other regular employees of the
Company. No additional compensation will be paid to directors, officers or other
regular employees for such services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on
October 16, 1996, will be entitled to notice of and to vote at the Annual
Meeting. At the close of business on October 16, 1996, the Company had
outstanding and entitled to vote 30,874,383 shares of Common Stock.
Each holder of record of Common Stock on such date will be entitled to
one vote for each share held on all matters to be voted upon at the Annual
Meeting.
All votes will be tabulated by the inspector of election appointed for
the meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter has
been approved.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power
to revoke it at any time before it is voted. It may be revoked by filing with
the Secretary of the Company at the Company's principal executive office, 5355
Skylane Boulevard, Santa Rosa, California 95403, a written notice of revocation
or a duly executed proxy bearing a later date, or it may be revoked by attending
the meeting and voting in person. Attendance at the meeting will not, by itself,
revoke a proxy.
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STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the
Company's 1997 Annual Meeting of Stockholders must be received by the Company
not later than July 7, 1997 in order to be included in the proxy statement and
proxy relating to that Annual Meeting.
PROPOSAL 1
ELECTION OF DIRECTORS
There are five nominees for the five Board of Directors positions
presently authorized by the Board pursuant to the Company's Amended and Restated
Certificate of Incorporation and Bylaws. Each director to be elected will hold
office until the next annual meeting of stockholders and until his successor is
elected and has qualified, or until such director's earlier death, resignation
or removal. Each nominee listed below is currently a director of the Company,
four directors having been elected by the stockholders, and one director, Dr.
Simon Stertzer, having been elected by the Board.
Shares represented by executed proxies will be voted, if authority to
do so is not withheld, for the election of the five nominees named below. In the
event that any nominee should be unavailable for election as a result of an
unexpected occurrence, such shares will be voted for the election of such
substitute nominee as management may propose. Each person nominated for election
has agreed to serve if elected and management has no reason to believe that any
nominee will be unable to serve.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
NOMINEES
<TABLE>
The names of the nominees and certain information about them are set
forth below:
<CAPTION>
PRINCIPAL OCCUPATION/
NAME AGE POSITION HELD WITH THE COMPANY
---- --- ------------------------------
<S> <C> <C>
Bradly A. Jendersee ........... 35 Chairman of the Board of Directors, Chief Executive
Officer and President
Robert D. Lashinski ........... 35 Vice President of Research and Development and
Director
John D. Miller ................ 39 Vice President of Finance, Chief Financial Officer,
Secretary, Treasurer and Director
Dr. J. Irawan Sugeng (1)(2) ... 60 Director
Dr. Simon Stertzer (1)(2) ..... 60 Director
<FN>
- -----------------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
</FN>
</TABLE>
Bradly A. Jendersee is a founder of the Company and has served as
Chairman of the Board of Directors, Chief Executive Officer and President since
August 1993, as Director of Research and Development from October 1991 to June
1992 and as Vice President of Operations from June 1992 to August 1993. Prior to
joining the Company, Mr. Jendersee served as a Principal Research and
Development Engineer at Schneider (USA) Inc., a medical device manufacturer and
subsidiary of Pfizer Inc. ("Schneider") from February 1991 to October 1991, and
as the Research and Development Engineering Manager of Angioplasty Products with
Mallinckrodt Medical, Inc., Cardiology Division, a medical device manufacturer
from September 1989 to February 1991. Mr. Jendersee also served with Advanced
Cardiovascular Systems, Inc., a subsidiary of Eli Lilly and Company ("ACS"), for
over three years. Mr. Jendersee holds a B.S. degree from the University of
Minnesota.
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Robert D. Lashinski has served as Vice President of Research and
Development since January 1995 after joining the Company in July 1992 as
Director of Research and Development. Mr. Lashinski has served as a director of
the Company since August 1993. Mr. Lashinski was employed with Schneider from
October 1990 to June 1992 in both manufacturing and research and development
capacities. In 1989, Mr. Lashinski was a founder of Danforth Biomedical Inc.,
which focuses on the research and development of vascular therapeutic devices.
Prior to 1989 Mr. Lashinski served with ACS in the capacities of Advanced
Development Engineer and Manager of Equipment Design and Development for its
pilot and manufacturing facilities. Mr. Lashinski holds a B.S. degree from the
University of Minnesota.
John D. Miller, C.P.A. is a founder of the Company and has served as
Vice President of Finance since January 1996, Secretary since May 1995 and Chief
Financial Officer, Treasurer and a director since the Company's inception in
July 1991. Prior to his position as Vice President of Finance, Mr. Miller served
as Director of Finance from July 1991 to January 1996. Mr. Miller performed his
duties to the Company as a consultant from July 1991 to January 1995 when he
began devoting his full working time to the Company. A graduate of Hofstra
University, Mr. Miller was a partner in a New York accounting firm until 1990,
when he went into private practice. Mr. Miller is a member of the American
Institute of Certified Public Accountants and the New York State Society of
Certified Public Accountants.
Dr. J. Irawan Sugeng has served as a director of the Company since
1991. Dr. Sugeng has been a teaching staff cardiologist at University of
Indonesia Hospital, Jakarta, Indonesia for the last five years. Dr. Sugeng holds
a medical degree from Airlangga University.
Dr. Simon Stertzer has served as a director of the Company since
January 1996. Since 1994, Dr. Stertzer has been a cardiologist at Stanford
University Medical Center and a Clinical Professor of Medicine at Stanford
University School of Medicine. Dr. Stertzer is also an executive officer of
Quanam Medical Corporation, a medical device manufacturer. From 1983 to 1994,
Dr. Stertzer was an Associate Clinical Professor of Medicine at the University
of California, San Francisco. From 1983 to 1994, he was also Director, Cardiac
Catheterization Laboratory, from 1983 to 1992, Director, Medical Research, and
from 1992 to 1994, Director, Interventional Cardiology, all at the San Francisco
Heart Institute, Seton Medical Center.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended June 30, 1996, the Board of Directors held
five meetings. The Board has an Audit Committee and a Compensation Committee.
The Board does not have a Nominating Committee.
The Audit Committee reviews with the Company's independent auditors the
results of the annual audit and discusses the financial statements; recommends
to the Board the independent auditors to be retained; and receives and considers
the accountants' comments as to controls, adequacy of staff and management
performance and procedures in connection with audit and financial controls. The
Audit Committee is composed of two non-employee directors: Drs. Sugeng and
Stertzer. The Audit Committee met one time during the fiscal year ended June 30,
1996.
The Compensation Committee makes recommendations concerning
compensation levels for officers and members of the Board, administers the 1996
Equity Incentive Plan and performs such other functions regarding compensation
as the Board may delegate. The Compensation Committee is composed of two
non-employee directors: Drs. Sugeng and Stertzer. The Compensation Committee met
two times during the fiscal year ended June 30, 1996.
During the fiscal year ended June 30, 1996, all directors except Dr.
Sugeng attended at least 75% of the aggregate of the meetings of the Board and
of the committees on which he served, held during the period for which he was a
director or committee member.
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PROPOSAL 2
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending June 30, 1997 and has further
directed that management submit the selection of independent auditors for
ratification by the stockholders at the Annual Meeting. Effective May 9, 1996,
the Board of Directors engaged the accounting firm of Ernst & Young LLP as
independent public accountants for the Company. Representatives of Ernst & Young
LLP are expected to be present at the Annual Meeting, will have an opportunity
to make a statement if they so desire and will be available to respond to
appropriate questions.
Stockholder ratification of the selection of Ernst & Young LLP as the
Company's independent auditors is not required by the Company's By-laws or
otherwise. However, the Board is submitting the selection of Ernst & Young LLP
to the stockholders for ratification as a matter of good corporate practice. If
the stockholders fail to ratify the selection, the Audit Committee and the Board
will reconsider whether or not to retain that firm. Even if the selection is
ratified, the Audit Committee and the Board in their discretion may direct the
appointment of different independent auditors at any time during the year if
they determine that such a change would be in the best interests of the Company
and its stockholders.
The affirmative vote of the holders of a majority of the shares present
in person or represented by proxy and entitled to vote at the Annual Meeting
will be required to ratify the selection of Ernst & Young LLP.
Effective May 9, 1996, the Board of Directors appointed Ernst & Young
LLP as the Company's independent auditors. Coopers & Lybrand L.L.P. were
terminated as the Company's independent auditors effective May 8, 1996. The
Audit Committee of the Board of Directors approved these actions. During the
fiscal years ended June 30, 1994 and 1995, and subsequent interim periods prior
to Coopers & Lybrand L.L.P.'s dismissal on May 8, 1996, there were no
disagreements with Coopers & Lybrand L.L.P. on any matter of accounting
principles or practices, financial statement disclosure, auditing scope or
procedure or any reportable events. The report of Coopers & Lybrand L.L.P. on
the financial statements for the fiscal years ended June 30, 1994 and 1995
contained no adverse opinion or other disclaimer of opinion and was not
qualified or modified as to uncertainty, audit scope or accounting principles.
During the fiscal years ended June 30, 1994 and 1995 and any subsequent interim
period prior to May 8, 1996, the Company did not consult with Ernst & Young LLP
on either regarding the application of accounting principles or the type of
audit opinion that Ernst & Young LLP might issue on the Company's financial
statements. On May 10, 1996, the Company received a letter from Coopers &
Lybrand L.L.P. confirming that it agreed with the foregoing statements.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
PROPOSAL 3
APPROVAL OF 1996 EQUITY INCENTIVE PLAN, AS AMENDED
In January 1996, the Board of Directors adopted, and in February 1996,
the Company's stockholders subsequently approved, the Company's 1996 Equity
Incentive Plan (the "Incentive Plan") under which 800,000 shares of the
Company's Common Stock are reserved for issuance. As of October 16, 1996,
options to purchase an aggregate of 403,713 shares of Common Stock were
outstanding under the Incentive Plan.
In September 1996, the Board approved an amendment to the Incentive
Plan, subject to stockholder approval, to increase the aggregate number of
shares authorized for issuance under the Incentive Plan from a total of 800,000
shares to 1,500,000 shares. The Board adopted this amendment to ensure that the
Company can continue to grant stock options, awards, bonuses or rights to
employees of and consultants to the Company at levels determined appropriate by
the Board and the Compensation Committee.
4
<PAGE>
In September 1996, the Board amended and restated the Incentive Plan,
subject to stockholder approval, to update it generally for tax and securities
provisions now applicable to the Company, including adding a limitation
providing that no person may be granted options and stock appreciation rights
under the Incentive Plan during a calendar year period to purchase in excess of
250,000 shares of Common Stock. Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"), denies a deduction to any publicly held
corporation for certain compensation paid to specified employees in a taxable
year to the extent that the compensation exceeds $1,000,000 for any covered
employee. In light of the Section 162(m) requirements, the Incentive Plan, as
amended and restated, limits the number of options and stock appreciation rights
that may be granted to any person under the Incentive Plan and provides that, in
the Board's discretion and to the extent practicable, directors who grant
options to covered employees generally will be "outside directors" as defined in
Section 162(m). See "Federal Income Tax Information" below for a discussion of
the application of Section 162(m).
The affirmative vote of the holders of a majority of the shares present
in person or represented by proxy and entitled to vote at the Annual Meeting
will be required to approve the Incentive Plan, as amended.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.
The essential features of the Incentive Plan are outlined below.
GENERAL
The Incentive Plan provides for grants of incentive stock options to
employees (including officers and directors) and nonstatutory stock options,
restricted stock purchase awards, stock bonuses and stock appreciation rights to
employees (including officers and directors) of and consultants to the Company.
To date, only incentive stock options and nonstatutory stock options have been
awarded under the Incentive Plan. Incentive stock options granted under the
Incentive Plan are intended to qualify as "incentive stock options" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"). Nonstatutory stock options granted under the Incentive Plan are
intended not to qualify as incentive stock options under the Code. See "Federal
Income Tax Information" for a discussion of the tax treatment of the various
awards available under the Incentive Plan.
PURPOSE
The Incentive Plan was adopted to provide a means by which selected
officers and employees of and consultants to the Company and its affiliates
could be given an opportunity to purchase stock in the Company, to assist in
retaining the services of employees holding key positions, to secure and retain
the services of persons capable of filling such positions and to provide
incentives for such persons to exert maximum efforts for the success of the
Company. All of the Company's approximately 434 employees (as of August 31,
1996) are currently eligible to participate in the Incentive Plan.
ADMINISTRATION
The Incentive Plan is administered by the Board of Directors of the
Company. The Board has the power to construe and interpret the Incentive Plan
and, subject to the provisions of the Incentive Plan, to determine the persons
to whom and the dates on which awards will be granted, what type of award will
be granted, the number of shares to be subject to each award, the time or times
during the term of each award within which all or a portion of such award may be
exercised, the exercise price, the type of consideration and other terms of the
award. The Board of Directors is authorized to delegate administration of the
Incentive Plan to a committee composed of not fewer than two members of the
Board. The Board has generally delegated administration of the Incentive Plan to
the Compensation Committee of the Board, although certain awards may be
administered by the Board itself. As used herein with respect to the Incentive
Plan, the "Board" refers to the Compensation Committee as well as to the Board
of Directors itself.
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ELIGIBILITY
Incentive stock options may be granted under the Incentive Plan only to
employees (including officers) of the Company and its affiliates. Employees
(including officers), directors and consultants are eligible to receive awards
other than incentive stock options under the Incentive Plan.
No incentive stock option may be granted under the Incentive Plan to
any person who, at the time of the grant, owns (or is deemed to own) stock
possessing more than 10% of the total combined voting power of the Company or
any affiliate of the Company, unless the option exercise price is at least 110%
of the fair market value of the stock subject to the option on the date of
grant, and the term of the option does not exceed five years from the date of
grant. For incentive stock options granted under the Incentive Plan, the
aggregate fair market value, determined at the time of grant, of the shares of
Common Stock with respect to which such options are exercisable for the first
time by an optionee during any calendar year (under all such plans of the
Company and its affiliates) may not exceed $100,000.
STOCK SUBJECT TO THE INCENTIVE PLAN
If awards granted under the Incentive Plan expire or otherwise
terminate without being exercised, the Common Stock not purchased pursuant to
such awards again becomes available for issuance under the Incentive Plan.
TERMS OF OPTIONS
The following is a description of the permissible terms of options
under the Incentive Plan. Individual option grants may be more restrictive as to
any or all of the permissible terms described below.
Exercise Price; Payment. The exercise price of incentive stock options
under the Incentive Plan may not be less than the fair market value of the
Common Stock subject to the option on the date of the option grant, and in some
cases (see "Eligibility" above), may not be less than 110% of such fair market
value. The exercise price of nonstatutory options under the Incentive Plan is
determined by the Board. However, if options are granted with exercise prices
below fair market value, deductions for compensation attributable to the
exercise of such options could be limited by Section 162(m) of the Code. See
"Federal Income Tax Information." At October 16, 1996, the closing price of the
Company's Common Stock as reported on the Nasdaq National Market was $26.625 per
share.
In the event of a decline in the value of the Company's Common Stock,
the Board has the authority to offer employees the opportunity to replace
outstanding higher priced options, whether incentive or nonstatutory, with new
lower priced options. To the extent required by Code Section 162(m), an option
repriced under the Incentive Plan is deemed to be canceled and a new option
granted. Both the option deemed to be canceled and the new option deemed to be
granted will be counted against the 250,000 share limitation under the Incentive
Plan. The Board also has the authority to include as part of an option agreement
a provision entitling the optionee to a further option in the event that the
optionee exercises his or her option by surrendering other shares of Common
Stock as payment of the exercise price.
The exercise price of options granted under the Incentive Plan must be
paid either: (a) in cash at the time the option is exercised; or (b) at the
discretion of the Board, (i) by delivery of other Common Stock of the Company,
(ii) pursuant to a deferred payment arrangement or (c) in any other form of
legal consideration acceptable to the Board.
Option Exercise. Options granted under the Incentive Plan may become
exercisable in cumulative increments ("vest") as determined by the Board. Shares
covered by currently outstanding options under the Incentive Plan typically vest
at the rate of 12.5% every six months following the date of the grant, so that
the shares would be fully vested on the fourth anniversary of the date of the
grant, assuming the optionee's continued employment or services as a consultant
or director. Shares covered by options granted in the future under the Incentive
Plan may be subject to different vesting terms. The Board has the power to
accelerate the time during which an option may be exercised. In addition,
options granted under the Incentive Plan may permit exercise prior to vesting,
but in such event the optionee may be required to enter into an early exercise
stock purchase agreement that allows the Company to repurchase shares not yet
vested at their exercise price should the optionee leave the service of the
Company before
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vesting. To the extent provided by the terms of an option, an optionee may
satisfy any federal, state or local tax withholding obligation relating to the
exercise of such option by a cash payment upon exercise, by authorizing the
Company to withhold a portion of the stock otherwise issuable to the optionee,
by delivering already-owned stock of the Company or by a combination of these
means.
Term. The maximum term of options under the Incentive Plan is ten
years, except that in certain cases (see "Eligibility") the maximum term is five
years. Vested options under the Incentive Plan expire three months after the
optionee ceases to be employed by the Company or any affiliate of the Company,
unless (a) the termination of employment is due to such person's permanent and
total disability (as defined in the Code), in which case the option may, but
need not, provide that it may be exercised (to the extent the option was
exercisable at the time of the optionee's termination) at any time within one
year of such termination; (b) the optionee dies while employed by the Company or
any affiliate of the Company, or within a period specified in the option, in
which case the option may, but need not, provide that it may be exercised (to
the extent the option was exercisable at the time of the optionee's death)
within eighteen months of the optionee's death by the person or persons to whom
the rights to such option pass by will or by the laws of descent and
distribution; or (c) the option by its terms specifically provides otherwise.
Individual options by their terms may provide for exercise within a longer
period of time following termination of employment or the consulting
relationship. The option term may also be extended in the event that exercise of
the option within these periods is prohibited for specified reasons.
TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK
Purchase Price; Payment. The purchase price under each stock purchase
agreement will be determined by the Board. The purchase price of stock pursuant
to a stock purchase agreement must be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board, according to a deferred payment
or other arrangement with the person to whom the Common Stock is sold; or (iii)
in any other form of legal consideration that may be acceptable to the Board in
its discretion. Eligible participants may be awarded stock pursuant to a stock
bonus agreement in consideration of past services actually rendered to the
Company or for its benefit.
Repurchase. Shares of the Common Stock sold or awarded under the
Incentive Plan may, but need not, be subject to a repurchase option in favor of
the Company in accordance with a vesting schedule determined by the Board. In
the event a person ceases to be an employee of or ceases to serve as a director
of or consultant to the Company or an affiliate of the Company, the Company may
repurchase or otherwise reacquire any or all of the shares of the Common Stock
held by that person that have not vested as of the date of termination under the
terms of the stock bonus or restricted stock purchase agreement between the
Company and such person.
STOCK APPRECIATION RIGHTS
The Board may grant stock appreciation rights to employees or directors
of, or consultants to, the Company or its affiliates. The Incentive Plan
authorizes three types of stock appreciation rights.
Tandem Stock Appreciation Rights. Tandem stock appreciation rights are
tied to an underlying option and require the holder to elect whether to exercise
the underlying option or to surrender the option for an appreciation
distribution equal to the market price of the vested shares purchasable under
the surrendered option less the aggregate exercise price payable for such
shares. Appreciation distributions payable upon exercise of tandem stock
appreciation rights must be made in cash.
Concurrent Stock Appreciation Rights. Concurrent stock appreciation
rights are tied to an underlying option and are exercised automatically at the
same time the underlying option is exercised. The holder receives an
appreciation distribution equal to the market price of the vested shares
purchased under the option less the aggregate exercise price payable for such
shares. Appreciation distributions payable upon exercise of concurrent stock
appreciation rights must be made in cash.
Independent Stock Appreciation Rights. Independent stock appreciation
rights are granted independently of any option and entitle the holder to receive
upon exercise an appreciation distribution equal to the market price of a number
of shares equal to the number of share equivalents to which the holder
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is vested under the independent stock appreciation right less the fair market
value of such number of shares of stock on the date of grant of the independent
stock appreciation rights. Appreciation distributions payable upon exercise of
independent stock appreciation rights may, at the Board's discretion, be made in
cash, in shares of the Common Stock or a combination thereof.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the Incentive Plan or
subject to any award granted under the Incentive Plan (through merger,
consolidation, reorganization, recapitalization, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or otherwise), the
Incentive Plan and awards outstanding thereunder will be appropriately adjusted
as to the class and the maximum number of shares subject to such plan and the
class, number of shares and price per share of stock subject to such outstanding
awards.
EFFECT OF CERTAIN CORPORATE EVENTS
The Incentive Plan provides that, in the event of a dissolution or
liquidation of the Company, specified type of merger or other corporate
reorganization, to the extent permitted by law, any surviving corporation will
be required to either assume awards outstanding under the Incentive Plan or
substitute similar awards for those outstanding under such plan, or such
outstanding awards will continue in full force and effect. In the event that any
surviving corporation declines to assume or continue awards outstanding under
the Incentive Plan, or to substitute similar awards, then the time during which
such awards may be exercised by current employees or directors of or consultants
to the Company will be accelerated and the awards terminated if not exercised
during such time. The acceleration of an award in the event of an acquisition or
similar corporate event may be viewed as an antitakeover provision, which may
have the effect of discouraging a proposal to acquire or otherwise obtain
control of the Company.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Incentive Plan without
stockholder approval or ratification at any time or from time to time. Unless
sooner terminated, the Incentive Plan will terminate on January 26, 2006.
The Board may also amend the Incentive Plan at any time or from time to
time. However, no amendment will be effective unless approved by the
stockholders of the Company within twelve months before or after its adoption by
the Board if the amendment would: (a) modify the requirements as to eligibility
for participation (to the extent such modification requires stockholder approval
in order for the Plan to satisfy Section 422 of the Code, if applicable, or Rule
16b-3 ("Rule 16b-3") of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")); (b) increase the number of shares reserved for issuance upon
exercise of options; or (c) change any other provision of the Plan in any other
way if such modification requires stockholder approval in order to comply with
Rule 16b-3 or satisfy the requirements of Section 422 of the Code. The Board may
submit any other amendment to the Incentive Plan for stockholder approval,
including, but not limited to, amendments intended to satisfy the requirements
of Section 162(m) of the Code regarding the exclusion of performance-based
compensation from the limitation on the deductibility of compensation paid to
certain employees.
RESTRICTIONS ON TRANSFER
Under the Incentive Plan, an incentive stock option may not be
transferred by the optionee otherwise than by will or by the laws of descent and
distribution and, during the lifetime of an optionee, an option may be exercised
only by the optionee. All other awards granted under the Incentive Plan may be
transferred only upon such conditions as are set forth in the applicable award
agreement. In any case, a grantee may designate in writing a third party who may
exercise the award in the event of the grantee's death. In addition, any shares
subject to repurchase by the Company under an early exercise stock purchase
agreement may be subject to restrictions on transfer which the Board deems
appropriate.
FEDERAL INCOME TAX INFORMATION
Incentive Stock Options. Incentive stock options under the Incentive
Plan are intended to be eligible for the favorable federal income tax treatment
accorded "incentive stock options" under the Code.
8
<PAGE>
There generally are no federal income tax consequences to the optionee
or the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive
stock option for at least two years from the date on which the option is granted
and at least one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of such
stock will be long-term capital gain or loss. Generally, if the optionee
disposes of the stock before the expiration of either of these holding periods
(a "disqualifying disposition"), at the time of disposition, the optionee will
realize taxable ordinary income equal to the lesser of (a) the excess of the
stock's fair market value on the date of exercise over the exercise price, or
(b) the optionee's actual gain, if any, on the purchase and sale. The optionee's
additional gain, or any loss, upon the disqualifying disposition will be a
capital gain or loss, which will be long-term or short-term depending on whether
the stock was held for more than one year. Capital gains currently are generally
subject to lower tax rates than ordinary income. The maximum long-term capital
gains rate for federal income tax purposes is currently 28% while the maximum
ordinary income rate is effectively 39.6% at the present time. Slightly
different rules may apply to optionees who acquire stock subject to certain
repurchase options.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
Nonstatutory Stock Options. Nonstatutory stock options granted under
the Incentive Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason
of the grant of a nonstatutory stock option. Upon exercise of a nonstatutory
stock option, the optionee normally will recognize taxable ordinary income equal
to the excess of the stock's fair market value on the date of exercise over the
option exercise price. Generally, with respect to employees, the Company is
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, the provisions of Section 162(m) of the Code and the
satisfaction of a reporting obligation, the Company will generally be entitled
to a business expense deduction equal to the taxable ordinary income realized by
the optionee. Upon disposition of the stock, the optionee will recognize a
capital gain or loss equal to the difference between the selling price and the
sum of the amount paid for such stock plus any amount recognized as ordinary
income upon exercise of the option. Such gain or loss will be long or short-term
depending on whether the stock was held for more than one year. Slightly
different rules may apply to optionees who acquire stock subject to certain
repurchase options.
Restricted Stock and Stock Bonuses. Restricted stock and stock bonuses
granted under the Incentive Plan generally have the following federal income tax
consequences:
Upon acquisition of stock under a restricted stock or stock bonus
award, the recipient normally will recognize taxable ordinary income equal to
the excess of the stock's fair market value over the purchase price, if any.
However, to the extent the stock is subject to certain types of vesting
restrictions, the taxable event will be delayed until the vesting restrictions
lapse unless the recipient elects to be taxed on receipt of the stock.
Generally, with respect to employees, the Company is required to withhold from
regular wages or supplemental wage payments an amount based on the ordinary
income recognized. Subject to the requirement of reasonableness, Section 162(m)
of the Code and the satisfaction of a tax reporting obligation, the Company will
generally be entitled to a business expense deduction equal to the taxable
ordinary income realized by the recipient. Upon disposition of the stock, the
recipient will recognize a capital gain or loss equal to the difference between
the selling price and the sum of the amount paid for such stock, if any, plus
any amount recognized as ordinary income upon acquisition (or vesting) of the
stock. Such gain or loss will be long or short-term depending on whether the
stock was held for more than one year from the date ordinary income is measured.
Slightly different rules may apply to persons who acquire stock subject to
forfeiture.
9
<PAGE>
Stock Appreciation Rights. No taxable income is realized upon the
receipt of a stock appreciation right, but upon exercise of the stock
appreciation right the fair market value of the shares (or cash in lieu of
shares) received must be treated as compensation taxable as ordinary income to
the recipient in the year of such exercise. Generally, with respect to
employees, the Company is required to withhold from the payment made on exercise
of the stock appreciation right or from regular wages or supplemental wage
payments an amount based on the ordinary income recognized. Subject to the
requirement of reasonableness, Section 162(m) of the Code and the satisfaction
of a reporting obligation, the Company will be entitled to a business expense
deduction equal to the taxable ordinary income recognized by the recipient.
Potential Limitation on Company Deductions. As part of the Omnibus
Budget Reconciliation Act of 1993, the U.S. Congress amended the Code to add
Section 162(m) which denies a deduction to any publicly held corporation for
compensation paid to certain employees in a taxable year to the extent that
compensation exceeds $1 million for a covered employee. It is possible that
compensation attributable to awards under the Incentive Plan, when combined with
all other types of compensation received by a covered employee from the Company,
may cause this limitation to be exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with applicable Treasury regulations issued under Section 162(m) of
the Code, compensation attributable to stock options and stock appreciation
rights will qualify as performance-based compensation, provided that: (i) the
stock award plan contains a per-employee limitation on the number of shares for
which stock options and stock appreciation rights may be granted during a
specified period; (ii) the per-employee limitation is approved by the
stockholders; (iii) the award is granted by a compensation committee comprised
solely of "outside directors"; and (iv) the exercise price of the award is no
less than the fair market value of the stock on the date of grant. Compensation
attributable to restricted stock will qualify as performance-based compensation,
provided that: (i) the award is granted by a compensation committee comprised
solely of "outside directors"; and (ii) the purchase price of the award is no
less than the fair market value of the stock on the date of grant. Stock bonuses
qualify as performance-based compensation under these Treasury regulations only
if: (i) the award is granted by a compensation committee comprised solely of
"outside directors;" (ii) the award is granted (or exercisable) only upon the
achievement of an objective performance goal established in writing by the
compensation committee while the outcome is substantially uncertain; (iii) the
compensation committee certifies in writing prior to the granting (or
exercisability) of the award that the performance goal has been satisfied; and
(iv) prior to the granting (or exercisability) of the award, stockholders have
approved the material terms of the award (including the class of employees
eligible for such award, the business criteria on which the performance goal is
based, and the maximum amount (or formula used to calculate the amount) payable
upon attainment of the performance goal).
OPTIONS GRANTED
At October 16, 1996, options to purchase an aggregate of 403,713 shares
at exercise prices ranging from $21.00 to $35.125 per share of the Company's
Common Stock were outstanding under the Incentive Plan, and 394,666 shares (plus
any shares that might in the future be returned to the plans as a result of
cancellations or expiration of options) remained available for future grant
under the Incentive Plan, excluding the increase of 700,000 shares for which
stockholder approval is sought. No options under the Incentive Plan have been
granted to any directors or executive officers of the Company.
10
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
ownership of the Company's Common Stock as of October 16, 1996 by: (i) each
nominee for director; (ii) each of the executive officers named in the Summary
Compensation Table; (iii) all executive officers and directors of the Company as
a group; and (iv) all those known by the Company to be beneficial owners of more
than five percent of its Common Stock.
Shares Beneficially
Owned (1)
------------------------
5% Stockholders, Directors and Officers Number Percent
- --------------------------------------- ----------- -----------
Radstock Enterprises Limited..................... 4,394,471 14.2%
P.O. Box N-4899
Nassau, Bahamas
Dr. Simon Stertzer (2)(3)........................ 2,910,993 9.4
396 Raymundo Drive
Woodside, CA 94062
Dr. Gerald Dorros (3)(4)......................... 2,764,872 8.9
8130 North Beach Drive
Milwaukee, WI 53217
Airem Ltd........................................ 1,728,686 5.6
P.O. Box 1164
Georgetown
Grand Cayman, West Indies
Bradly A. Jendersee (5)(6)...................... . 1,891,364 6.1
c/o Arterial Vascular
Engineering, Inc.
5355 Skylane Boulevard
Santa Rosa, CA 95403
Robert D. Lashinski (5)(7)....................... 1,769,656 5.7
c/o Arterial Vascular
Engineering, Inc.
5355 Skylane Boulevard
Santa Rosa, CA 95403
John D. Miller (2)(5)(8)......................... 2,333,616 7.6
c/o Arterial Vascular
Engineering, Inc.
5355 Skylane Boulevard
Santa Rosa, CA 95403
Dr. J. Irawan Sugeng (9)......................... 864,343 2.8
c/o Lotus Enterprises Inc.
P.O. Box N-4899
Nassau, Bahamas
Gregory M. French (5)(10)........................ 750,265 2.4
W. Kevin Bedsole (3)(5)(11)...................... 415,992 1.3
All directors and executive officers as a group
(9 persons) (12)............................... 10,832,498 34.6
(Footnotes are on the next page.)
11
<PAGE>
(Footnotes for table on the previous page.)
- ------------------------
(1) This table is based upon information supplied by officers, directors
and principal stockholders filed with the Securities and Exchange
Commission (the "SEC"). Unless otherwise indicated in the footnotes to
this table and subject to community property laws where applicable, the
Company believes that each of the stockholders named in this table has
sole voting and investment power with respect to the shares indicated
as beneficially owned. Applicable percentages are based on 30,874,383
shares outstanding on October 16, 1996, adjusted as required by rules
promulgated by the SEC.
(2) Includes 445,268 shares held by a trust for the benefit of Dr.
Stertzer's children, which John D. Miller is trustee, as to which
shares Mr. Miller and Dr. Stertzer disclaim beneficial ownership.
(3) Includes 137,500 shares issuable pursuant to options exercisable within
60 days.
(4) Includes 660,000 shares held by the G. Dorros Family Limited
Partnership.
(5) Includes shares of restricted stock subject to a repurchase option in
favor of the Company in accordance with service vesting schedules
generally ranging from 48 to 64 months.
(6) Includes 180,675 shares held by family trusts for which Shelley A.
Duane (Mr. Jendersee's mother) and J.P. Morgan California are
co-trustees, as to which shares Mr. Jendersee disclaims beneficial
ownership. Includes 13,739 shares held in an IRA account.
(7) Includes 134,701 shares held by family trusts for which Michael J. Orth
and J.P. Morgan California are co-trustees, as to which shares Mr.
Lashinski disclaims beneficial ownership. Includes 7,639 shares held in
an IRA account.
(8) Includes 398,041 shares held by family trusts for which Doreen D.
Miller (Mr. Miller's spouse) and J.P Morgan California are co-trustees,
as to which shares Mr. Miller disclaims beneficial ownership. Includes
13,750 shares held in an IRA account.
(9) Includes 864,343 shares held by Lotus Enterprises Inc., of which Dr.
Sugeng is the sole stockholder.
(10) Includes 56,052 shares held by family trusts for which Charles Remsen
(Mr. French's brother-in-law) and J.P. Morgan California are
co-trustees, as to which shares Mr. French disclaims beneficial
ownership. Includes 8,833 shares held in an IRA account.
(11) Includes 246,419 shares held by a living trust for which Mr. Bedsole
and his wife, Susan Welcher, are the trustees, 13,739 shares held in an
IRA account and 18,334 shares issuable pursuant to options exercisable
within 60 days.
(12) Includes 457,501 shares issuable pursuant to options exercisable within
60 days.
COMPLIANCE WITH THE REPORTING REQUIREMENTS OF SECTION 16(a)
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires the Company's directors and executive officers, and persons who own
more than ten percent of a registered class of the Company's equity securities,
to file with the SEC initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Officers,
directors and greater than ten percent stockholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended June 30, 1996, all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten percent beneficial owners were complied with.
12
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
The members of the Board of Directors do not currently receive any cash
compensation for their service as members of the Board of Directors, although
they are reimbursed for their expenses incurred in connection with attendance at
Board meetings in accordance with Company policy.
Each non-employee director of the Company also receives stock option
grants under the 1996 Non- Employee Directors' Stock Option Plan (the
"Directors' Plan").
Non-Employee Directors' Stock Option Plan. The Board adopted the
Directors' Plan in January 1996 and amended it for certain securities law
developments in September 1996. The Directors' Plan provides for the automatic
grant of options to purchase shares of Common Stock to non-employee directors of
the Company and is administered by the Board, unless the Board delegates
administration to a committee of the Board.
The maximum number of shares of Common Stock that may be issued
pursuant to options grants under the Directors' Plan is 100,000. Pursuant to the
terms of the Directors' Plan, each person serving as a director of the Company
who is not an employee of the Company (a "Non-Employee Director") automatically
receives, upon the later of (i) the effective date of the initial public
offering of the Company's Common Stock, or (ii) the date such person first
becomes a Non-Employee Director, the grant of an option to purchase 12,000
shares of Common Stock. In addition, on the date of the annual meeting of
stockholders each year, following the first registration of any equity
securities under Section 12 of the Securities Exchange Act of 1934, each
Non-Employee Director, who is not elected a director for the first time at such
meeting is automatically granted an option to purchase 4,000 shares of Common
Stock.
Options under the Directors' Plan vest (provided that the optionee has
continuously served as a Non- Employee Director or as an employee of or
consultant to the Company or any parent or subsidiary of the Company) in four
equal installments, commencing on the first anniversary of the date of the grant
of the option. The exercise price of options granted under the Directors' Plan
must equal or exceed the fair market value of the Common Stock granted on the
date of grant. No option granted under the Directors' Plan may be exercised
after the expiration of ten years from the date it was granted. Except as
otherwise specifically provided in the optionee's option agreement, options
granted under the Directors' Plan are nontransferable except by will or the laws
of descent and distribution or pursuant to a qualified domestic relations order.
The Directors' Plan will terminate at the direction of the Board.
In the event of a merger consolidation, reverse merger or
reorganization, options outstanding under the Plan will automatically become
fully vested and will terminate if not exercised prior to such event.
Pursuant to the Directors' Plan, on April 2, 1996, options to purchase
12,000 shares of Common Stock were granted to each of Drs. Sugeng and Stertzer
at an exercise price per share of $21.00, which was equal to the price to the
public of the shares of Common Stock on the effective date of the offering. As
of October 16, 1996, no further options had been granted, so that options to
purchase a total of 24,000 shares of Common Stock are outstanding pursuant to
the Directors' Plan.
13
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
<TABLE>
SUMMARY OF COMPENSATION
The following table shows for the fiscal years ended June 30, 1996 and
1995, compensation awarded or paid to, or earned by, the Company's Chief
Executive Officer and its other four most highly compensated executive officers
at June 30, 1996 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<CAPTION>
Annual Compensation
------------------------------
All Other
Name and Principal Position Year Salary($)(1) Bonus($) Compensation (2)(3)
- -------------------------------------------------- ---- ------------ -------- --------------------
<S> <C> <C> <C> <C>
Bradly A. Jendersee (3) .......................... 1996 $257,840 $31,377 $1,050
President and Chief Executive Officer 1995 168,081 23,848 8,623
Robert D. Lashinski (3) .......................... 1996 232,692 27,951 770
Vice President of Research and Development 1995 147,745 21,346 8,623
John D. Miller.................................... 1996 229,797 28,877 676
Vice President of Finance, Chief Financial 1995 146,521(4) 16,667 8,623
Officer, Treasurer and Secretary
W. Kevin Bedsole.................................. 1996 167,500 18,750 450
Vice President of Worldwide Sales and 1995 125,598 17,167 8,229
Marketing
Gregory W. French................................. 1996 164,375 20,599 425
Vice President of Manufacturing 1995 119,205 16,750 7,930
<FN>
- ---------------------------
(1) Includes, for fiscal 1996, compensation for unused vacation accrued in
prior years.
(2) Consists of premiums paid by the Company on life insurance policies
and, for fiscal 1995, the Company's matching contributions under the
401(k) Plan.
(3) In February 1996, the Company agreed to amend the employment agreements
with Messrs. Jendersee and Lashinski to delete in their entirety
certain provisions relating to royalty payments by the Company in
connection with any patent of the Company in which Messrs. Jendersee
and/or Lashinski were named as inventors in the patent applications, in
consideration of the following: (i) cash in the amount of $1,940,000 to
each of Messrs. Jendersee and Lashinski (less any amounts required to
be withheld by the Company on behalf of Messrs. Jendersee and Lashinski
with respect to the delivery of cash and shares under applicable
federal and state law); and (ii) issuance to each of Messrs. Jendersee
and Lashinski of 55,000 shares of the Company's Common Stock at a price
of $12.00 per share. The terms of the amended employment agreements
were approved by the holders of a majority of the shares of Common
Stock held by the Company's disinterested stockholders. Such payments
to Messrs. Jendersee and Lashinski resulted in the recognition by the
Company in the quarter ending March 31, 1996 of a one-time compensation
expense of $5.2 million.
(4) Includes $54,854 of consulting fees paid before Mr. Miller entered into
an employment agreement with the Company.
</FN>
</TABLE>
14
<PAGE>
EMPLOYEE BENEFIT PLANS
STOCK OPTION AGREEMENTS
From 1991 to 1996, the Board of Directors granted nonstatutory stock
options which allowed employees, directors, and consultants of the Company to
purchase shares of the Company's common stock. Stock option grants were awarded
at the discretion of the Board of Directors and generally vest over a period of
three years from the date of the grant, and unexercised options expire upon
termination of employment with the Company or after the expiration of five years
from the date of grant. No shares of common stock issued under such agreements
are subject to repurchase. Following the adoption of the Incentive Plan, options
were no longer made available for grant outside of the Incentive Plan.
401(K) PLAN
In August 1994, the Company adopted a tax-qualified employee savings
and retirement plan (the "401(k) Plan") covering the Company's employees who
have not elected out of the 401(k) Plan participation, have completed one year
of service with the Company and have attained the age of 21. Pursuant to the
401(k) Plan, eligible employees may elect to reduce their current compensation
by up to the lesser of 15% of their annual compensation and the statutorily
prescribed annual limit ($9,500 in 1996) and have the amount of such reduction
contributed to the 401(k) Plan. The 401(k) Plan permits, but does not require,
additional matching and employer contributions to the 401(k) Plan by the Company
on behalf of eligible employees. To date the Company has contributed $76,000 to
the 401(k) Plan. Employees become 20% vested in any such Company contributions
after two years of service, and increase their vested percentages by an
additional 20% for each year of service thereafter. The 401(k) Plan is intended
to qualify under Section 401 of the Internal Revenue Code of 1986, as amended,
so that contributions by employees or by the Company to the 401(k) Plan and
income earned on the 401(k) Plan contributions, are not taxable to employees
until withdrawn from the 401(k) Plan, and so that contributions by the Company,
if any, will be deductible by the Company when made. The trustee under the
401(k) Plan, at the direction of each participant, invests the assets of the
401(k) Plan in selected investment options.
STOCK OPTION GRANTS AND EXERCISES
Under the Incentive Plan, the Company may grant options to its
executive officers; however, as of October 16, 1996, no options under the
Incentive Plan have been granted to any executive officers of the Company. As of
October 16, 1996, options to purchase a total of 403,713 shares were outstanding
under the Incentive Plan and options to purchase 394,666 shares remained
available for grant thereunder. The amendment to the Incentive Plan submitted
for approval by the stockholders at the Annual Meeting would make available
options to purchase an additional 700,000 shares for grant. Prior to the
adoption of the Incentive Plan, the Company granted options pursuant to
nonstatutory stock option agreements. As of October 16, 1996, options to
purchase 1,151,250 shares were outstanding pursuant to the nonstatutory stock
option agreements, including options to purchase 441,000 shares granted to
executive officers of the Company.
15
<PAGE>
<TABLE>
The following tables show for the fiscal year ended June 30, 1996,
certain information regarding options granted to, exercised by, and held at year
end by, the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term (1)
----------------- ----------------------
Number of % of Total
Securities Options
Underlying Granted to
Options Employees Exercise or
Granted in Fiscal Base Price Expiration
Name (#) (2) Year(%) (3) ($/Sh) (4) Date 5% ($) 10% ($)
- ---- ------------- ----------- ----------- ----------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Mr. Jendersee -- -- -- -- -- --
Mr. Lashinski -- -- -- -- -- --
Mr. Miller -- -- -- -- -- --
Mr. Bedsole 55,000 11.2 $9.5455 11/30/05 330,752 834,754
Mr. French -- -- -- -- -- --
<FN>
- -------------------
(1) Calculated on the assumption that the market value of the underlying
stock increases at the stated values compounded annually for the
ten-year term of the option and that the option is exercised and sold
on the last day of its term for the appreciated stock price.
(2) Options granted become exercisable in three equal installments on
December 1, 1996, 1997 and 1998.
(3) Based on an aggregate of 491,717 options granted during the fiscal year
ended June 30, 1996.
(4) The exercise price per share of the option is equal to the fair market
value of the common stock on the date of grant.
</FN>
</TABLE>
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR, AND FY-END OPTION VALUES
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
6/30/96 (#) 6/30/96 ($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($)(1)(2) Unexercisable Unexercisable
- ---- --------------- ------------------ ------------- -------------
<S> <C> <C> <C> <C>
Mr. Jendersee 1,375,000 1,747,488 0/0 0/0
Mr. Lashinski 1,100,000 1,397,990 0/0 0/0
Mr. Miller 1,375,000 1,747,488 0/0 0/0
Mr. Bedsole -- -- 137,500/55,000 4,984,728/1,468,747
Mr. French 550,000 698,995 0/0 0/0
<FN>
- --------------------
(1) Value realized is based upon the fair market value of the Company's Common
Stock on the date of exercise less the exercise price and does not
necessarily indicate that the optionee sold such stock.
(2) The per share fair market value of the Company's Common Stock at June 30,
1996 ($36.25) less the exercise price of the options. At October 16, 1996,
the per share fair market value of the Company's Common Stock was $26.625.
</FN>
</TABLE>
16
<PAGE>
EMPLOYMENT AGREEMENTS
Pursuant to employment agreements with the Company, Messrs. French,
Jendersee, Lashinski, and Miller have agreed to serve in their respective
positions until March 18, 1999, and Messrs. Bedsole, and Schiek have agreed to
serve in their respective positions until March 29, 2000, and April 1, 2000,
respectively. In consideration of their services, such officers will receive
annual salaries (subject to increase by the Board of Directors upon annual
reviews) as follows (as of January 1996): Mr. Jendersee, $250,000; Mr.
Lashinski, $230,000; Mr. Miller, $230,000; Mr. Bedsole, $185,000; Mr. French,
$165,000; and Mr. Schiek, $135,000. The employment agreements prohibit such
officers from rendering services in the United States, Europe or Asia, or
consulting with or providing advice to, any person or entity engaged in the
business of providing products or services in the field of percutaneous
transluminal coronary angioplasty and coronary stents during the term of such
officer's employment agreement without the Company's prior written consent.
Additionally, pursuant to such employment agreements, Messrs. Miller, Bedsole,
French and Schiek have entered into the Company's standard Employee Inventions
and Proprietary Rights Assignment and Confidentiality Agreement. Messrs.
Jendersee and Lashinski have agreed to keep confidential all the Company's
proprietary information pursuant to their employment agreements, rather than
pursuant to the Company's standard Employee Inventions and Proprietary Rights
Assignment and Confidentiality Agreement.
The employment agreements may be terminated with or without cause. If
the officer's employment is involuntarily terminated without cause, the
terminated officer is entitled to receive a severance payment equal to one-half
of his annual salary. If such involuntary termination without cause occurs
within two years after a change in control of the Company (which change of
control occurs within the term of the employment agreement), the terminated
officer is entitled to receive severance payment equal in the aggregate to his
annual salary and a continuation of benefits for a twelve-month period. If an
officer's employment is terminated voluntarily following a change in control of
the Company, the terminated officer is entitled to receive severance payments
equal in the aggregate to one-half his annual salary. If terminated without
cause, such officers would not be entitled to any severance payments or other
benefits under their employment agreements. Upon a change of control of the
Company, all of such officers' shares of Common Stock that are subject to a
repurchase option of the Company would be released from such repurchase options,
and all unvested stock options would immediately vest. Such officers are also
provided with term life insurance in the amount of $500,000 under their
employment agreements. The Company has taken out key man life insurance, under
which the Company is the beneficiary, on each of its officers with whom it has
entered into employment agreements, in amounts greater than or equal to $500,000
in order to provide for potential payments under such agreements.
In February 1996, the Company agreed to amend the employment agreements
with Messrs. Jendersee and Lashinski to delete in their entirety certain
provisions relating to royalty payments by the Company in connection with any
patent of the Company in which Messrs. Jendersee and/or Lashinski were named as
inventors in the patent applications, in consideration of the following: (i)
cash in the amount of $1,940,000 to each of Messrs. Jendersee and Lashinski
(less any amounts required to be withheld by the Company on behalf of Messrs.
Jendersee and Lashinski with respect to the delivery of cash and shares under
applicable federal and state law); and (ii) issuance to each of Messrs.
Jendersee and Lashinski of 55,000 shares of the Company's Common Stock at a
price of $12.00 per share. The terms of the amended employment agreements were
approved by the holders of a majority of the shares of Common Stock held by the
Company's disinterested stockholders. Such payments to Messrs. Jendersee and
Lashinski resulted in the recognition by the Company in the quarter ending March
31, 1996 of a one-time compensation expense of $5.2 million.
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REPORT OF THE BOARD OF DIRECTORS AND COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION(1)
GENERAL
The Company was privately held until April 1996 when the Company
completed its initial public offering, and the Compensation Committee of the
Board of Directors was not established until January 1996. Accordingly, the
Board of Directors made the primary compensation determinations for the
Company's officers in fiscal year 1996, including the establishment of base
salaries, potential bonuses and stock option grants. All decisions relating to
executive compensation presently are being made upon the recommendation of the
Compensation Committee.
COMPENSATION PHILOSOPHY
The primary goal of the Company is to align compensation with the
Company's business objectives and performance. The Company's aim is to attract,
retain and reward executive officers and other key employees who contribute to
the long-term success of the Company and to motivate those individuals to
enhance long-term stockholder value. To establish this relationship between
executive compensation and the creation of stockholder value, the Board of
Directors has adopted a total compensation package comprised of base salary,
bonus and stock option awards. Key elements of this compensation package are:
o The Company pays competitively with leading medical device
companies with which the Company competes for talent.
o The Company maintains annual incentive opportunities
sufficient to provide motivation to achieve specific operating
goals and to generate rewards that bring total compensation to
competitive levels.
o The Company provides significant equity-based incentives for
executives and other key employees to ensure that individuals
are motivated over the long term to respond to the Company's
business challenges and opportunities as owners and not just
as employees.
EXECUTIVE OFFICER SALARIES
Of the Company's current officers other than the Chief Executive
Officer, one joined the Company in 1995, two joined the Company in 1993, two
joined the Company in 1992 and one was a founder of the Company in 1991. With
respect to the officer hired in 1995, salary, potential bonus and stock option
grants were determined on the basis of negotiations between the Company and the
officer with due regard to the officer's experience and market conditions at the
time. Similarly, the Company negotiated with each of the other officers at the
time of their hiring and reached a level of compensation that the Company
believed was reasonably required to obtain the services of such officer. In
doing so, the Company relied extensively on equity incentives in the form of
stock option grants that vested over the two to four year period following the
date such officer commenced employment.
Because of the relatively short tenure of these officers with the
Company and the familiarity of the Board with the hiring process of each
officer, the Board relied primarily on the fiscal year 1995 salary, bonus and
prior equity grants in establishing the fiscal 1996 salary and potential bonus
of the continuing officers. In this regard, the Board was particularly mindful
of the rapid appreciation of the stock options granted to and restricted stock
purchased by, the continuing officers in March 1995 and the significant
incentive for employee retention as a result of the vesting schedules for such
stock and options. Because of the value associated with these options and stock,
the base salary established by the Board may not reflect a salary that otherwise
would have been required to competitively compensate these officers and may not
be indicative of future compensation. The Board of Directors did not obtain or
review salary surveys of similar medical device companies in establishing the
fiscal year 1996 compensation because of
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(1) The material in this report is not "soliciting material," is not deemed
filed with the Securities and Exchange Commission and is not to be
incorporated by reference in any filing of the Company under the Securities
Act or the Exchange Act, whether made before or after the date hereof and
irrespective of any general incorporation language in any such filing.
18
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the Board's level of information gained during the hiring process of each
officer, the recognized value of the unvested stock options and restricted stock
and the Board's general knowledge of the market.
LONG-TERM INCENTIVES
The Company's primary long-term incentive program currently consists of
the Incentive Plan. The Incentive Plan utilizes vesting periods (generally four
years) to encourage key executives to continue in the employ of the Company.
Through option grants, executives receive significant equity incentives to build
long-term stockholder value. The exercise price of options granted under the
Incentive Plan generally is 100% of the fair market value of the underlying
stock on the date of grant. Employees receive value from these grants only if
the Company's Common Stock appreciates in the long term.
In December 1995, the Board of Directors granted stock options to two
of the Company's executive officers. The grant of the options was made in
connection with their promotions. During the fiscal year 1996, the Board elected
not to grant options to the Chief Executive Officer and the other six executive
officers because of the size of the stock options and restricted stock
previously issued to such officers and their related vesting schedules. In
reaching its decisions, the Board again relied on its experience, the
information gained in the hiring process for such officers, and the value of the
officers' previously issued stock options and restricted stock.
COMPANY PERFORMANCE AND CHIEF EXECUTIVE OFFICER COMPENSATION
The salary and potential bonus of Bradly A. Jendersee, the Company's
Chief Executive Officer, were established by the Board of Directors primarily on
the basis of the salary received by him in fiscal year 1995 and pursuant to
discussions between the Board of Directors and the Chief Executive Officer. In
establishing the compensation for the Chief Executive Officer, the Board
considered both qualitative factors such as the progress of the Company's
products through development and clinical testing to market introduction, the
extent of foreign distribution of the Company's products, and the continued
significant success of the Company's products and quantitative factors such as
the resulting significant growth of net sales and net income of the Company. In
fiscal 1995, the Company achieved several key objectives. These achievements
included the successful market introduction of the Micro Stent system, the
development of several next-generation stent systems and an increase in revenues
from $2.9 million to $17.1 million and in income from a net loss of $0.5 million
to net income of $6.6 million. Accordingly, the Chief Executive Officer received
an increase in base salary of $30,000 over his salary that had been in effect
since March 1995. No options or shares of restricted stock were granted or
awarded during fiscal year 1996 to the Chief Executive Officer.
ANNUAL INCENTIVE COMPENSATION
A portion of the cash compensation paid to the Company's officers,
including the Chief Executive Officer, is in the form of discretionary bonus
payments that have been paid on a quarterly basis. Bonus payments are expressly
linked to the attainment of specific goals established for the Company in
general, and are payable to all employees of the Company at the rate of one-half
of one month's salary.
In awarding discretionary bonuses, the Board of Directors believed that
virtually all of the Company's goals for the year were attained and,
accordingly, awarded quarterly cash bonuses for all but the third quarter of
fiscal year 1996, when incentive stock options under the Incentive Plan were
awarded to most employees. This belief was based on the continued significant
increase in net revenues and net income in fiscal year 1996 as compared to
fiscal year 1995. The Board of Directors also was mindful of the significant
efforts of executive officers in connection with the Company's initial public
offering in April 1996.
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CERTAIN TAX CONSIDERATIONS
Section 162(m) of the Internal Revenue Code (the "Code") limits the
Company to a deduction for federal income tax purposes of not more than $1
million of compensation paid to certain executive officers in a taxable year.
Compensation above $1 million may be deducted if it is "performance-based
compensation" within the meaning of the Code.
The Board has determined to satisfy the requirements for
"performance-based compensation" with respect to compensation awarded to its
Named Executive Officers whenever possible and to the extent then practicable.
From the members of the Board of Directors and Compensation Committee:
Bradly A. Jendersee
Robert D. Lashinski
John D. Miller
Dr. J. Irawan Sugeng
Dr. Simon Stertzer
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the first meeting of the Compensation Committee in April 1996,
the Board of Directors made all determinations with respect to compensation.
Each of Bradly A. Jendersee, the Company's President, Chief Executive Officer
and the Chairman of the Board of Directors, Robert D. Lashinski, the Company's
Vice President of Research and Development, and John D. Miller, the Company's
Vice President of Finance, Chief Financial Officer, Secretary and Treasurer,
participated in the deliberations of the Board of Directors concerning executive
compensation.
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PERFORMANCE MEASUREMENT COMPARISON(1)
The following graph compares the cumulative total stockholder return,
assuming reinvestment of all dividends, for the Company's Common Stock, the
Nasdaq Stock Market-US Index and the S&P Health Care (Medical Products &
Supplies) Index from April 3, 1996 (the date on which the Company's Common Stock
was first traded on the Nasdaq National Market) through June 30, 1996. The graph
assumes that $100 was invested on April 3, 1996 in the Company's Common Stock
and in each of the comparative indices.
4/3/96 6/30/96
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Arterial Vascular Engineering, Inc. ......................... 100 173
Nasdaq Stock Market-US ...................................... 100 108
S&P Health Care (Medical Products & Supplies) ............... 100 99
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(1) This Section is not "soliciting material," is not deemed "filed" with the
SEC and is not to be incorporated by reference in any filing of the Company
under the 1933 Act or the 1934 Act whether made before or after the date
hereof and irrespective of any general incorporation language in any such
filing.
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CERTAIN TRANSACTIONS
In April 1996, certain officers of the Company sold shares of Common
Stock in the Company's initial public offering (the "IPO") in order to pay
certain obligations incurred in connection with such officers' acquisition of
equity securities of the Company. These officers used the proceeds of such sales
to make the following payments: $2,334,283 to Morgan Guaranty Trust Company of
New York, an affiliate of J.P. Morgan Securities, Inc. ("Morgan Guaranty"), in
payment of principal and interest owed pursuant to loans described further
below; $3,067,717 to the Company in payment of principal and interest owed
pursuant to loans made in connection with purchases of restricted stock, as
described below; and $3,450,452 in payment of taxes resulting from the sale of
stock by such officers in the IPO.
In connection with the exercise in October 1995 by Messrs. Jendersee,
Lashinski, Miller and French of certain options to purchase shares of Common
Stock, Morgan Guaranty made revolving loans to such officers of an aggregate
principal amount of $2,257,365. Such loans were guaranteed by Glamco Development
Limited, a wholly owned subsidiary of Guthrie. Putra Masagung, the sole
stockholder of Radstock Enterprises Limited, a principal stockholder of the
Company, is the chairman and a principal shareholder of Guthrie. Upon the
completion of the IPO, Morgan Guaranty received an aggregate of $2,334,283 in
full satisfaction of the principal and interest due under such notes from
Messrs. Jendersee, Lashinski, Miller and French.
On March 17, 1995, the Company issued a total of 3,438,314 shares of
Common Stock to Messrs. Jendersee, Lashinski, Miller, Bedsole, French and Schiek
and to Drs. Stertzer and Dorros, stockholders of and consultants to, the Company
for an aggregate consideration of $3,125,740. Except with respect to the shares
issued to Drs. Stertzer and Dorros, such shares are subject to a repurchase
option in favor of the Company in accordance with service vesting schedules
generally ranging from 48 to 64 months from the date of issuance. As of June 30,
1996, 2,101,000 shares were subject to repurchase. The holders of such shares
issued to the Company in consideration of such shares a promissory note bearing
an 8% interest rate and secured by a pledge of such shares. Upon the completion
of the IPO, the Company received an aggregate of approximately $3,067,717 in
full satisfaction of the principal and interest due under such notes from
Messrs. Jendersee, Lashinski, Miller, Bedsole, French and Schiek. The principal
amount of the notes from Drs. Stertzer and Dorros, together with interest
accrued thereon, are payable on December 31, 2000. Under the terms of the
employment agreements with Messrs. Jendersee, Lashinski, Miller, Bedsole, French
and Schiek, upon a change of control of the Company, all of such officers'
shares of Common Stock that are subject to a repurchase option of the Company
would be released from such repurchase options.
The Company has obtained directors' and officers' liability insurance
("D&O Insurance"). In addition, the Company has entered into an indemnification
agreement with each of its directors and executive officers under which the
Company has indemnified each of them against expenses and losses incurred for
claims brought against them by reason of being a director or executive officer
of the Company. Mr. Jendersee has also entered into an indemnification agreement
with Arterial Vascular Engineering Canada, Inc. ("AVEC"), a subsidiary of the
Company located in Richmond, British Columbia, under which AVEC has agreed to
indemnify Mr. Jendersee from and against any and all claims and liabilities by
reason of Mr. Jendersee being a director or officer of AVEC. In connection with
certain litigation relating to the Company's purchase from Endothelial Support
Systems, Inc. (subsequently known as Endovascular Support Systems, Inc.) of
technology which resulted in the Company's only issued patents, the Company has
agreed to indemnify Messrs. Jendersee, Miller, Stertzer and Gerald Dorros, a
principal stockholder of the Company, against expenses and losses relating to
such litigation.
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OTHER MATTERS
The Board of Directors knows of no other matters that will be presented
for consideration at the Annual Meeting. If any other matters are properly
brought before the meeting, it is the intention of the persons named in the
accompanying proxy to vote on such matters in accordance with their best
judgment.
By Order of the Board of Directors
/s/ John D. Miller
John D. Miller
Secretary
November 4, 1996
A copy of the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1996 is available without charge upon written request to:
Corporate Secretary, Arterial Vascular Engineering, Inc., 5535 Skylane
Boulevard, Santa Rosa, California 95403.
23
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APPENDIX A
ARTERIAL VASCULAR ENGINEERING, INC.
1996 EQUITY INCENTIVE PLAN
Adopted by the Board of Directors on January 26, 1996
Approved by the Stockholders February 28, 1996
Amended by the Board of Directors on September 20, 1996
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company, and its Affiliates,
may be given an opportunity to benefit from increases in value of the stock of
the Company through the granting of (i) Incentive Stock Options, (ii)
Nonstatutory Stock Options, (iii) stock bonuses, (iv) rights to purchase
restricted stock, and (v) stock appreciation rights, all as defined below.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of or Consultants to the Company or
its Affiliates, to secure and retain the services of new Employees, Directors
and Consultants, and to provide incentives for such persons to exert maximum
efforts for the success of the Company and its Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan
shall, in the discretion of the Board or any Committee to which responsibility
for administration of the Plan has been delegated pursuant to subsection 3(c),
be either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, or (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof, or (iii) Stock
Appreciation Rights granted pursuant to section 8 hereof. All Options shall be
separately designated Incentive Stock Options or Nonstatutory Stock Options at
the time of grant, and in such form as issued pursuant to Section 6, and a
separate certificate or certificates will be issued for shares purchased on
exercise of each type of Option.
2. DEFINITIONS.
(a) "Affiliate" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means a Committee appointed by the Board in
accorodance with subsection 3(c) of the Plan.
(e) "Company" means Arterial Vascular Engineering, a Delaware
corporation.
(f) "Concurrent Stock Appreciation Right" or "Concurrent Right" means a
right granted pursuant to subsection 8(b)(2) of the Plan.
(g) "Consultant" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
(h) "Continuous Status as an Employee, Director or Consultant" means
that the service of an individual to the Company, whether as an Employee,
Director or Consultant, is not interrupted or terminated. The Board or the chief
executive officer of the Company may determine, in that party's sole discretion,
in its sole discretion, may determine whether Continuous Status as an Employee,
Director or Consultant shall be considered interrupted in the case of: (i) any
leave of absence approved by the Board or the chief executive officer, including
sick leave, military leave, or any other personal leave; or (ii) transfers
between the Company, Affiliates or their successors.
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(i) "Covered Employee" means the chief executive officer and the four
(4) other highest compensated officers of the Company for whom total
compensation is required to be reported to stockholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code.
(j) "Director" means a member of the Board.
(k) "Employee" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" means, as of any date, the value of the
common stock of the Company determined as follows:
(i) If the common stock is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq Small Cap Market,
the Fair Market Value of a share of common stock shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted
on such exchange or market (or the exchange or market with the greatest volume
of trading in the Company's common stock) on the last market trading day prior
to the day of determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable.
(ii) In the absence of such markets for the common stock, the
Fair Market Value shall be determined in good faith by the Board.
(n) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "Independent Stock Appreciation Right" or "Independent Right" means
a right granted pursuant to subsection 8(b)(3) of the Plan.
(p) "Non-Employee Director" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S K promulgated pursuant to the Securities Act
("Regulation S-K")), does not possess an interest in any other transaction as to
which disclosure would be required under Item 404(a) of Regulation S-K, and is
not engaged in a business relationship as to which disclosure would be required
under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a
"non-employee director" for purposes of Rule 16b-3.
(q) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(r) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(s) "Option" means a stock option granted pursuant to the Plan.
(t) "Option Agreement" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(u) "Optionee" means an Employee, Director or Consultant who holds an
outstanding Option.
(v) "Outside Director" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
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(w) "Plan" means this Arterial Vascular Engineering 1996 Equity
Incentive Plan.
(x) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.
(y) "Securities Act" means the Securities Act of 1933, as amended.
(z) "Stock Appreciation Right" means any of the various types of rights
which may be granted under Section 8 of the Plan.
(aa) "Stock Award" means any right granted under the Plan, including
any Option, any stock bonus, any right to purchase restricted stock, and any
Stock Appreciation Right.
(bb) "Stock Award Agreement" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
(cc) "Tandem Stock Appreciation Right" or "Tandem Right" means a right
granted pursuant to subsection 8(b)(1) of the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the
Board delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons
eligible under the Plan shall be granted Stock Awards; when and how each Stock
Award shall be granted; whether a Stock Award will be an Incentive Stock Option,
a Nonstatutory Stock Option, a stock bonus, a right to purchase restricted
stock, a Stock Appreciation Right, or a combination of the foregoing; the
provisions of each Stock Award granted (which need not be identical), including
the time or times when a person shall be permitted to receive stock pursuant to
a Stock Award; whether a person shall be permitted to receive stock upon
exercise of an Independent Stock Appreciation Right; and the number of shares
with respect to which a Stock Award shall be granted to each such person.
(ii) To construe and interpret the Plan and Stock Awards
granted under it, and to establish, amend and revoke rules and regulations for
its administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in
Section 14.
(iv) Generally, to exercise such powers and to perform such
acts as the Board deems necessary or expedient which are not inconsistent with
the terms of the Plan to promote the best interests of the Company.
(c) The Board may delegate administration of the Plan to a committee of
the Board composed of not fewer than two (2) members (the "Committee"), all of
the members of which Committee may be, in the discretion of the Board,
Non-Employee Directors and/or Outside Directors. If administration is delegated
to a Committee, the Committee shall have, in connection with the administration
of the Plan, the powers theretofore possessed by the Board, including the power
to delegate to a subcommittee of two (2) or more Outside Directors any of the
administrative powers the Committee is authorized to exercise (and references in
this Plan to the Board shall thereafter be to the Committee or such a
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan. Notwithstanding anything in this Section 3 to the
contrary, the Board or the Committee may delegate to a committee of one or more
members of the Board the authority to grant Stock Awards to eligible persons who
(1) are not then subject to Section 16 of the Exchange Act and/or
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(2) are either (i) not then Covered Employees and are not expected to be Covered
Employees at the time of recognition of income resulting from such Stock Award,
or (ii) not persons with respect to whom the Company wishes to comply with
Section 162(m) of the Code.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 13 relating to adjustments
upon changes in stock, the stock that may be issued pursuant to Stock Awards
granted under the Plan shall not exceed in the aggregate One Million Five
Hundred Thousand (1,500,000) shares of the Company's common stock, as determined
immediately following any stock split or combination made in connection with the
first registration of any equity security of the Company under Section 12 of the
Exchange Act. If any Stock Award granted under the Plan or any stock option
granted pursuant to the Company's previous stock option program Plan shall for
any reason expire or otherwise terminate, in whole or in part, without having
been exercised in full, the stock not acquired under such Stock Award or stock
option pursuant to the Company's previous stock option program shall revert to
and again become available for issuance under the Plan. Shares subject to Stock
Appreciation Rights exercised in accordance with Section 8 of the Plan shall not
be available for subsequent issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options and Stock Appreciation Rights appurtenant
thereto may be granted only to Employees. Stock Awards other than Incentive
Stock Options and Stock Appreciation rights appurtenant thereto may be granted
only to Employees, Directors or Consultants.
(b) A Director shall in no event be eligible for the benefits of the
Plan unless at the time discretion is exercised in the selection of the Director
as a person to whom Stock Awards may be granted, or in the determination of the
number of shares which may be covered by Stock Awards granted to the Director:
(i) the Board has delegated its discretionary authority over the Plan to a
Committee which consists solely of Disinterested Persons; or (ii) the Plan
otherwise complies with the requirements of Rule 16b 3. The Board shall
otherwise comply with the requirements of Rule 16b 3. This subsection 5(b) shall
not apply (i) prior to the date of the first registration of an equity security
of the Company under Section 12 of the Exchange Act, or (ii) if the Board or
Committee expressly declares that it shall not apply.
(c) No person shall be eligible for the grant of an Incentive Stock
Option if, at the time of grant, such person owns (or is deemed to own pursuant
to Section 424(d) of the Code) stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or of any
of its Affiliates unless the exercise price of such Option is at least one
hundred ten percent (110%) of the Fair Market Value of such stock at the date of
grant and the Option is not exercisable after the expiration of five (5) years
from the date of grant. Prior to the date of the first registration of an equity
security of the Company under Section 12 of the Exchange Act, the provisions of
this subsection 5(c) shall also apply to the grant of a Nonstatutory Stock
Option made to a ten percent (10%) stockholder as described in the preceding
sentence.
(d) Subject to the provisions of Section 13 relating to adjustments
upon changes in stock, no person shall be eligible to be granted Options and
Stock Appreciation Rights covering more than Two Hundred Fifty Thousand
(250,000) shares of the Company's common stock in any calendar year.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) Term. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
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(b) Price. The exercise price of each Incentive Stock Option shall be
not less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted. The exercise price of
each Nonstatutory Stock Option shall be determined by the Board or the
Committee. Notwithstanding the foregoing, an Option (whether an Incentive Stock
Option or a Nonstatutory Stock Option) may be granted with an exercise price
lower than that set forth in the preceding sentence if such Option is granted
pursuant to an assumption or substitution for another option in a manner
satisfying the provisions of Section 424(a) of the Code.
(c) Consideration. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, at the time of the grant of the
Option, (A) by delivery to the Company of other common stock of the Company, (B)
according to a deferred payment arrangement, except that payment of the common
stock's "par value" as defined in the Delaware General Corporation Law) shall
not be made by deferred payment, or other arrangement (which may include,
without limiting the generality of the foregoing, the use of other common stock
of the Company) with the person to whom the Option is granted or to whom the
Option is transferred pursuant to subsection 6(d), or (C) in any other form of
legal consideration that may be acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be charged at the minimum rate of interest
necessary to avoid the treatment as interest, under any applicable provisions of
the Code, of any amounts other than amounts stated to be interest under the
deferred payment arrangement.
(d) Transferability. An Incentive Stock Option shall not be
transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the person to whom the Incentive
Stock Option is granted only by such person. A Nonstatutory Stock Option shall
only be transferable by the Optionee upon such terms and conditions as are set
forth in the Option Agreement for such Nonstatutory Stock Option, as the Board
or the Committee shall determine in its discretion. Notwithstanding the
foregoing, the person to whom the Option is granted may, by delivering written
notice to the Company, in a form satisfactory to the Company, designate a third
party who, in the event of the death of the Optionee, shall thereafter be
entitled to exercise the Option.
(e) Vesting. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option Agreement may provide that from time to time during
each of such installment periods, the Option may become exercisable ("vest")
with respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The vesting provisions of
individual options may vary. The provisions of this subsection 6(e) are subject
to any Option provisions governing the minimum number of shares as to which an
Option may be exercised.
(f) Termination of Employment or Relationship as a Director or
Consultant. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
disability), the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination) but only within
such period of time ending on the earlier of (i) the date three (3) months after
the termination of the Optionee's Continuous Status as an Employee, Director or
Consultant (or such longer or shorter period specified in the Option Agreement,
or (ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, at the date of termination, the Optionee is not entitled to
exercise his or her entire Option, the shares covered by the unexercisable
portion of the Option shall revert to and again become available for issuance
under the Plan. If, after termination, the Optionee does not exercise
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his or her Option within the time specified in the Option Agreement, the Option
shall terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
(g) Disability of Optionee. In the event an Optionee's Continuous
Status as an Employee, Director or Consultant terminates as a result of the
Optionee's disability, the Optionee may exercise his or her Option (to the
extent that the Optionee was entitled to exercise it at the date of
termination), but only within such period of time ending on the earlier of (i)
the date twelve (12) months following such termination (or such longer or
shorter period specified in the Option Agreement, or (ii) the expiration of the
term of the Option as set forth in the Option Agreement. If, at the date of
termination, the Optionee is not entitled to exercise his or her entire Option,
the shares covered by the unexercisable portion of the Option shall revert to
and again become available for issuance under the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified
herein, the Option shall terminate, and the shares covered by such Option shall
revert to and again become available for issuance under the Plan.
(h) Death of Optionee. In the event of the death of an Optionee during,
or within a period specified in the Option after the termination of, the
Optionee's Continuous Status as an Employee, Director or Consultant, the Option
may be exercised (to the extent the Optionee was entitled to exercise the Option
at the date of death) by the Optionee's estate, by a person who acquired the
right to exercise the Option by bequest or inheritance or by a person designated
to exercise the option upon the Optionee's death pursuant to subsection 6(d),
but only within the period ending on the earlier of (i) the date eighteen (18)
months following the date of death (or such longer or shorter period specified
in the Option Agreement, or (ii) the expiration of the term of such Option as
set forth in the Option Agreement. If, at the time of death, the Optionee was
not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after death, the Option is not exercised within
the time specified herein, the Option shall terminate, and the shares covered by
such Option shall revert to and again become available for issuance under the
Plan.
(i) Early Exercise. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased may be subject to a repurchase right in favor of the Company or to any
other restriction the Board determines to be appropriate.
(j) Re-Load Options. Without in any way limiting the authority of the
Board or Committee to make or not to make grants of Options hereunder, the Board
or Committee shall have the authority (but not an obligation) to include as part
of any Option Agreement a provision entitling the Optionee to a further Option
(a "Re-Load Option") in the event the Optionee exercises the Option evidenced by
the Option agreement, in whole or in part, by surrendering other shares of
Common Stock in accordance with this Plan and the terms and conditions of the
Option Agreement. Any such Re-Load Option (i) shall be for a number of shares
equal to the number of shares surrendered as part or all of the exercise price
of such Option; (ii) shall have an expiration date which is the same as the
expiration date of the Option the exercise of which gave rise to such Re-Load
Option; and (iii) shall have an exercise price which is equal to one hundred
percent (100%) of the Fair Market Value of the Common Stock subject to the
Re-Load Option on the date of exercise of the original Option. Notwithstanding
the foregoing, a Re-Load Option which is an Incentive Stock Option and which is
granted to a 10% stockholder (as described in subsection 5(c)), shall have an
exercise price which is equal to one hundred ten percent (110%) of the Fair
Market Value of the stock subject to the Re-Load Option on the date of exercise
of the original Option and shall have a term which is no longer than five (5)
years.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board or Committee may designate at the time
of the grant of the original Option; provided, however, that the designation of
any Re-Load Option as an Incentive Stock Option shall be subject
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to the one hundred thousand dollar ($100,000) annual limitation on
exercisability of Incentive Stock Options described in subsection 12(d) of the
Plan and in Section 422(d) of the Code. There shall be no Re-Load Options on a
Re-Load Option. Any such Re-Load Option shall be subject to the availability of
sufficient shares under subsection 4(a) and the limits on the grants of Options
under subsection 5(c) and shall be subject to such other terms and conditions as
the Board or Committee may determine which are not inconsistent with the express
provisions of the Plan regarding the terms of Options.
7. TERMS OF STOCK
Each stock bonus or restricted stock purchase agreement shall be in
such form and shall contain such terms and conditions as the Board or the
Committee shall deem appropriate. The terms and conditions of stock bonus or
restricted stock purchase agreements may change from time to time, and the terms
and conditions of separate agreements need not be identical, but each stock
bonus or restricted stock purchase agreement shall include (through
incorporation of provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions as appropriate:
(a) Purchase Price. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such agreement. In any event, the Board or the
Committee may determine that eligible participants in the Plan may be awarded
stock pursuant to a stock bonus agreement in consideration for past services
actually rendered to the Company or for its benefit.
(b) Transferability. No rights under a stock bonus or restricted stock
purchase agreement shall be transferable except by will or the laws of descent
and distribution or otherwise only upon such terms and conditions as are set
forth in the applicable Stock Award Agreement, as the Board or the Committee
shall determine in its discretion, so long as stock awarded under such agreement
remains subject to the terms of the agreement.
(c) Consideration. The purchase price of stock acquired pursuant to a
stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or the Committee, according to a
deferred payment arrangement, except that payment of the common stock's "par
value" (as defined in the Delaware General Corporation Law) shall not be made by
deferred payment), or other arrangement with the person to whom the stock is
sold; or (iii) in any other form of legal consideration that may be acceptable
to the Board or the Committee in their discretion. Notwithstanding the
foregoing, the Board or the Committee to which administration of the Plan has
been delegated may award stock pursuant to a stock bonus agreement in
consideration for past services actually rendered to the Company or for its
benefit.
(d) Vesting. Shares of stock sold or awarded under the Plan may, but
need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board or the
Committee.
(e) Termination of Employment or Relationship as a Director or
Consultant. In the event a Participant's Continuous Status as an Employee,
Director or Consultant terminates, the Company may repurchase or otherwise
reacquire, subject to the limitations described in subsection 7(d), any or all
of the shares of stock held by that person which have not vested as of the date
of termination under the terms of the stock bonus or restricted stock purchase
agreement between the Company and such person.
8. STOCK APPRECIATION RIGHTS.
(a) The Board or Committee shall have full power and authority,
exercisable in its sole discretion, to grant Stock Appreciation Rights under the
Plan to Employees or Directors of or Consultants to the Company or its
Affiliates. To exercise any outstanding Stock Appreciation Right, the holder
must provide written notice of exercise to the Company in compliance with the
terms of the Stock Award Agreement evidencing such right. Except as provided in
subsection 5(c), no limitation shall exist on the aggregate amount of cash
payments the Company may make under the Plan in connection with the exercise of
a Stock Appreciation Right.
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(b) Three types of Stock Appreciation Rights shall be authorized for
issuance under the Plan:
(i) Tandem Stock Appreciation Rights. Tandem Stock
Appreciation Rights will be granted appurtenant to an Option, and shall, except
as specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains.
Tandem Stock Appreciation Rights will require the holder to elect between the
exercise of the underlying Option for shares of stock and the surrender, in
whole or in part, of such Option for an appreciation distribution. The
appreciation distribution payable on the exercised Tandem Right shall be in cash
(or, if so provided, in an equivalent number of shares of stock based on the
Fair Market Value (on the date of the Option surrender) in an amount up to the
excess of (A) the Fair Market Value (on the date of the Option surrender) of the
amount of shares of stock covered by that portion of the surrendered Option in
which the Optionee is vested over (B) the aggregate exercise price payable for
such vested shares.
(ii) Concurrent Stock Appreciation Rights. Concurrent Rights
will be granted appurtenant to an Option and may apply to all or any portion of
the shares of stock subject to the underlying Option and shall, except as
specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which the Concurrent
Right pertains. A Concurrent Right shall be exercised automatically at the same
time the underlying Option is exercised with respect to the particular shares of
stock to which the Concurrent Right pertains. The appreciation distribution
payable on an exercised Concurrent Right shall be in cash (or, if so provided,
in an equivalent number of shares of stock based on the Fair Market Value on the
date of exercise of the Concurrent Right) in an amount equal to such portion as
shall be determined by the Board or the Committee at the time of the grant of
the excess of (A) the aggregate Fair Market Value (on the date of the exercise
of the Concurrent Right) of the vested shares of stock purchased under the
underlying Option which have Concurrent Rights appurtenant to them over (B) the
aggregate exercise price paid for such shares.
(iii) Independent Stock Appreciation Rights. Independent
Rights will be granted independently of any Option and shall, except as
specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to Nonstatutory Stock Options as set forth in Section 6.
They shall be denominated in share equivalents. The appreciation distribution
payable on the exercised Independent Right shall be not greater than an amount
equal to the excess of (A) the aggregate Fair Market Value (on the date of the
exercise of the Independent Right) of a number of shares of Company stock equal
to the number of share equivalents in which the holder is vested under such
Independent Right, and with respect to which the holder is exercising the
Independent Right on such date, over (B) the aggregate Fair Market Value (on the
date of the grant of the Independent Right) of such number of shares of Company
stock. The appreciation distribution payable on the exercised Independent Right
shall be in cash or, if so provided, in an equivalent number of shares of stock
based on the Fair Market Value on the date of the exercise of the Independent
Right.
9. CANCELLATION AND RE-GRANT OF OPTIONS.
(a) The Board or the Committee shall have the authority to effect, at
any time and from time to time, (i) the repricing of any outstanding Options
and/or Stock Appreciation Rights under the Plan and/or (ii) with the consent of
the affected holders of Options and/or Stock Appreciation Rights, the
cancellation of any outstanding Options and/or Stock Appreciation Rights under
the Plan and the grant in substitution therefor of new Options and/or Stock
Appreciation Rights under the Plan covering the same or different numbers of
shares of stock, but having an exercise price per share not less than one
hundred percent (100%) of the Fair Market Value in the case of an Incentive
Stock Option or, in the case of a 10% stockholder (as described in subsection
5(c)) receiving a new grant of an Incentive Stock Option, not less than one
hundred ten percent (110%) of the Fair Market Value) per share of stock on the
new grant date. Notwithstanding the foregoing, the Board or the Committee may
grant an Option and/or Stock Appreciation Right with an exercise price lower
than that set forth above if such Option and/or Stock Appreciation Right is
granted as part of a transaction to which section 424(a) of the Code applies.
(b) Shares subject to an Option or Stock Appreciation Right canceled
under this Section 9 shall continue to be counted against the maximum award of
Options or Stock Appreciation Rights permitted
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to be granted pursuant to section 5 of the Plan, if any. The repricing of an
Option or Stock Appreciation Right under this Section 9, resulting in a
reduction of the exercise price, shall be deemed to be a cancellation of the
original Option or Stock Appreciation Right and the grant of a substitute Option
and/or Stock Appreciation Right; in the event of such repricing, both the
original and the substituted Options shall be counted against the maximum awards
of Options and Stock Appreciation Rights permitted to be granted pursuant to
subsection 5(c) of the Plan, if any. The provisions of this subsection 9(b)
shall be applicable only to the extent required by Section 162(m) of the Code.
10. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Stock Awards.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the Stock Award; provided,
however, that this undertaking shall not require the Company to register under
the Securities Act, either the Plan, any Stock Award or any stock issued or
issuable pursuant to any such Stock Award. If, after reasonable efforts, the
Company is unable to obtain from any such regulatory commission or agency the
authority which counsel for the Company deems necessary for the lawful issuance
and sale of stock under the Plan, the Company shall be relieved from any
liability for failure to issue and sell stock upon exercise of such Stock Awards
unless and until such authority is obtained.
11. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.
12. MISCELLANEOUS.
(a) The Board shall have the power to accelerate the time at which a
Stock Award may first be exercised or the time during which a Stock Award or any
part thereof will vest pursuant to subsection 6(e), 7(d) or 8(b),
notwithstanding the provisions in the Stock Award stating the time at which it
may first be exercised or the time during which it will vest.
(b) Neither an Employee, Director or Consultant, nor any person to whom
a Stock Award is transferred under subsection 6(d), 7(b) or 8(b), shall be
deemed to be the holder of, or to have any of the rights of a holder with
respect to, any shares subject to such Stock Award unless and until such person
has satisfied all requirements for exercise of the Stock Award pursuant to its
terms.
(c) Nothing in the Plan, or any instrument executed or Stock Award
granted pursuant thereto, shall confer upon any Employee, Director or Consultant
or other holder of Stock Awards any right to continue in the employ of the
Company or any Affiliate (or to continue acting as a Director of or Consultant)
or shall affect the right of the Company or any Affiliate to terminate the
employment of any Employee with or without cause, the right of the Company's
Board and or the Company's stockholders to remove any Director pursuant to the
terms of the Company's By-Laws and the provisions of the Delaware General
Corporation Law, or the right to terminate the relationship of any Consultant
pursuant to the terms of such Consultant's agreement with the Company or
Affiliate.
(d) To the extent that the aggregate Fair Market Value (determined at
the time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.
(e) The Company may require any person to whom a Stock Award is
granted, or any person to whom a Stock Award is transferred pursuant to
subsection 6(d), 7(b) or 8(b), as a condition of exercising or acquiring stock
under any Stock Award, (1) to give written assurances satisfactory to the
Company as to such person's knowledge and experience in financial and business
matters and/or to employ a purchaser representative reasonably satisfactory to
the Company who is knowledgeable and experienced in financial
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and business matters, and that he or she is capable of evaluating, alone or
together with the purchaser representative, the merits and risks of exercising
the Stock Award; and (2) to give written assurances satisfactory to the Company
stating that such person is acquiring the stock subject to the Stock Award for
such person's own account and not with any present intention of selling or
otherwise distributing the stock. The foregoing requirements, and any assurances
given pursuant to such requirements, shall be inoperative if (i) the issuance of
the shares upon the exercise or acquisition of stock under the Stock Award has
been registered under a then currently effective registration statement under
the Securities Act, or (ii) as to any particular requirement, a determination is
made by counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws. The Company may, upon
advice of counsel to the Company, place legends on stock certificates issued
under the Plan as such counsel deems necessary or appropriate in order to comply
with applicable securities laws, including, but not limited to, legends
restricting the transfer of the stock.
(f) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means or by a combination of such
means: (1) tendering a cash payment; (2) authorizing the Company to withhold
shares from the shares of the common stock otherwise issuable to the participant
as a result of the exercise or acquisition of stock under the Stock Award; or
(3) delivering to the Company owned and unencumbered shares of the common stock
of the Company.
13. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any Stock Award (through merger, consolidation, reorganization,
recapitalization, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately adjusted in the
type(s) and maximum number of securities subject to the Plan pursuant to
subsection 4(a) and any maximum number of securities subject to award to any
person during any calendar-year period pursuant to section 5, and the
outstanding Stock Awards will be appropriately adjusted in the type(s) and
number of securities and price per share of stock subject to such outstanding
Stock Awards. Such adjustments shall be made by the Board or the Committee, the
determination of which shall be final, binding and conclusive. (The conversion
of any convertible securities of the Company shall not be treated as a
"transaction not involving the receipt of consideration by the Company".)
(b) In the event of: (1) a dissolution, liquidation or sale of all or
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation; or (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Company's
common stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise, then, to the extent permitted by applicable law, (i) any
surviving or acquiring corporation shall assume any such Stock Awards
outstanding under the Plan or shall substitute similar Stock Awards (including a
right to acquire the same consideration paid to the stockholders in the
transaction described in this subsection 13(b) for those outstanding under the
Plan, or (ii) such Stock Awards shall continue in full force and effect. In the
event any surviving or acquiring corporation refuses to assume or continue such
Stock Awards, or to substitute similar options for such Stock Awards outstanding
under the Plan, then, with respect to Stock Awards held by persons then
performing services as Employees, Directors or Consultants, the time during
which such Stock Awards may be exercised shall be accelerated and the Stock
Awards terminated if not exercised after such acceleration and at or prior to
such event.
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14. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 13 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(i) Increase the number of shares reserved for Stock Awards
under the Plan;
(ii) Modify the requirements as to eligibility for
participation in the Plan (to the extent such modification requires stockholder
approval in order for the Plan to satisfy the requirements of Section 422 of the
Code); or
(iii) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to satisfy the requirements
of Section 422 of the Code or to comply with the requirements of Rule 16b 3.
(b) The Board may in its sole discretion submit any other amendment to
the Plan for stockholder approval, including, but not limited to, amendments to
the Plan intended to satisfy the requirements of Section 162(m) of the Code and
the regulations promulgated thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide eligible
Employees, Directors or Consultants with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring the Plan and/or
Incentive Stock Options granted under it into compliance therewith.
(d) Rights and obligations under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Stock Award was
granted and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms
of any one or more Stock Award; provided, however, that the rights and
obligations under any Stock Award shall not be impaired by any such amendment
unless (i) the Company requests the consent of the person to whom the Stock
Award was granted and (ii) such person consents in writing
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on January 26, 2006, which shall be
within ten (10) years from the date the Plan is adopted by the Board or approved
by the stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the Plan
is in effect shall not be impaired by suspension or termination of the Plan,
except with the consent of the person to whom the Stock Award was granted.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no
Stock Awards granted under the Plan shall be exercised unless and until the Plan
has been approved by the stockholders of the Company, which approval shall be
within twelve (12) months before or after the date the Plan is adopted by the
Board, and, if required, an appropriate permit has been issued by the
Commissioner of Corporations of the State of California.
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APPENDIX B
PROXY ARTERIAL VASCULAR ENGINEERING, INC. PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned security holder of Arterial Vascular Engineering, Inc., a
Delaware corporation, hereby appoints Bradly A. Jendersee and John D. Miller,
and each of them, with full power of substitution, to represent and to vote on
behalf of the undersigned all securities which the undersigned is entitled to
cast at the Annual Meeting of Stockholders scheduled to be held on Wednesday,
December 4, 1996 at 10:00 a.m., local time, at the Luther Burbank Center for the
Arts, East Auditorium, 50 Mark West Springs Road, Santa Rosa, California 95403,
and at any adjournment or adjournments thereof, hereby revoking all proxies
heretofore given with respect to such securities upon the matters described in
the Notice of Annual Meeting of Stockholders and related Proxy Statement for the
Annual Meeting (receipt of which is hereby acknowledged), and upon any other
business that may properly come before such Annual Meeting.
THE SECURITIES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED ON THE
REVERSE SIDE, BUT IF NO SPECIFICATION IS MADE, THE PROXIES NAMED ABOVE INTEND TO
VOTE THE SECURITIES AT THEIR DISCRETION FOR THE ELECTION OF THE NOMINEES LISTED
IN PROPOSAL 1, FOR THE RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP AS
INDEPENDENT AUDITORS, FOR THE PROPOSAL TO AMEND THE ARTERIAL VASCULAR
ENGINEERING, INC. 1996 EQUITY INCENTIVE PLAN AND OTHERWISE AT THE DISCRETION OF
THE PROXIES.
(CONTINUED, AND TO BE SIGNED ON THE OTHER SIDE)
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES LISTED
BELOW AS DIRECTORS, FOR THE RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP
AS INDEPENDENT AUDITORS, FOR THE PROPOSAL TO AMEND THE ARTERIAL VASCULAR
ENGINEERING, INC. 1996 EQUITY INCENTIVE PLAN AND OTHERWISE AT THE DISCRETION OF
THE PROXIES.
1. To elect five Directors
Nominees:
FOR WITHHELD
THE NOMINEES FROM THE NOMINEES
[ ] [ ]
BRADLY A. JENDERSEE, ROBERT D. LASHINSKI, JOHN D. MILLER,
DR. SIMON STERTZER, DR. J. IRAWAN SUGENG
[ ] FOR ALL NOMINEES EXCEPT
AS NOTED ABOVE
FOR AGAINST ABSTAIN
2. To ratify the appointment of Ernst & Young [ ] [ ] [ ]
LLP as independent auditors.
3. To amend the Arterial Vascular Engineering, [ ] [ ] [ ]
Inc. 1996 Equity Incentive Plan.
4. In their discretion upon such other matters [ ]
as properly come before the meeting.
MARK HERE IF YOU PLAN TO ATTEND [ ]
THE MEETING
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW.
______________________________________________
IF YOU RECEIVE MORE THAN ONE PROXY CARD, PLEASE DATE, SIGN AND RETURN ALL CARDS
IN THE ACCOMPANYING ENVELOPE.
Please sign exactly as name appears hereon. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in parntership name by authorized person.
(Only one signature is required in the case of securities registered in the name
of two or more persons.)
Signature(s)_________________________________________ Date ___________________
Signature(s)_________________________________________ Date ___________________
