SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SECTION 14(A) 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
/x/ Definitive proxy statement
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):
/x/ No fee required.
/ / $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 transaction applies:
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(2) Aggregate number of securities to which transaction
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Arterial Vascular Engineering, Inc. common stock, par value $0.01 per share
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11(1)
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
- ----------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
- ----------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- ----------------------------------------------------------------------------
(3) Filing party:
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(4) Date filed:
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- ----------
(1) Set forth the amount on which the filing fee is calculated and state how it
was determined.
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ARTERIAL VASCULAR ENGINEERING, INC.
3576 Unocal Place
Santa Rosa, California 95403
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On October 29, 1997
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, October 29, 1997 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 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 1,000,000 shares for an aggregate total of 2,500,000 shares.
3. To approve the Company's 1997 Employee Stock Purchase Plan.
4. To ratify the selection of Ernst & Young LLP as independent auditors
of the Company for its fiscal year ending June 30, 1998.
5. 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 September 15,
1997 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/ Lawrence J. Fassler
Lawrence J. Fassler
Secretary
Santa Rosa, California
September 26, 1997
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 LOTHER NOMINEE AND YOU WISH TO VOTE AT THE
MEETING, YOU MUST OBTAIN FROM THE RECORD HOLDER A PROXY ISSUED IN YOUR
NAME.
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ARTERIAL VASCULAR ENGINEERING, INC.
3576 Unocal Place
Santa Rosa, California 95403
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PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
October 29, 1997
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, October 29,
1997, 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 September 26, 1997 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. The Company
has retained Corporate Investor Communications, Inc. ("CIC") to assist the
Company in the distribution and solicitation of proxies. For its services, the
Company has agreed to pay CIC a fee of $5,575 and to reimburse it for its
reasonable out-of-pocket expenses. Copies of solicitation materials will be
furnished to banks, brokerage houses, fiduciaries and custodians holding in
their names shares of the Company's common stock, par value $.001 per share
("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 and by CIC. No additional compensation will be
paid to directors, officers or other regular employees of the Company for such
services.
Voting Rights And Outstanding Shares
Only holders of record of Common Stock at the close of business on
September 15, 1997, will be entitled to notice of and to vote at the Annual
Meeting. At the close of business on September 15, 1997, the Company had
outstanding and entitled to vote 31,140,276 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, 3576
Unocal Place, 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 1998 Annual Meeting of Stockholders must be received by the Company
not later than May 26, 1998 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 five Board of Directors positions. Although
the number of Board positions currently authorized by the Board pursuant to the
Company's Amended and Restated Certificate of Incorporation and Bylaws is seven,
the Board expects to reduce the number of authorized positions to five
immediately following the Annual Meeting. Therefore, proxies solicited by
management cannot be voted for a greater number of persons than the number of
nominees named. 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: Bradly A.
Jendersee, John D. Miller and Dr. Simon H. Stertzer were elected by the
stockholders, and Scott J. Solano and Craig E. Dauchy were 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
The names of the nominees and certain information about them are set
forth below:
Principal Occupation/
Name Age Position Held with the Company
---- --- ------------------------------
Bradly A. Jendersee.........36 Chairman of the Board of Directors
Scott J. Solano.............40 Chief Executive Officer, President and Director
John D. Miller..............40 Vice President of Finance, Chief Financial
Officer, Treasurer and Director
Dr. Simon H. Stertzer(1)(2).60 Director
Craig E. Dauchy (1)(3)......48 Director
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
(3) Expected to be elected to Compensation Committee following Annual Meeting.
Bradly A. Jendersee is a founder of the Company and has served as
Chairman of the Board of Directors since August 1993, as Chief Executive Officer
and President from August 1993 to August 1997, 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
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Principal Research and Development Engineer at Schneider (USA) Inc., a medical
device manufacturer and subsidiary of Pfizer Inc. ("Schneider"), and as the
Research and Development Engineering Manager of Angioplasty Products with
Mallinckrodt Medical, Inc., Cardiology division, a medical device manufacturer,
and with Advanced Cardiovascular Systems, Inc., a subsidiary of Eli Lilly and
Company. Mr. Jendersee holds a B.S. degree from the University of Minnesota.
Scott J. Solano has served as President, Chief Executive Officer and a
Director of the Company since August 1997, after serving as the Company's Chief
Operating Officer since February 1997. Prior to joining the Company, Mr. Solano
served as the Vice President of New Product Development and Operations for the
Ohmeda medical device division of The BOC Group from February 1995 to February
1997. Mr. Solano also served as Vice President of New Product Development and
Operations at the interventional vascular division of Medtronic, Inc., a medical
device manufacturer, from September 1994 to February 1995, and as Director of
New Product Development there from March 1991 to September 1994. Mr. Solano
holds a B.S. degree from the State University of New York, Albany and a M.S.
degree from Rensselaer Polytechnic Institute.
John D. Miller, C.P.A. is a founder of the Company and has served as
Vice President of Finance since January 1996, Secretary from May 1995 to
December 1996 and Chief Financial Officer, Treasurer and a Director since the
Company's inception. Prior to his position as Vice President of Finance, Mr.
Miller served as Director of Finance from the Company's inception 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. Mr. Miller was a partner in a New York accounting firm until 1990, when
he went into private practice. Mr. Miller holds a B.B.A. from Hofstra
University.
Dr. Simon H. 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.
Craig E. Dauchy is a partner with the law firm of Cooley Godward LLP
and is a member of that firm's Management Committee. In addition to his work at
Cooley Godward, Mr. Dauchy has since 1986 served on the Board of Directors of
the TechLaw Group, a nationwide network of eight major law firms dedicated to
the advancement of technology law and the encouragement of technology-related
business. Mr. Dauchy is also a co-author of the recently released book, "The
Entrepreneur's Guide to Business Law." Mr. Dauchy holds a joint J.D./M.B.A.
degree from Stanford University and a B.A. from Yale University.
Board Committees And Meetings
During the fiscal year ended June 30, 1997, the Board of Directors held
five meetings in addition to actions taken by unanimous written consent in
accordance with the Company's Bylaws and Delaware law. 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 was composed of two non-employee directors, Dr. J. Irawan Sugeng
and Dr. Stertzer, until August 1997, when another non-employee director, Mr.
Dauchy, was elected to the Audit Committee. Dr. Sugeng is not standing for
reelection at the Annual Meeting. The Audit Committee met three times during the
fiscal year ended June 30, 1997.
The Compensation Committee makes recommendations concerning
compensation levels for officers and members of the Board and has, in the past,
administered the 1996 Equity Incentive Plan. In order to remain in compliance
with rules promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), governing the administration of certain equity incentive
plans with respect
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to certain executive officers, it is expected that following the Annual Meeting
the Board of Directors in its entirety will administer the 1996 Equity Incentive
Plan (further discussed below) with respect to certain executive officers until
such time as the Board again includes two "disinterested" directors as defined
by the rules promulgated under the Exchange Act. The Compensation Committee also
performs such other functions regarding compensation as the Board may delegate.
Since January 1996, the Compensation Committee has been composed of two
non-employee directors: Dr. Sugeng and Dr. Stertzer. The Compensation Committee
met three times during the fiscal year ended June 30, 1997, in addition to
actions taken by unanimous written consent in accordance with the Company's
Bylaws and Delaware law.
During the fiscal year ended June 30, 1997, each director 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.
PROPOSAL 2
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 Common Stock
were reserved for issuance. In September 1996, the Board adopted, and in
December 1996 the Company's stockholder subsequently approved, an amended and
restated version of the Incentive Plan to increase the aggregate number of
shares authorized for issuance under the Incentive Plan from 800,000 to
1,500,000 shares and to update it generally for tax and securities law
provisions.
In August 1997, 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 1,500,000
shares to 2,500,000 shares. The Board adopted this amendment to ensure, in view
of the substantial recent growth in the Company's personnel, 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.
As of September 15, 1997, options (net of cancelled or expired options)
to purchase an aggregate of 1,240,608 shares of Common Stock at exercise prices
ranging from $13.00 to $41.8125 per share were outstanding under the Incentive
Plan and 222,762 shares (plus any shares that might in the future be returned to
the Incentive Plan as a result of cancellations or expirations of options)
remained available for future grant under the Incentive Plan, excluding the
increase of 1,000,000 shares for which stockholder approval is being sought.
During the last fiscal year, under the Incentive Plan, the Company granted to
all executive officers who were with the Company as at June 30, 1997, as a
group, options to purchase 147,500 shares of Common Stock at exercise prices of
$13.00 to $14.00 per share, and to all employees (excluding executive officers)
as a group options to purchase 742,222 shares of Common Stock at exercise prices
of $13.00 to $24.875 per share. An additional executive officer who joined the
Company in August 1997 was granted an option to purchase 35,000 shares of Common
Stock at an exercise price of $36.50 per share. No options to purchase shares
were granted under the Incentive Plan to any members of the Board of Directors
who were not employees of the Company. As a matter of policy, options granted
under the Incentive Plan are generally granted at exercise prices equal to the
market value of the Common Stock on the date of grant.
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 2.
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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 869 employees (as of August 31,
1997) are currently eligible to participate in the Incentive Plan.
Administration
The Incentive Plan is administered by the Board of Directors of the
Company, unless the Board delegates administration to a committee thereof. 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 and the
Board has, in the past, delegated administration of the Incentive Plan in all
circumstances to the Compensation Committee of the Board. However, in order to
remain in compliance with rules promulgated under the Exchange Act governing the
administration of certain equity incentive plans with respect to certain
executive officers, it is expected that following the Annual Meeting the Board
of Directors in its entirety will administer the Incentive Plan with respect to
certain executive officers until such time as the Board again includes two
"disinterested" directors as defined by the rules promulgated under the Exchange
Act. 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.
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.
No person may be granted options and stock appreciation rights under
the Incentive Plan covering more than 250,000 shares of Common Stock during any
calendar year.
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Stock Subject to the Incentive Plan
Currently, 2,500,000 shares of Common Stock are reserved for issuance
under the Incentive Plan. However, if this Proposal 2 is not approved by the
stockholders, then only 1,500,000 shares of Common Stock will be reserved for
issuance under 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 stock options under the Incentive Plan
is determined by the Board. However, if an option is granted with an exercise
price below fair market value, a deduction for compensation attributable to the
exercise of such option could be limited by Section 162(m) of the Code. See
"Federal Income Tax Information." At September 15, 1997, the closing price of
the Company's Common Stock as reported on the Nasdaq National Market tier of The
Nasdaq Stock Market was $41.8125 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 either 12.5% every six months following the date of the grant or
25% every year following the date of grant, so that in either case 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 prior to 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 shares of Common 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,
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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 by specified securities laws.
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 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
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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 the Incentive 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 the Incentive 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. Unless sooner terminated, the
Incentive Plan will terminate on January 26, 2006.
The Board may also amend the Incentive Plan at any 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
requires stockholder approval in order to comply with Rule 16b-3 under the
Exchange Act or to satisfy the requirements of Section 422 of the Code or any
requirements of the Nasdaq National Market tier of The Nasdaq Stock Market or
any other applicable securities exchange. 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.
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 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
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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. Slightly different
rules may apply to optionees who acquire stock subject to certain repurchase
options or who are subject to Section 16 of the Exchange Act.
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 tax 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. Slightly different rules may
apply to optionees who acquire stock subject to certain repurchase options or
who are subject to Section 16 of the Exchange Act.
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. Slightly different rules may apply to persons who acquire stock subject
to certain repurchase options or who are subject to Section 16 of the Exchange
Act.
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 tax 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. In 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
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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.
PROPOSAL 3
APPROVAL OF 1997 EMPLOYEE STOCK PURCHASE PLAN
In July 1997, the Board of Directors adopted, subject to stockholder
approval, the 1997 Employee Stock Purchase Plan (the "Purchase Plan"). The
Purchase Plan authorizes the grant to employees of the Company and designated
subsidiaries of rights to purchase up to 1,500,000 shares of Common Stock and is
intended to qualify as an "employee stock purchase plan" under Section 423 of
the Code. To date, no shares have been issued under the Purchase Plan.
The Company believes that it competes in a very competitive labor
market for available talent. The Purchase Plan is intended to afford the Company
flexibility in providing its employees with equity incentives, and the Company
intends to use it as a fundamental tool in recruiting and retaining employees.
Consequently, the Board of Directors determined the adoption of the Purchase
Plan to 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 approve the Purchase Plan, as amended.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR
OF THE ADOPTION OF PROPOSAL 3.
The essential features of the Purchase Plan are summarized below.
Purpose. The purpose of the Purchase Plan is to provide employees with
an opportunity to purchase Common Stock through accumulated payroll deductions.
By means of the Purchase Plan, the Company seeks to retain the services of its
(and its designated subsidiaries') employees, to secure and retain the services
of new employees, and to provide incentives for such persons to exert maximum
efforts for the success of the Company by providing eligible employees with an
opportunity to participate in the Company's future growth.
Administration. The Purchase Plan is administered by the Board of
Directors of the Company or by a committee of two or more directors (the Board
or such committee being referred to as the "Plan Administrator"). The Plan
Administrator has the power, subject to the provisions of the Purchase Plan, to
determine when and how rights to purchase Common Stock will be granted, the
provisions of each offering
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of such rights (which need not be identical), and whether any subsidiary of the
Company will be eligible to participate in the Purchase Plan.
Available Shares. A total of 1,500,000 shares of Common Stock have been
reserved for issuance under the Purchase Plan, subject to adjustment in the
event of stock splits, stock dividends and other similar changes in the Common
Stock or the capital structure of the Company.
Eligibility. All employees of the Company, and of any subsidiary of the
Company designated by the Plan Administrator, are eligible to participate in the
Purchase Plan, except that the Plan Administrator may, in its discretion,
exclude any one or more of the following classes of employees: (a) employees
whose customary employment is 20 hours or less per week and (b) employees whose
customary employment is less than five months per calendar year. Additionally,
no employee will be granted rights that would permit him to buy more than
$25,000 of the fair market value of the Common Stock (determined at the time
such rights are granted). Non-employee directors and persons who own, or have
options to acquire, 5% or more of the outstanding shares of Common Stock are not
eligible to participate in the Purchase Plan. All executive officers of the
Company may participate in the Purchase Plan except for those persons currently
holding more than 5% of the outstanding shares of Common Stock. Messrs.
Jendersee and Miller, as well as Robert D. Lashinski, Vice President of Research
and Development, and John D. Miller each are executive officers of the Company
and currently hold more than 5% of the outstanding shares of Common Stock, and
so are currently ineligible for participation in the Purchase Plan.
Purchase Periods. Under the Purchase Plan, offerings will be made in
periods (each, a "Offering Period") with lengths determined by the Plan
Administrator, provided that no Offering Period may be longer than 27 months.
Offering Periods will commence on the dates determined by the Plan
Administrator. The Plan Administrator has the discretion to implement
overlapping Offering Periods and to permit employees to participate
simultaneously in more than one overlapping Offering Period. Upon establishing
each Offering Period, the Plan Administrator will also establish (a) one or more
dates during such Offering Period (one of which must be on the last day thereof)
on which amounts in the accounts of participating employees will be applied to
purchase shares of Common Stock (each such date a "Purchase Date"), (b) the
discount from the fair market value of the Common Stock at which purchases will
be made during such Offering Period (the "Applicable Discount"), (c) the
components of participating employees' total compensation which may be
contributed to participants' Purchase Plan accounts during such Offering Period
(as so determined, the "Compensation"), and (d) a maximum number of shares, if
any, that may be purchased by any participating employee on any Purchase Date
(the "Per-Participant Limit"). Upon establishing each Offering Period, the Plan
Administrator may, in its discretion, fix a maximum number of shares that may be
purchased by all participating employees in the aggregate during any given
Offering Period and/or on any given Exercise Date. Once fixed, the Purchase Date
or Dates, the Applicable Discount, the Compensation, the Per-Participant Limit
and any aggregate share purchase limits with respect to a given Offering Period
may not be changed, except upon the occurrence of a certain corporate
transactions. See "Effect of Certain Corporate Events."
Participation in the Purchase Plan. Eligible employees become
participants in the Purchase Plan by delivering to the Company, prior to the
date selected by the Plan Administrator as the offering date for the offering,
an agreement authorizing payroll deductions of up to 20% of such employee's
Compensation during the Offering Period.
Payment of Purchase Price; Payroll Deductions. The purchase price of
the shares is accumulated by payroll deductions over the Offering Period. At any
one time during the Offering Period, a participant may reduce, increase (up to
the 20% total authorized deduction) or terminate his payroll deductions. All
payroll deductions made for a participant are credited to his account under the
Purchase Plan and deposited with the general funds of the Company. Amounts
credited to employees' accounts will not bear interest, and employees may not
make direct cash payments to their accounts. All payroll deductions received or
held by the Company under the Purchase Plan may be used by the Company for any
corporate purpose, and the Company is not obligated to segregate such payroll
deductions.
Purchase of Stock. On the first day of each Offering Period, each
participating employee shall be granted the right to purchase shares of Common
Stock from his/her payroll deductions. On each Purchase Date, the purchase
rights will be exercised automatically through the application of amounts in
each participant's account to purchase shares of Common Stock at a price per
share determined by applying the Applicable Discount to the lower of (a) the
fair market value of the Common Stock on the first day of the applicable
Offering Period or (b) the fair market value of the Common Stock on the
applicable Purchase
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Date (in each case as adjusted for stock splits, stock dividends and other
similar changes in the Common Stock or the capital structure of the Company).
The shares purchased may be newly issued shares, treasury shares or shares
acquired by the Company on the open market or otherwise. If the aggregate number
of shares to be purchased upon exercise of rights granted in the offering
exceeds the maximum aggregate number permitted under an Offering Period, the
Board would make a pro rata allocation of shares available in a uniform and
equitable manner. Unless the employee's participation is discontinued, his right
to purchase shares is exercised automatically at the end of the Offering Period
at the applicable price.
Withdrawal. Employees may end their participation at any time during an
Offering Period by delivering a written notice of withdrawal to the Company, and
participation ends automatically upon termination of their employment for any
reason. Upon any such withdrawal, the Company shall distribute to the employee
all of his or her accumulated payroll deductions (reduced to the extent, if any,
that such deductions have already been used to acquire stock for the employee),
without interest, and such employee's interest in the offering will be
automatically terminated. The employee is not entitled to again participate in
such offering. An employee's withdrawal from an offering will not have any
effect upon such employee's eligibility to participate in subsequent offerings
under the Purchase Plan.
Termination of Employment. Rights granted pursuant to any offering
under the Purchase Plan terminate immediately upon cessation of an employees'
employment for any reason, and the Company will distribute to such employee all
of his accumulated payroll deductions that have not already been used to acquire
shares of Common Stock, without interest.
Restrictions on Transfer. Rights granted under the Purchase Plan are
not transferable otherwise than by will or the laws of descent and distribution
or by a beneficiary designated by the participant. During a participant's
lifetime, the rights may be exercised only by the person to whom such rights are
granted.
Duration, Amendment and Termination. The Board may suspend or terminate
the Purchase Plan at any time. Rights and obligations under any rights granted
while the Purchase Plan is in effect shall not be altered or impaired by
suspension or termination of the Purchase Plan, except as expressly provided in
the Purchase Plan or with the consent of the person to whom such rights were
granted, or except as necessary to comply with any laws or governmental
regulation or as necessary to ensure that the Purchase Plan and/or rights
granted under the Purchase Plan comply with the requirements of Section 423 of
the Code. The Board may also amend the Purchase Plan at any time, provided that
stockholder approval must be received within twelve months of the amendment
where such amendment will modifies the Purchase Plan in any way such that
stockholder approval is required under Section 423 of the Code or any
requirements of the Nasdaq National Market tier of The Nasdaq Stock Market or
other applicable securities exchange.
Effect of Certain Corporate Events. In the event of a dissolution,
liquidation or specified type of merger or acquisition of the Company, the
surviving corporation either will assume the rights under the Purchase Plan or
substitute similar rights, or the Purchase Date of any ongoing offering will be
accelerated such that the outstanding rights may be exercised immediately prior
to, or concurrent with, any such event.
Federal Income Tax Consequences. Rights granted under the Purchase Plan
are intended to qualify for favorable federal income tax treatment associated
with rights granted under an employee stock purchase plan that qualifies under
provisions of Section 423 of the Code. A participant will be taxed on amounts
withheld for the purchase of shares as if such amounts were actually received.
No other income will be taxable to a participant (and the Company will not be
entitled to any deduction from income) until disposition of the shares acquired,
and the method of taxation will depend upon the holding period of the purchased
shares. If the employee retains the shares issued under the Purchase Plan for
more than two years from the first day of the Offering Period and for more than
one year after the Purchase Date, or if the employee dies while owning the
shares, the employee will be required to include in income as compensation, for
the year of disposition of such shares or death, an amount equal to the lesser
of (i) an amount determined by applying the Applicable Discount to the fair
market value of such shares on the first day of the Offering Period in which
such shares were purchased, or (ii) the excess of the fair market value of such
shares at the time of disposition or death over the purchase price. If, on the
other hand, the employee disposes of such shares within the two-year or one-year
period, the employee will be required to include in
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income as compensation for the year in which such disposition occurs an amount
equal to the excess of the fair market value of such shares on the date of
purchase over the purchase price, and the Company will be entitled to a
deduction from income equal to the amount the employee is required to include in
income as compensation. Any additional gain or loss realized upon a disposition,
other than the amounts treated as compensation, will be treated as capital gain
or loss.
PROPOSAL 4
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, 1998 and has further
directed that management submit the selection of independent auditors for
ratification by the stockholders at the Annual Meeting. Ernst & Young LLP has
acted as the Company's independent public accountants since May 1996.
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.
The Board of Directors appointed Ernst & Young LLP as the Company's
independent auditors effective May 9, 1996. 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 year ended June 30, 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 year ended June 30, 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 year ended June 30, 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.
Stockholder ratification of the selection of Ernst & Young LLP as the
Company's independent auditors is not required by the Company's Bylaws 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.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 4.
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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 August 31, 1997 by: (i) each
director and nominee for director; (ii) each of the executive officers named in
the Summary Compensation Table employed by the Company in that capacity on
August 31, 1997; (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............................ 3,714,471 11.9%
P.O. Box N-4899
Nassau, Bahamas
Dr. Simon H. Stertzer (2)(3)............................ 2,713,993 8.7
396 Raymundo Drive
Woodside, CA 94062
John D. Miller (2)(4)(5)................................ 2,367,616 7.6
c/o Arterial Vascular Engineering, Inc.
3576 Unocal Place
Santa Rosa, CA 95403
Bradly A. Jendersee (4)(5).............................. 1,947,864 6.3
c/o Arterial Vascular Engineering, Inc.
3576 Unocal Place
Santa Rosa, CA 95403
Robert D. Lashinski (4)(7).............................. 1,639,256 5.3
c/o Arterial Vascular Engineering, Inc.
3576 Unocal Place
Santa Rosa, CA 95403
Dr. J. Irawan Sugeng (8)................................ 667,343 2.1
Gregory M. French (4)(9) ............................... 523,165 1.7
W. Kevin Bedsole (4)(10)................................ 406,492 1.3
Craig E. Dauchy ..................................... 2,000 *
Scott J. Solano ........................................ -0- *
All directors and executive officers as a group
(13 persons) (11)................................... 10,114,736 32.1
(Footnotes are on the next page.)
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(Footnotes for table on the previous page.)
* Represents beneficial ownership of less than 1%.
(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 31,140,276 shares outstanding
on September 15, 1997, 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 140,500 shares issuable pursuant to options exercisable within 60
days.
(4) 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.
(5) Includes 403,267 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 8,000
shares held by the John D. Miller and Doreen Miller Foundation, as to
which shares Mr. Miller disclaims beneficial ownership. Includes 13,750
shares held in an IRA account.
(6) Includes 184,625 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 109,537 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 664,343 shares held by Lotus Enterprises Inc., of which Dr.
Sugeng is the sole stockholder. Includes 3,000 shares issuable pursuant to
options exercisable within 60 days.
(9) Includes 237,255 shares held by the French Family Trust for which Gregory
M. French and Lisa E. French are co-trustees, as to which shares Mr.
French disclaims beneficial ownership. Includes 61,452 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.
(10) Includes 246,919 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 145,834 shares issuable pursuant to options exercisable within
60 days.
(11) Includes 411,439 shares issuable pursuant to options exercisable within
60 days.
Compliance with the Reporting Requirements of Section 16(a)
Section 16(a) of the Exchange 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, 1997, all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten percent beneficial owners were complied with, except that one report
covering thirteen transactions was filed late by Radstock Enterprises Limited.
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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 and, with respect to Mr. Dauchy, his
time, 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 date such person first becomes a Non-Employee Director, the
grant of an option to purchase 12,000 shares of Common Stock. In addition, each
year on the date of the annual meeting of stockholders, 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 annual 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 equal 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 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 Directors' Plan will automatically
become fully vested and will terminate if not exercised prior to such event.
Pursuant to the Directors' Plan, (i) on December 4, 1996, the date of
the last annual stockholders meeting, options to purchase 4,000 shares of Common
Stock were granted to each of Drs. Sugeng and Stertzer at an exercise price of
$19.00 per share; and (ii) on August 8, 1997, the date of his election to the
Board, options to purchase 12,000 shares of Common Stock were granted to Mr.
Dauchy at an exercise price of $36.00 per share. As of September 15, 1997,
options to purchase a total of 44,000 shares of Common Stock were outstanding
pursuant to the Directors' Plan.
Compensation of Executive Officers
The following table shows for the fiscal years ended June 30, 1997,
1996 and 1995, compensation awarded or paid to, or earned by, the Company's
Chief Executive Officer and its other five most highly compensated executive
officers (the "Named Executive Officers"):
16
<PAGE>
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long Term
Compensation
------------
Awards
------------
Securities
Annual Compensation Underlying All Other
------------------- Options Compensation(2)($)
Name and Principal Position Year Salary($)(1) Bonus($) ------------ ------------------
- --------------------------- ---- ------------ --------
<S> <C> <C> <C> <C> <C>
Bradly A. Jendersee (3)(4).......... 1997 250,008 4,808 -0- 5,200
President and Chief 1996 257,840 31,377 -0- 1,050
Executive Officer 1995 168,081 23,848 -0- 8,623
Robert D. Lashinski (4)............. 1997 230,000 4,423 -0- 4,885
Vice President of Research 1996 232,692 27,951 -0- 770
and Development 1995 147,745 21,346 -0- 8,623
John D. Miller...................... 1997 230,000 4,423 -0- 5,510
Vice President of Finance, 1996 229,797 28,877 -0- 676
Chief Financial Officer and 1995 146,521(5) 16,667 -0- 8,623
Treasurer
W. Kevin Bedsole.................... 1997 185,000 3,558 -0- 4,950
Vice President of Worldwide 1996 167,500 18,750 -0- 450
Sales and Marketing 1995 125,598 17,167 -0- 8,229
Gregory M. French................... 1997 165,000 3,173 -0- 4,925
Vice President of Manufacturing 1996 164,375 18,750 -0- 425
1995 119,205 17,167 -0- 7,930
Scott J. Solano (3)................. 1997 84,615 1,423 120,000 40,000(6)
Chief Operating Officer 1996 -0- -0- -0- -0-
1995 -0- -0- -0- -0-
<FN>
(1) Includes, for fiscal 1997, compensation for unused vacation accrued in
prior years.
(2) Consists of (i) premiums paid by the Company on life insurance policies,
(ii) for fiscal 1995, the Company's matching contributions under the
401(k) Plan, and (iii) for fiscal 1997, the Company's discretionary
contributions made to all participants under the 401(k) Plan.
(3) Mr. Solano's employment with the Company as Chief Operating Officer began
in February 1997. In August 1997 (after the end of fiscal 1997) he was
elected to the positions of President and Chief Executive Officer, with
Mr. Jendersee remaining in the position of Chairman of the Board of
Directors.
(4) During the fiscal year ended June 30, 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 charge of $5.2 million.
(5) Includes $54,854 of consulting fees paid before Mr. Miller entered into an
employment agreement with the Company.
(6) Consists of a one-time sign-on bonus.
</FN>
</TABLE>
17
<PAGE>
Stock Option Grants and Exercises. Under the Incentive Plan, the
Company may grant options to its executive officers. For the fiscal year ended
June 30, 1997, options to purchase a total of 147,500 shares had been granted,
and as of September 15, 1997, options to purchase a total of 182,500 shares had
been granted, to the Company's executive officers under the Incentive Plan.
<TABLE>
The following tables show for the fiscal year ended June 30, 1997,
certain information regarding options granted to, exercised by, and held at
year-end by, the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
Potential Realizable
Individual Grants Value at Assumed
--------------------------------------------------------------- Annual Rates
Number of Percentage of of Stock Price
Securities Total Options Appreciation for
Underlying Granted to Exercise or Option Term(1)
Options Employees in Base Price Expiration --------------------
Name Granted (#) Fiscal Year (%)(2) ($/Sh)(4) Date 5% ($) 10% ($)
---- ------------ ------------------ --------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Mr. Jendersee.............. -- -- -- -- -- --
Mr. Lashinski.............. -- -- -- -- -- --
Mr. Miller................. -- -- -- -- -- --
Mr. Bedsole................ -- -- -- -- -- --
Mr. French................. -- -- -- -- -- --
Mr. Solano(3).............. 60,000 6.7 $13.00 2/04/07 491,400 1,240,200
60,000 6.7 $13.25 4/22/07 500,850 1,264,050
<FN>
(1) Calculated on the assumption that the market value of the underlying
stock increases at the stated values compounded annually for the ten-year
term of the option and that the option is exercised and sold on the last
day of its term for the appreciated stock price.
(2) Based on an aggregate of 889,722 options granted during the fiscal year
ended June 30, 1997.
(3) Options granted become exercisable in four equal annual installments on
February 4 and April 23, respectively, in 1998, 1999, 2000 and 2001.
(4) The exercise price per share of the option is equal to the fair market
value of the Common Stock on the date of grant.
</FN>
</TABLE>
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR,
AND FY-END OPTION VALUES
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Value Options at Options at
Acquired on Realized June 30, 1997(#) June 30, 1997($)
------------------------- -------------------------
Name Exercise (#) ($)(1)(2) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mr. Jendersee.............. -- -- 0 0 0 0
Mr. Lashinski.............. -- -- 0 0 0 0
Mr. Miller................. -- -- 0 0 0 0
Mr. Bedsole................ 10,000 228,107 145,834 36,666 4,518,795 830,192
Mr. French................. -- -- 0 0 0 0
Mr. Solano (3)............. -- -- 0 120,000 0 2,287,500
<FN>
(1) Value realized is based upon the fair market value of the Common Stock on
the date of exercise less the exercise price, and does not indicate that
the optionee sold such stock.
(2) The per-share fair market value of the Common Stock at June 30, 1997
($32.1875) less the exercise price of the options. At September 15, 1997,
the per-share fair market value of the Common Stock was $41.8125.
</FN>
</TABLE>
18
<PAGE>
Employment and Related 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; Messrs. Bedsole and
John A. Schiek, Vice President of Quality, Clinical and Regulatory Affairs, have
agreed to serve in their respective positions until March 29, 2000, and April 1,
2000, respectively, and Mr. Solano has agreed to serve in his position until
February 2, 2001. In consideration of their services, such officers received
annual salaries (subject to increase by the Board of Directors or the
Compensation Committee thereof) as follows (as of June 30, 1997): Mr. Jendersee,
$250,000; Mr. Lashinski, $230,000; Mr. Miller, $230,000; Mr. Solano, $200,000;
Mr. Bedsole, $185,000; Mr. French, $165,000; and Mr. Schiek, $150,000. 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, Solano, 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 payments 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 with cause,
such officers would not be entitled to any severance payments or other benefits
under their employment agreements. Except with respect to Mr. Solano, 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.
For Mr. Solano, all of his unvested stock options would immediately vest upon an
involuntary termination that occurs upon or within two years of a change of
control of the Company; provided, however, that if the Board of Directors
(including all of its non-employee members) (i) determines that such accelerated
vesting would preclude accounting for any proposed business combination
involving a change in control as a "pooling of interests" and (ii) otherwise
desires to approve a proposed change in control business combination which
requires as a condition to the closing of such transaction that it be accounted
for as a "pooling of interests," then Mr. Solano shall instead be entitled to
receive 50% of his total taxable compensation (including, without limitation,
salary, bonus and other compensation) received from or payable by the Company
during the 12-month period ending on the date of termination. Each of such
employment agreements also provides for term life insurance in the amount of
$500,000 to be purchased by the Company for the benefit of such officers'
estates.
The Company has also entered into a change of control option vesting
acceleration agreement with Lawrence J. Fassler, General Counsel and Secretary.
Pursuant to such agreement, all unvested stock options held by Mr. Fassler would
immediately vest upon an involuntary termination that occurs upon or within two
years of a change of control of the Company; provided, however, that if the
Board of Directors (including all of its non-employee members) (i) determines
that such accelerated vesting would preclude accounting for any proposed
business combination involving a change in control as a "pooling of interests"
and (ii) otherwise desires to approve a proposed change in control business
combination which requires as a condition to the closing of such transaction
that it be accounted for as a "pooling of interests," then Mr. Fassler shall
instead be entitled to receive a cash amount equal to 100% of his total taxable
compensation (including, without limitation, salary, bonus and other
compensation) received from or payable by the Company during the 12-month period
ending on the date of termination.
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
19
<PAGE>
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 1997) 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. In fiscal 1997, the Company made
discretionary contributions to the 401(k) Plan on behalf of all participating
employees (including executive officers of the company) of $88,000 in the
aggregate, and to date the Company has contributed a total of $164,000 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.
Compensation Committee Interlocks and Insider Participation
During fiscal 1997, the Compensation Committee consisted of Drs.
Stertzer and Sugeng, neither of whom has ever been an officer or employee of the
Company. It is expected that, following the Annual Meeting, Mr. Dauchy will join
Dr. Stertzer as a member of the Compensation Committee. During fiscal 1997, the
Company retained the law firm of Cooley Godward LLP, of which Mr. Dauchy is a
partner. The Company believes that the fees paid to Cooley Godward LLP are
comparable to those that would be paid to an unaffiliated party for similar
services. The dollar amount of fees paid by the Company to Cooley Godward LLP in
fiscal 1997 does not exceed five percent of that firm's gross revenues for its
last full fiscal year.
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION(1)
General
All decisions relating to executive compensation currently are being
made upon the recommendation of the Compensation Committee. However, in order to
remain in compliance with rules promulgated under the Exchange Act governing the
administration of certain equity incentive plans with respect to certain
executive officers, it is expected that following the Annual Meeting the Board
of Directors in its entirety will administer the Incentive Plan with respect to
certain executive officers until such time as the Board again includes two
"disinterested" directors as defined by the rules promulgated under the Exchange
Act. With respect to option grants made to certain executive officers, grants
made to such persons following the Annual Meeting will not qualify as
"performance-based compensation" under Section 162(m) of the Code until such
time as the Company adds another "outside director" for purposes of that rule.
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 Compensation
Committee has adopted a total compensation package comprised of base salary,
bonus and stock option awards. Key elements of this compensation package are:
- -------------
(1) The material in this report 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 Securities Act of 1933, as amended (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.
20
<PAGE>
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, two (including the Company's current
Chief Executive Officer) joined the Company in 1997, one joined the Company in
1996, one joined the Company in 1995, two joined the Company in 1993, two joined
the Company in 1992 and two were founders of the Company in 1991. With respect
to each of the officers hired since the beginning of fiscal 1997, salary,
potential bonus and stock option grants were determined on the basis of
negotiations between the Company and such 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. The Compensation Committee also obtained and reviewed a compensation
survey of other publicly held medical device companies in establishing executive
officers' salary, potential bonus and stock option grants in fiscal 1997. The
data from such survey was used primarily as a benchmark to ensure that the
Company's total compensation structure for its executive officers was within the
broad range of companies included in the survey. The Committee did not, however,
target a specific position in the range of comparative data for each individual
or for each component of compensation. The survey did not specifically use data
for the companies in the group listed in the performance graph included
elsewhere in this proxy statement.
With respect to the continuing officers, because of the relatively
short tenure of these officers with the Company and the familiarity of the
Compensation Committee with the hiring process of each officer, the Compensation
Committee relied primarily on the fiscal year 1996 salary, bonus and prior
equity grants in establishing such officers' fiscal 1997 salary and potential
bonus. In this regard, the Compensation Committee was particularly mindful of
the rapid appreciation of the stock options granted to, and restricted stock
purchased in March 1995 by, certain of the continuing officers 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 Compensation Committee may
not reflect a salary that otherwise would have been required to competitively
compensate these officers and may not be indicative of future compensation.
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 equal to 100% of the fair market value of the
underlying stock on the date of grant. Employees receive value from these grants
only if the Common Stock appreciates in the long term.
In fiscal 1997, the Compensation Committee granted stock options to two
newly hired executive officers. An additional grant was made to a third
executive officer hired soon after the end of fiscal 1997. With the exception of
a second grant of options to Mr. Solano, who is now the Chief Executive Officer,
and to Mr. Fassler, the grant of options was in each case made in connection
with the hiring of such officers. During fiscal 1997, the Compensation Committee
determined not to grant options to the Chief Executive Officer and the other
executive officers who were already with the Company in fiscal 1996 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
Compensation Committee again relied on surveys of similar publicly held medical
device companies, its experience, the information gained in the hiring process
for such officers, and the
21
<PAGE>
value of the officers' previously issued stock options and restricted stock.
Company Performance And Chief Executive Officer Compensation
In August of 1997, the Board of Directors elected Scott J. Solano to
the position of President and Chief Executive Officer. Prior to that time,
Bradly A. Jendersee had served in that position. Mr. Jendersee continues to
serve as the Chairman of the Board of Directors. With respect to Mr. Jendersee,
his salary and potential bonus were established by the Compensation Committee
primarily on the basis of the salary received by him in fiscal 1996, a survey of
executive salaries at similar publicly-held medical device companies and
pursuant to discussions between the Compensation Committee and Mr. Jendersee. In
establishing the compensation for Mr. Jendersee, the Board considered
qualitative factors such as the progress of the Company's products through
development and clinical testing to market introduction, the establishment of
direct sales operations in Western Europe, the extent of foreign distribution of
the Company's products, and the continued significant success of the Company's
products, as well as quantitative factors such as the resulting significant
growth of net sales and income of the Company. In fiscal 1996, the Company
achieved several key objectives. These achievements included the successful
market introduction of the Micro Stent II(TM) family of coronary stent systems,
the continuing development of several next-generation products (including the
GFX(TM) family of coronary stent systems) and an increase in revenues from $17.1
million to $55.2 million and in income from $6.6 million to net income of $20.4
million. Because of the size of the stock options and restricted stock
previously issued to Mr. Jendersee and his related vesting schedule, however,
the Compensation Committee elected to keep Mr. Jendersee's base salary at the
same salary level that had been in effect since January 1996, and not to grant
or award any further options or shares of restricted stock to Mr. Jendersee
during fiscal 1997.
The salary, grant of stock options and potential bonus of Scott J.
Solano, the Company's Chief Executive Officer, were established by the
Compensation Committee in February 1997 at the time of Mr. Solano's hiring as
the Company's Chief Operating Officer. At that time, the Compensation Committee
took into account market conditions, Mr. Solano's experience, a survey of
executive salaries at similar publicly held medical device companies and the
level of compensation that the Company believed was reasonably required to
obtain the services of Mr. Solano. The base salary of Mr. Solano was set at
$200,000 and he was granted an option to purchase 60,000 shares of Common Stock
at 100% of fair market value on the date of grant, or $13.00 per share.
In April 1997, the Compensation Committee determined to grant Mr.
Solano an additional option to purchase 60,000 shares of Common Stock. In making
this additional grant, the Compensation Committee considered qualitative factors
such as Mr. Solano's leadership in the progress of the Company's products
through development, the scale-up of the Company's manufacturing operations, the
progress of the Company's U.S. clinical trials and Mr. Solano's pronounced
leadership role in coordinating the Company's activities in working toward the
potential launch of its coronary stent systems in the United States. The
Compensation Committee also considered quantitative factors such as the
continued growth in net sales of the Company in the third fiscal quarter of
fiscal 1997.
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 an irregular basis. Such bonus payments are
linked to the attainment of specific goals established for the Company in
general, and are generally payable to all employees of the Company. Such
bonuses, when paid, are between one and two weeks' salary. The Company paid one
such bonus to its executive officers in the fourth quarter of fiscal 1997 in
connection with the significant efforts of all employees with respect to the
Company's manufacturing scale-up and U.S. clinical trial efforts.
Certain Tax Considerations
Section 162(m) of the Code limits the Company to a deduction for
federal income tax purposes of
22
<PAGE>
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. One example of
the Company's efforts to satisfy the requirements for "performance-based
compensation" is the amendment to the Incentive Plan made in fiscal 1997 that,
among other things, limits the amount of awards made in any calendar year to a
single individual to 250,000 shares. However, option grants made to certain
executive officers following the Annual Meeting will not qualify as
"performance-based compensation" under Section 162(m) of the Code until such
time as the Company adds another "outside director" for purposes of that rule.
From the members of the Compensation Committee:
Dr. J. Irawan Sugeng
Dr. Simon H. Stertzer
PERFORMANCE MEASUREMENT COMPARISON(1)
The following graph compares the cumulative total stockholder return,
assuming reinvestment of all dividends, for the 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 Common Stock was first traded on the Nasdaq
National Market) through June 30, 1997. The graph assumes that $100 was invested
on April 3, 1996 in the Common Stock and in each of the comparative indices.
Research Total Return - Data Summary
AVEI
Cummulative Total Return
------------------------
4/03/96 6/96 6/97
ARTERIAL VASCULAR ENGINEERING, INC. AVEI 100 173 153
NASDAQ STOCK MARKET (U.S.) INAS 100 108 132
S&P HEALTH CARE (MEDICAL PRODUCTS & MDP 100 99 131
SUPPLIES)
- -----------------
(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 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.
23
<PAGE>
CERTAIN TRANSACTIONS
The Company maintains directors' and officers' liability 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 included an application for a stent patent that resulted in a patent owned
by the Company, the Company has agreed to indemnify Messrs. Jendersee and Miller
and Dr. Stertzer and Dr. Gerald Dorros, a stockholder of the Company, against
expenses and losses relating to such litigation.
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 remain 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,
1997, 1,346,125 shares were subject to repurchase. In fiscal 1997, each of Drs.
Stertzer and Dorros made payments to the Company in full satisfaction of the
principal and interest due under promissory notes, bearing an 8% interest rate
and secured by a pledge of such shares, that had been issued to the Company in
consideration of such shares.
Messrs. Jendersee, Solano, Miller, Lashinski, Bedsole, French and
Schiek are each party to an employment agreement with the Company that, among
other things, provides for term life insurance in the amount of $500,000 to be
purchased by the Company for the benefit of such officers' estates, severance
payments in certain circumstances, and accelerated vesting of their stock
options or release of their shares subject to a repurchase option in certain
circumstances involving a change in control of the Company. Mr. Fassler is party
to an agreement with the Company providing for accelerated vesting of his stock
options in certain circumstances involving a change in control of the Company.
See "Executive Compensation--Compensation of Executive Officers--Employment and
Related Agreements."
During fiscal 1997, the Company retained the law firm of Cooley Godward
LLP, of which Mr. Dauchy is a partner. See "Executive Compensation--
Compensation Committee Interlocks and Insider Participation."
24
<PAGE>
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/ Lawrence J. Fassler
Lawrence J. Fassler
Secretary
September 26, 1997
A copy of the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1997 is included in the Company's 1997 Annual Report, which is
being mailed with this proxy statement to stockholders entitled to notice of the
Annual Meeting. Additional copies of the Company's Annual Report on Form 10-K
are available without charge upon written request to: Investor Relations, Attn:
Diane Lefebvre, Arterial Vascular Engineering, Inc., 3576 Unocal Place, Santa
Rosa, California 95403.
<PAGE>
APPENDIX A
ARTERIAL VASCULAR ENGINEERING, INC.
1996 EQUITY INCENTIVE PLAN
Adopted by the Board of Directors January 26, 1996
Approved by the Stockholders February 28, 1996
Amended by the Board of Directors September 20, 1996
Amendment Approved by the Stockholders December 4, 1996
Amended by the Board of Directors July 8, 1997
Amended by the Board of Directors August 8, 1997
Approved by the Stockholders on ________________, 1997
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 accordance with
subsection 3(c) of the Plan.
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(e) "Company" means Arterial Vascular Engineering, Inc., 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.
(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 market trading day that is 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.
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(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.
(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.
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(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.
4.
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(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 (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 Two Million Five Hundred
Thousand (2,500,000) 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
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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.
(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)
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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),
unless such termination is for Cause (as defined 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 in the Option Agreement, the Option shall
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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
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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 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;
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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.
(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
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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 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
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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
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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 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
13.
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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.
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.
14.
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(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
ARTERIAL VASCULAR ENGINEERING, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
Adopted by the Board of Directors July 8, 1997
Approved by the Stockholders on ________________, 1997
1. PURPOSE.
(a) The purpose of this 1997 Employee Stock Purchase Plan (the "Plan") is
to provide a means by which employees of Arterial Vascular Engineering Inc., a
Delaware corporation (the "Company"), and its Affiliates, as defined in
subparagraph 1(b), which are designated as provided in subparagraph 2(b), may be
given an opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent corporation
or subsidiary corporation of the Company, as those terms are defined in Sections
424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended
(the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of its
employees, to secure and retain the services of new employees, and to provide
incentives for such persons to exert maximum efforts for the success of the
Company.
(d) The Company intends that the rights to purchase stock of the Company
granted under the Plan be considered options issued under an "employee stock
purchase plan" as that term is defined in Section 423(b) of the Code.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors (the "Board")
of the Company unless and until the Board delegates administration to a
Committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(i) To determine when and how rights to purchase stock of the Company
shall be granted and the provisions of each offering of such rights (which need
not be identical).
(ii) To designate from time to time which Affiliates of the Company
shall be eligible to participate in the Plan.
(iii) To construe and interpret the Plan and rights granted under it,
and to establish, amend and revoke rules and regulations for its administration.
The Board, in the exercise of this
1.
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power, may correct any defect, omission or inconsistency in the Plan, in a
manner and to the extent it shall deem necessary or expedient to make the Plan
fully effective.
(iv) To amend the Plan as provided in paragraph 13.
(v) Generally, to exercise such powers and to perform such acts as the
Board deems necessary or expedient to promote the best interests of the Company
and its Affiliates and to carry out the intent that the Plan be treated as an
"employee stock purchase plan" within the meaning of Section 423 of the Code.
(c) The Board may delegate administration of the Plan to a Committee
composed of not fewer than two (2) members of the Board (the "Committee"). 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, 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.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 12 relating to adjustments upon
changes in stock, the stock that may be sold pursuant to rights 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 (the "Common Stock"). If any
right granted under the Plan shall for any reason terminate without having been
exercised (other than rolled-over rights), the Common Stock not purchased under
such right shall again become available for the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. GRANT OF RIGHTS; OFFERING.
(a) The Board or the Committee may from time to time grant or provide for
the grant of rights to purchase Common Stock of the Company under the Plan to
eligible employees (an "Offering") on a date or dates (the "Offering Date(s)")
selected by the Board or the Committee. Each Offering shall be in such form and
shall contain such terms and conditions as the Board or the Committee shall deem
appropriate, which shall comply with the requirements of Section 423(b)(5) of
the Code that all employees granted rights to purchase stock under the Plan
shall have the same rights and privileges. The terms and conditions of an
Offering shall be incorporated by reference into the Plan and treated as part of
the Plan. The provisions of separate Offerings need not be identical, but each
Offering shall include (through incorporation of the provisions of this Plan by
reference in the document comprising the Offering or otherwise) the period
during which the Offering shall be effective, which period shall not exceed
twenty-seven (27) months beginning with the Offering Date, and the substance of
the provisions contained in paragraphs 5 through 8, inclusive.
(b) If an employee has more than one right outstanding under the Plan,
unless he or she otherwise indicates in agreements or notices delivered
hereunder: (1) each agreement or notice
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delivered by that employee will be deemed to apply to all of his or her rights
under the Plan, and (2) a right with a lower exercise price (or an
earlier-granted right, if two rights have identical exercise prices), will be
exercised to the fullest possible extent before a right with a higher exercise
price (or a later-granted right, if two rights have identical exercise prices)
will be exercised.
5. ELIGIBILITY.
(a) Rights may be granted only to employees of the Company or, as the Board
or the Committee may designate as provided in subparagraph 2(b), to employees of
any Affiliate of the Company. Except as provided in subparagraph 5(b), an
employee of the Company or any Affiliate shall not be eligible to be granted
rights under the Plan, unless, on the Offering Date, such employee has been in
the employ of the Company or any Affiliate for such continuous period preceding
such grant as the Board or the Committee may require, but in no event shall the
required period of continuous employment be equal to or greater than two (2)
years. In addition, unless otherwise determined by the Board or the Committee
and set forth in the terms of the applicable Offering, no employee of the
Company or any Affiliate shall be eligible to be granted rights under the Plan,
unless, on the Offering Date, such employee's customary employment with the
Company or such Affiliate is for at least twenty (20) hours per week and at
least five (5) months per calendar year.
(b) The Board or the Committee may provide that each person who, during the
course of an Offering, first becomes an eligible employee of the Company or
designated Affiliate will, on a date or dates specified in the Offering which
coincides with the day on which such person becomes an eligible employee or
occurs thereafter, receive a right under that Offering, which right shall
thereafter be deemed to be a part of that Offering. Such right shall have the
same characteristics as any rights originally granted under that Offering, as
described herein, except that:
(i) the date on which such right is granted shall be the "Offering
Date" of such right for all purposes, including determination of the exercise
price of such right;
(ii) the period of the Offering with respect to such right shall begin
on its Offering Date and end coincident with the end of such Offering; and
(iii) the Board or the Committee may provide that if such person first
becomes an eligible employee within a specified period of time before the end of
the Offering, he or she will not receive any right under that Offering.
(c) No employee shall be eligible for the grant of any rights under the
Plan if, immediately after any such rights are granted, such employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of this
subparagraph 5(c), the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of any employee, and stock which such employee
may purchase under all outstanding rights and options shall be treated as stock
owned by such employee.
(d) An eligible employee may be granted rights under the Plan only if such
rights, together with any other rights granted under "employee stock purchase
plans" of the Company and any Affiliates, as specified by Section 423(b)(8) of
the Code, do not permit such employee's rights to
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purchase stock of the Company or any Affiliate to accrue at a rate which exceeds
twenty-five thousand dollars ($25,000) of fair market value of such stock
(determined at the time such rights are granted) for each calendar year in which
such rights are outstanding at any time.
(e) Officers of the Company and any designated Affiliate shall be eligible
to participate in Offerings under the Plan, provided, however, that the Board
may provide in an Offering that certain employees who are highly compensated
employees within the meaning of Section 423(b)(4)(D) of the Code shall not be
eligible to participate.
6. RIGHTS; PURCHASE PRICE.
(a) On each Offering Date, each eligible employee, pursuant to an Offering
made under the Plan, shall be granted the right to purchase up to the number of
shares of Common Stock of the Company purchasable with a percentage designated
by the Board or the Committee not exceeding twenty percent (20%) of such
employee's Earnings (as defined by the Board for each Offering) during the
period which begins on the Offering Date (or such later date as the Board or the
Committee determines for a particular Offering) and ends on the date stated in
the Offering, which date shall be no later than the end of the Offering. The
Board or the Committee shall establish one or more dates during an Offering (the
"Purchase Date(s)") on which rights granted under the Plan shall be exercised
and purchases of Common Stock carried out in accordance with such Offering.
(b) In connection with each Offering made under the Plan, the Board or the
Committee may specify a maximum number of shares that may be purchased by any
employee as well as a maximum aggregate number of shares that may be purchased
by all eligible employees pursuant to such Offering. In addition, in connection
with each Offering that contains more than one Purchase Date, the Board or the
Committee may specify a maximum aggregate number of shares which may be
purchased by all eligible employees on any given Purchase Date under the
Offering. If the aggregate purchase of shares upon exercise of rights granted
under the Offering would exceed any such maximum aggregate number, the Board or
the Committee shall make a pro rata allocation of the shares available in as
nearly a uniform manner as shall be practicable and as it shall deem to be
equitable.
(c) The purchase price of stock acquired pursuant to rights granted under
the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the fair market
value of the stock on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the fair market
value of the stock on the Purchase Date.
7. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) An eligible employee may become a participant in the Plan pursuant to
an Offering by delivering a participation agreement to the Company within the
time specified in the Offering, in such form as the Company provides. Each such
agreement shall authorize payroll deductions of up to the maximum percentage
specified by the Board or the Committee of such employee's Earnings (as defined
4.
<PAGE>
by the Board for each Offering) during the Offering. The payroll deductions made
for each participant shall be credited to an account for such participant under
the Plan and shall be deposited with the general funds of the Company. A
participant may reduce (including to zero) or increase such payroll deductions,
and an eligible employee may begin such payroll deductions, after the beginning
of any Offering only as provided for in the Offering. A participant may make
additional payments into his or her account only if specifically provided for in
the Offering and only if the participant has not had the maximum amount withheld
during the Offering.
(b) At any time during an Offering, a participant may terminate his or her
payroll deductions under the Plan and withdraw from the Offering by delivering
to the Company a notice of withdrawal in such form as the Company provides. Such
withdrawal may be elected at any time prior to the end of the Offering except as
provided by the Board or the Committee in the Offering. Upon such withdrawal
from the Offering by a participant, the Company shall distribute to such
participant all of his or her accumulated payroll deductions (reduced to the
extent, if any, such deductions have been used to acquire stock for the
participant) under the Offering, without interest, and such participant's
interest in that Offering shall be automatically terminated. A participant's
withdrawal from an Offering will have no effect upon such participant's
eligibility to participate in any other Offerings under the Plan but such
participant will be required to deliver a new participation agreement in order
to participate in subsequent Offerings under the Plan.
(c) Rights granted pursuant to any Offering under the Plan shall terminate
immediately upon cessation of any participating employee's employment with the
Company and any designated Affiliate, for any reason, and the Company shall
distribute to such terminated employee all of his or her accumulated payroll
deductions (reduced to the extent, if any, such deductions have been used to
acquire stock for the terminated employee), under the Offering, without
interest.
(d) Rights granted under the Plan shall not be transferable by a
participant otherwise than by will or the laws of descent and distribution, or
by a beneficiary designation as provided in paragraph 14 and, otherwise during
his or her lifetime, shall be exercisable only by the person to whom such rights
are granted.
5.
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8. EXERCISE.
(a) On each Purchase Date specified therefor in the relevant Offering, each
participant's accumulated payroll deductions and other additional payments
specifically provided for in the Offering (without any increase for interest)
will be applied to the purchase of whole shares of stock of the Company, up to
the maximum number of shares permitted pursuant to the terms of the Plan and the
applicable Offering, at the purchase price specified in the Offering. No
fractional shares shall be issued upon the exercise of rights granted under the
Plan. The amount, if any, of accumulated payroll deductions remaining in each
participant's account after the purchase of shares which is less than the amount
required to purchase one share of stock on the final Purchase Date of an
Offering shall be held in each such participant's account for the purchase of
shares under the next Offering under the Plan, unless such participant withdraws
from such next Offering, as provided in subparagraph 7(b), or is no longer
eligible to be granted rights under the Plan, as provided in paragraph 5, in
which case such amount shall be distributed to the participant after such final
Purchase Date, without interest. The amount, if any, of accumulated payroll
deductions remaining in any participant's account after the purchase of shares
which is equal to the amount required to purchase whole shares of stock on the
final Purchase Date of an Offering shall be distributed in full to the
participant after such Purchase Date, without interest.
(b) No rights granted under the Plan may be exercised to any extent unless
the shares to be issued upon such exercise under the Plan (including rights
granted thereunder) are covered by an effective registration statement pursuant
to the Securities Act of 1933, as amended (the "Securities Act") and the Plan is
in material compliance with all applicable state, foreign and other securities
and other laws applicable to the Plan. If on a Purchase Date in any Offering
hereunder the Plan is not so registered or in such compliance, no rights granted
under the Plan or any Offering shall be exercised on such Purchase Date, and the
Purchase Date shall be delayed until the Plan is subject to such an effective
registration statement and such compliance, except that the Purchase Date shall
not be delayed more than twelve (12) months and the Purchase Date shall in no
event be more than twenty-seven (27) months from the Offering Date. If on the
Purchase Date of any Offering hereunder, as delayed to the maximum extent
permissible, the Plan is not registered and in such compliance, no rights
granted under the Plan or any Offering shall be exercised and all payroll
deductions accumulated during the Offering (reduced to the extent, if any, such
deductions have been used to acquire stock) shall be distributed to the
participants, without interest.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the rights granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such rights.
(b) The Company shall seek to obtain from each federal, state, foreign or
other 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 rights granted under the Plan. 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 rights unless and until
such authority is obtained.
6.
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10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to rights granted under the Plan
shall constitute general funds of the Company.
11. RIGHTS AS A STOCKHOLDER.
A participant shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to rights granted
under the Plan unless and until the participant's stockholdings acquired upon
exercise of rights hereunder are recorded in the books of the Company.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject to
any rights granted under the 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 other transaction not involving the
receipt of consideration by the Company), the Plan and outstanding rights will
be appropriately adjusted in the class(es) and maximum number of shares subject
to the Plan and the class(es) and number of shares and price per share of stock
subject to outstanding rights. 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 or liquidation of the Company; (2) a
merger or consolidation in which the Company is not the surviving corporation;
(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; or (4) the acquisition by any person,
entity or group within the meaning of Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") or any comparable
successor provisions (excluding any employee benefit plan, or related trust,
sponsored or maintained by the Company or any Affiliate of the Company) of the
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of directors, then, as determined by the Board in its
sole discretion (i) any surviving or acquiring corporation may assume
outstanding rights or substitute similar rights for those under the Plan, (ii)
such rights may continue in full force and effect, or (iii) participants'
accumulated payroll deductions may be used to purchase Common Stock immediately
prior to the transaction described above and the participants' rights under the
ongoing Offering terminated.
7.
<PAGE>
13. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 12 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 rights under the Plan;
(ii) Modify the provisions as to eligibility for participation in the
Plan (to the extent such modification requires stockholder approval in order for
the Plan to obtain employee stock purchase plan treatment under Section 423 of
the Code); or
(iii) Modify the Plan in any other way if such modification requires stockholder
approval in order for the Plan to obtain employee stock purchase plan treatment
under Section 423 of the Code.
It is expressly contemplated that the Board may amend the Plan in any respect
the Board deems necessary or advisable to provide eligible employees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to employee stock purchase plans
and/or to bring the Plan and/or rights granted under it into compliance
therewith.
(b) Rights and obligations under any rights granted before amendment of the
Plan shall not be altered or impaired by any amendment of the Plan, except with
the consent of the person to whom such rights were granted, or except as
necessary to comply with any laws or governmental regulations, or except as
necessary to ensure that the Plan and/or rights granted under the Plan comply
with the requirements of Section 423 of the Code.
14. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who is to
receive any shares and cash, if any, from the participant's account under the
Plan in the event of such participant's death subsequent to the end of an
Offering but prior to delivery to the participant of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death during an Offering.
(b) Such designation of beneficiary may be changed by the participant at
any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its sole discretion, may deliver such shares
and/or cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
8.
<PAGE>
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board in its discretion, may suspend or terminate the Plan at any
time. No rights may be granted under the Plan while the Plan is suspended or
after it is terminated.
(b) Rights and obligations under any rights granted while the Plan is in
effect shall not be altered or impaired by suspension or termination of the
Plan, except as expressly provided in the Plan or with the consent of the person
to whom such rights were granted, or except as necessary to comply with any laws
or governmental regulation, or except as necessary to ensure that the Plan
and/or rights granted under the Plan comply with the requirements of Section 423
of the Code.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective on August 1, 1997 (the "Effective Date"),
but no rights granted under the Plan shall be exercised unless and until the
Plan has been approved by the stockholders of the Company within twelve (12)
months before or after the date the Plan is adopted by the Board or the
Committee, which date may be prior to the Effective Date.
9.
<PAGE>
APPENDIX C
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, Scott J. Solano 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, October 29, 1997 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 as directors, FOR the proposal to amend the Arterial Vascular
Engineering, Inc. 1996 Equity Incentive Plan, FOR the proposal to approve the
Arterial Vascular Engineering, Inc. 1997 Employee Stock Purchase Plan, FOR the
ratification of the selection of Ernst & Young LLP as independent auditors and
otherwise at the discretion of the Proxies.
(CONTINUED, AND TO BE SIGNED ON THE REVERSE SIDE)
[SEE REVERSE SIDE] [SEE REVERSE SIDE]
<PAGE>
[X] Please mark votes as in this example.
<TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES LISTED
BELOW AS DIRECTORS, FOR THE PROPOSAL TO AMEND THE ARTERIAL VASCULAR ENGINEERING,
INC. 1996 EQUITY INCENTIVE PLAN, FOR THE PROPOSAL TO APPROVE THE ARTERIAL
VASCULAR ENGINEERING, INC. 1997 EMPLOYEE STOCK PURCHASE PLAN, FOR THE
RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS AND
OTHERWISE AT THE DISCRETION OF THE PROXIES.
<CAPTION>
1. To elect five Directors.
<S> <C> <C> <C>
Nominees: Bradly A. Jendersee, Scott J. Solano, John D. Miller, Dr. Simon H. Stertzer, Craig E. Dauchy
FOR WITHHELD
THE NOMINEES FROM THE NOMINEES
[ ] [ ]
[ ] ______________________________________
FOR ALL NOMINEES EXCEPT AS NOTED ABOVE
FOR AGAINST ABSTAIN
2. To amend the Arterial Vascular Engineering, Inc. 1996 [ ] [ ] [ ]
Equity Incentive Plan.
3. To approve the Arterial Vascular Engineering, Inc. [ ] [ ] [ ]
1997 Employee Stock Purchase Plan.
4. To ratify the appointment of Ernst & Young LLP as [ ] [ ] [ ]
independent auditors.
5. In their discretion upon such other matters as [ ]
properly come before the meeting.
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW. [ ]
MARK HERE IF YOU PLAN TO ATTEND THE MEETING [ ]
___________________________________________________________________________________________________________________
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 ppresident or
other authorized officer. If a partnership, please sign in partnership 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 ______________________________
</TABLE>
