SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
[X] Definitive Proxy Statement Commission Only (as permitted by
[ ] Definitive Additional Materials Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
ARTERIAL VASCULAR ENGINEERING, INC.
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(Name of Registrant as Specified in Its Charter)
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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.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transactions applies:
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(2) Aggregate number of securities to which transactions applies:
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date filed:
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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 November 12, 1998
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 Thursday, November 12, 1998 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 a proposed amendment to the Company's Amended and
Restated Certificate of Incorporation, as amended, to increase
the authorized number of shares of common stock, par value
$.001 per share, of the Company ("Common Stock") from
100,000,000 to 300,000,000;
3. To approve the Company's 1996 Equity Incentive Plan, as
amended, to increase the number of shares of Common Stock
authorized for issuance thereunder by 3,000,000 shares for an
aggregate total of 8,000,000 shares;
4. To approve the Company's 1997 Employee Stock Purchase Plan, as
amended, to increase to the number of shares of Common Stock
authorized for issuance thereunder by 2,000,000 shares for an
aggregate total of 5,000,000 shares;
5. To ratify the selection of Ernst & Young LLP as independent
auditors of the Company for its fiscal year ending June 30,
1999; and
6. 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 16,
1998 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
Lawrence J. Fassler
Secretary
Santa Rosa, California
September 30, 1998
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ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN
PERSON. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS
POSSIBLE IN ORDER TO ENSURE YOUR REPRESENTATION AT THE MEETING. A
RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED
STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE GIVEN YOUR
PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER,
BANK OR OTHER NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST
OBTAIN FROM THE RECORD HOLDER A PROXY ISSUED IN YOUR NAME.
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ARTERIAL VASCULAR ENGINEERING, INC.
3576 Unocal Place
Santa Rosa, California 95403
---------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
November 12, 1998
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 Thursday, November 12,
1998, 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 30, 1998 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 $7,000 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 16, 1998, will be entitled to notice of and to vote at the Annual
Meeting. At the close of business on September 16, 1998, the Company had
outstanding and entitled to vote 64,305,161 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.
On March 2, 1998, the Company declared a 2-for-1 stock split effected
by means of a stock dividend. All share numbers contained herein give effect to
such stock split.
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. Except for Proposal 2, broker non-votes
are counted towards a quorum, but are not counted for any purpose in determining
whether a matter has been approved. With respect to Proposal 2, abstentions and
broker non-votes will have the same effect as negative votes.
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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.
Stockholder Proposals
Proposals of stockholders that are intended to be presented at the
Company's 1999 Annual Meeting of Stockholders must be received by the Company
not later than May 28, 1999 in order to be included in the Company's proxy
statement and proxy relating to that Annual Meeting. Pursuant to the Company's
Bylaws, stockholders who wish to bring matters or propose nominees for director
at the Company's 1999 Annual Meeting of Stockholders (other than in accordance
with the preceding sentence) must provide specified information to the Company
between August 14, 1999 and September 14, 1999.
PROPOSAL 1
ELECTION OF DIRECTORS
There are four 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, as amended (the
"Certificate of Incorporation") and its Amended and Restated Bylaws (the
"Bylaws") is five, one position is currently vacant. The Board is making ongoing
efforts to fill the fifth position. 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: Scott J. Solano, John D. Miller and Craig
E. Dauchy were elected by the stockholders, and George B. Borkow was elected by
the Board on May 1, 1998.
Shares represented by executed proxies will be voted, if authority to
do so is not withheld, for the election of the four 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
---- --- ------------------------------
Scott J. Solano........................ 41 Chairman of the Board of Directors,
Chief Executive Officer and
President
John D. Miller......................... 41 Chief Financial Officer, Treasurer
and Director
Craig E. Dauchy (1)(2)................. 48 Director
George B. Borkow (1)(2)................ 50 Director
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
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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, and became Chairman of the Company's
Board of Directors in January 1998. Prior to joining the Company, Mr. Solano
served as the Vice President of New Product Development 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 is a founder of the Company and has served as Vice
President of Finance from January 1996 to March 1998, 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.
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 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.
George B. Borkow has served as a Director of the Company since May
1998. Prior to joining the Company as Director, Mr. Borkow was the Chief
Executive Officer and Director for HealthVISION Corp., a developer of automated
medical records, from January 1995 to August 1996. From January 1987 to December
1994, Mr. Borkow was the Chief Financial Officer and Director of United
HealthCare. Mr. Borkow is presently a Director of several health care companies,
including OnCare, Inc., a physician management company specializing in oncology,
and Abaton.com, Inc., a developer of intranet and internet software for the
health services industry. Mr. Borkow holds a B.A. degree from George Washington
University and an M.B.A. degree from the University of Rhode Island.
Board Committees And Meetings
During the fiscal year ended June 30, 1998, 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.
During the fiscal year ended June 30, 1998, the Audit Committee was composed of
two non-employee directors, Craig E. Dauchy and Dr. Simon H. Stertzer, with
George B. Borkow replacing Dr. Stertzer in May 1998. The Audit Committee met two
times during the fiscal year ended June 30, 1998.
The Compensation Committee makes recommendations concerning
compensation levels for officers and members of the Board and generally
administers the Company's 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 to executive officers, it is expected that the
Board of Directors in its entirety will continue to 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. During the fiscal year ended June 30, 1998, the
Compensation Committee was
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composed of two non-employee directors, Mr. Dauchy and Dr. Stertzer, with Mr.
Borkow replacing Dr. Stertzer in April 1998. The Compensation Committee met
three times during the fiscal year ended June 30, 1998, 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, 1998, 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 AMENDMENT TO
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
TO INCREASE AUTHORIZED COMMON STOCK
In February 1996 the Board of Directors adopted, and in February 1996
the Company's stockholders subsequently approved, an amendment to the Company's
Certificate of Incorporation, which authorized for issuance a total of
100,000,000 shares of Common Stock and 5,000,000 shares of preferred stock.
In July 1998, the Board approved an amendment to the Amended and
Restated Certificate of Incorporation, subject to stockholder approval, to
increase the aggregate number of shares of Common Stock authorized for issuance
from 100,000,000 shares to 300,000,000 shares.
Paragraph A. of Article IV of the Company's Certificate of
Incorporation would be amended in its entirety to be and read as follows:
"A. This corporation is authorized to issue two
classes of stock to be designated, respectively, "Common
Stock" and Preferred Stock." The total number of shares that
the corporation is authorized to issue is Three Hundred Five
Million (305,000,000) shares. Three Hundred Million
(300,000,000) shares shall be Common Stock, each having a par
value of one-tenth of one cent ($.001). Five Million
(5,000,000) shares shall be Preferred Stock, each having a par
value of one-tenth of one cent ($.001)."
On February 4, 1998, the Board authorized a two-for-one stock split to be
effected in the form of a 100% stock dividend. The stock dividend was paid on
March 2, 1998 to stockholders of record on February 17, 1998. As a result of
that action, the number of authorized but unissued shares of Common Stock
available to the Company for future issuance was significantly reduced. As of
September 16, 1998, there were 64,365,731 shares of Common Stock issued
(including 60,000 shares of treasury stock), of which 64,305,731 were
outstanding, and an additional 7,882,293 shares of Common Stock were reserved
for issuance under the Company's stock plans. Accordingly, there were 27,811,976
shares of Common Stock available for issuance on September 16, 1998. None of the
preferred stock is outstanding.
The proposed increase in the number of shares of authorized Common
Stock is designed to ensure that shares of Common Stock will be available, if
needed, for issuance in connection with acquisitions, stock splits, stock
dividends, and other corporate purposes. The Board believes that the
availability of the additional shares of Common Stock for such purposes without
undue delay or the necessity of holding a special stockholders' meeting will be
beneficial to the Company.
No further action or authorization by the Company's stockholders would
be necessary prior to the issuance of the additional shares of Common Stock
unless required by applicable law or regulatory agencies or by the rules of any
stock exchange on which the Company's securities may be listed. The holders of
any of the additional shares of Common Stock issued in the future would have the
same rights and privileges as the holders of the shares of Common Stock
currently authorized and outstanding. Those rights do not include preemptive
rights with respect to the future issuance of any additional shares.
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The Company does not have any immediate plans, arrangements,
commitments or understandings with respect to the issuance of any of the
additional shares of Common Stock that would be authorized by the proposed
amendment. However, the increased authorized shares of Common Stock could be
used by the Company to make a takeover attempt by a third party more difficult,
such as by using the shares to make a counter-offer for the shares of the bidder
or by selling shares to dilute the voting power of the bidder. As of the date of
this Proxy Statement, the Board is unaware of any effort to accumulate the
Company's shares of Common Stock or to obtain control of the Company by means of
a merger, tender offer, solicitation in opposition to management or otherwise.
The Company's Certificate of Incorporation contains certain provisions
that may be viewed as having possible anti-takeover effects. Under the Company's
Certificate of Incorporation, special meetings of the Company's stockholders may
be called only by the chairman of the Board, the chief executive officer or by a
resolution adopted by a majority of the total number of authorized directors. In
addition, stockholders may not execute an action by written consent in lieu of
an annual or special meeting. The Company's Certificate of Incorporation further
provides that the Company's stockholders may not adopt, amend or repeal the
Company's Bylaws except by a vote of eighty percent (80%) of the combined voting
power of the Company's outstanding capital stock. The Company's Bylaws provide,
among other things, that the Company receive timely advance notice by a
stockholder of a proposal or director nomination that such stockholder desires
to present at the annual meeting of stockholders. To be timely, a stockholder's
notice must be delivered or mailed no later than the close of business on the
60th day and no earlier than the close of business on the 90th day prior to the
first anniversary of the preceding year's annual meeting of stockholders.
The Board has adopted a stockholder rights plan, commonly referred to
as a "poison pill," that is intended to deter hostile or coercive attempts to
acquire the Company and which was amended in May 1998 to account for the recent
increase in the market price of the Company's Common Stock. The stockholder
rights plan enables stockholders to acquire shares of the Company's Common
Stock, or the common stock of an acquiror, at a substantial discount to the
public market price should any person or group acquire more than 15% of the
Company's common stock without the approval of the Board under certain
circumstances. The Company has reserved 1,000,000 shares of Series A Junior
Participating Preferred Stock for issuance in connection with the stockholder
rights plan. The Company is authorized to issue an additional 4,000,000 shares
of preferred stock in one or more series with terms to be fixed by the Board
without a stockholder vote. While the Board has no current intentions or plans
to issue any preferred stock, issuance of these shares could also be used as an
anti-takeover device.
The affirmative vote of the holders of a majority of the Company's
outstanding of Common Stock will be required to approve the amendment of the
Company's Certificate of Incorporation. Abstention from voting on the proposed
amendment and broker non-votes will have the practical effect of voting against
the amendment since the affirmative vote of a majority of the Company's
outstanding shares is required for adoption of the proposal. If the proposal is
adopted, the amendment will become effective upon the requisite filing under the
Delaware General Corporation Law.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
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PROPOSAL 3
APPROVAL OF 1996 EQUITY INCENTIVE PLAN, AS AMENDED
In January 1996 the Board of Directors adopted, and in February 1996
the Company's stockholders subsequently approved, the Company's 1996 Equity
Incentive Plan (the "Incentive Plan") under which 1,600,000 shares of Common
Stock were reserved for issuance (as adjusted to reflect the two-for-one stock
split effected on March 2, 1998). 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 1,600,000 to
3,000,000 shares and to update it generally for tax and securities law
provisions. In August 1997, the Board adopted, and in October 1997 the Company's
stockholders 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 3,000,000 to 5,000,000 shares.
In July 1998, 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 5,000,000 shares to
8,000,000 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 16, 1998, options (net of cancelled or expired options)
to purchase an aggregate of 3,852,511 shares of Common Stock at exercise prices
ranging from $.0009 to $45.8125 per share were outstanding under the Incentive
Plan and 1,229,135 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 3,000,000 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 of June 30, 1998, as a
group, options to purchase 215,000 shares of Common Stock at exercise prices of
$23.63 to $39.56 per share, and to all employees (excluding executive officers),
as a group, options to purchase 1,574,550 shares of Common Stock at exercise
prices of $15.75 to $41.50 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.
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
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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 2,138 employees (as of July 31,
1998) 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. 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 the Board of Directors in its entirety
will continue to 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.
Stock Subject to the Incentive Plan
Currently, 8,000,000 shares of Common Stock are reserved for issuance
under the Incentive Plan. However, if this Proposal 3 is not approved by the
stockholders, then only 5,000,000 shares of Common Stock will be reserved for
issuance under the Incentive Plan (after giving effect to the two-for-one stock
split effected on March 2, 1998), 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. 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.
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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 16, 1998, the closing price of
the Company's Common Stock as reported on the Nasdaq National Market tier of The
Nasdaq Stock Market was $45.00 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,
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 twelve
months 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.
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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 or shares of Common Stock.
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 or shares of Common Stock.
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 or shares of Common Stock.
Adjustment Provisions
If there is any change in the stock subject to the Incentive Plan or
subject to any award granted under the Incentive Plan (through merger,
consolidation, reorganization, recapitalization, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or otherwise), the
Incentive Plan and awards outstanding thereunder will be appropriately adjusted
as to the class and the maximum number of shares subject to 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
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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 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.
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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 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.
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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 4
APPROVAL OF AMENDMENT TO 1997 EMPLOYEE STOCK PURCHASE PLAN
In July 1997, the Board of Directors adopted, and in October 1997 the
Company's stockholders subsequently approved, the Company's the 1997 Employee
Stock Purchase Plan (the "Purchase Plan"), under which 3,000,000 shares of
Common Stock were reserved for issuance (as adjusted to reflect the two-for-one
stock split effected on March 2, 1998). The Purchase Plan authorizes the grant
to employees of the Company and designated subsidiaries of rights to purchase up
to 3,000,000 shares of Common Stock and is intended to qualify as an "employee
stock purchase plan" under Section 423 of the Code.
In July 1998, the Board approved an amendment to the Purchase Plan,
subject to stockholder approval, to increase the aggregate number of shares
authorized for issuance under the Incentive Plan from a total of 3,000,000
shares to 5,000,000 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 accommodate purchases by employees of the Company at levels
permissible under the Purchase Plan.
The Company believes that it competes in a very competitive labor
market for available talent. The Purchase Plan affords the Company flexibility
in providing its employees with equity incentives, and the Company uses it as a
fundamental tool in recruiting and retaining employees. As of September 16,
1998, over 60% of the Company's employees were participating in the Purchase
Plan. Consequently, the Board of Directors determined the amendment of the
Purchase Plan to be in the best interests of the Company and its stockholders.
As of September 16, 1998, an aggregate of 264,783 shares of Common
Stock at purchase prices ranging from $16.73 to $31.93 per share were purchased
under the Purchase Plan and 2,735,217 shares remained available for future
purchase under the Purchase Plan, excluding the increase of 2,000,000 shares for
which stockholder approval is being sought. During the last fiscal year, under
the Purchase Plan, executive officers who were with the Company as of June 30,
1998, as a group, purchased 8,814 shares of Common Stock at the exercise price
of $16.73 per share, and all employees (excluding executive officers) as a group
purchased 64,202 shares of Common Stock at the exercise price of $16.73 per
share. Purchases under the Purchase Plan are made at purchase prices equal to
the market value of the Common Stock on the date of purchase.
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 PROPOSAL 4.
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.
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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 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. Currently, a total of 5,000,000 shares of Common
Stock have been reserved for issuance under the Purchase Plan (after giving
effect to the two-for-one stock split effected on March 2, 1998), 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. However, if
this proposal Four is not approved by the stockholders, then only 3,000,000
shares of Common Stock will be reserved for issuance under the Purchase Plan.
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. Mr. John D.
Miller is an executive officer of the Company and currently holds more than 5%
of the outstanding shares of Common Stock, and so is 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
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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 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
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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 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 5
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, 1999 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.
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 5.
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SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
The following table sets forth certain information regarding the
ownership of the Company's Common Stock as of July 31, 1998 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 July
31, 1998; (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.
<CAPTION>
Shares Beneficially Owned(1)
----------------------------
5% Stockholders, Directors and Officers Number Percent
--------------------------------------- ------ -------
<S> <C> <C>
John D. Miller (2)(3) ............................................................................. 3,749,696 5.8%
c/o Arterial Vascular Engineering, Inc.
3576 Unocal Place
Santa Rosa, CA 95403
FMR Corp. (4) ..................................................................................... 3,481,050 5.4%
82 Devonshire Street
Boston, MA 02109-3614
Robert D. Lashinski (2)(5) ........................................................................ 2,778,512 4.3%
Bradly A. Jendersee (2)(6) ........................................................................ 1,719,098 2.7%
Gregory M. French (2)(7) .......................................................................... 429,925 *
W. Kevin Bedsole (2)(8) ........................................................................... 199,710 *
Scott J. Solano(9)................................................................................. 61,731 *
Glenn S. Foley(10) ................................................................................ 12,758 *
Craig E. Dauchy ................................................................................... 6,000 *
George B. Borkow .................................................................................. -0- *
All directors and executive officers as a group
(18 persons) (11) ............................................................................. 9,515,971 14.8%
<FN>
- ------------------------
* 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 64,186,371 shares
outstanding on July 31, 1998, adjusted as required by rules promulgated
by the SEC.
(2) 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.
(3) Includes 807,534 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
1,723,331 shares held by Goldman, Sachs & Co., for Mr. Miller's benefit.
Includes 27,500 shares held in an IRA account.
(4) Includes 2,225,350 shares beneficially owned by Fidelity Management &
Research Company, as a result of its serving as investment adviser to
various investment companies registered under Section 8
16
<PAGE>
of the Investment Company Act of 1940 and serving as investment adviser
to certain other funds which are generally offered to limited groups of
investors. Includes 1,126,000 shares beneficially owned by Fidelity
Management Trust Company, as a result of its serving as trustee or
managing agent for various private investment accounts primarily employee
benefit plans and serving as investment adviser to certain other funds
which are generally offered to limited groups of investors. Includes
129,700 shares beneficially owned by Fidelity International Limited, as a
result of its serving as investment advisor to various non-U.S.
investment companies.
(5) Includes 220,112 shares held by family trusts for which Mike Lee and J.P.
Morgan California are co-trustees, as to which shares Mr. Lashinski
disclaims beneficial ownership. Includes 15,278 shares held in an IRA
account.
(6) Includes 280,000 shares held by a family trust 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
27,478 shares held in an IRA account.
(7) Includes 410,728 shares held by the French Family Trust for which Gregory
M. French and Lisa E. French are co-trustees. Includes 19,904 shares held
by family trusts for which Charles Remsen (Mr. French's brother-in-law)
is trustee, as to which shares Mr. French disclaims beneficial ownership.
Includes 17,666 shares held in an IRA account.
(8) Includes 195,010 shares held by a living trust for which Mr. Bedsole and
his wife, Susan Welcher, are the trustees. Includes 3,333 shares issuable
pursuant to options exercisable within 60 days.
(9) Includes 60,000 shares issuable pursuant to options exercisable within 60
days.
(10) Includes 11,200 shares issuable pursuant to options exercisable within 60
days.
(11) Includes 339,637 shares issuable pursuant to options exercisable within
60 days.
</FN>
</TABLE>
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 one transaction, was filed late by W. Kevin Bedsole; one report,
covering one transaction, was filed late by Gregory M. French and one report
covering one transaction was filed late by John D. Miller.
17
<PAGE>
EXECUTIVE COMPENSATION
Compensation of Directors
The members of the Board of Directors do not currently receive any cash
compensation for their service as members of the Board of Directors, although
they are reimbursed for their expenses 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 200,000 (after giving
effect to the two-for-one stock split effected on March 2, 1998), 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 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 August 8, 1997, the date of his
election to the Board, options to purchase 24,000 shares of Common Stock (as
adjusted to reflect the two-for-one stock split effected on March 2, 1998) were
granted to Mr. Dauchy at an exercise price of $18.00 per share, (iii) on October
29, 1997, the date of the last annual stockholders meeting, options to purchase
8,000 shares of Common Stock (as adjusted to reflect the two-for-one stock split
effected on March 2, 1998) were granted to each of Dr. Stertzer and Mr. Dauchy
at an exercise price of $27.125 per share; and (ii) on May 1, 1998, the date of
his election to the Board, options to purchase 12,000 shares of Common Stock
were granted to Mr. Borkow at an exercise price of $36.5625 per share. As of
July 31, 1998, options to purchase a total of 58,000 shares of Common Stock were
outstanding pursuant to the Directors' Plan.
18
<PAGE>
Compensation of Executive Officers
The following table shows for the fiscal years ended June 30, 1998,
1997 and 1996, compensation awarded or paid to, or earned by, the Company's
Chief Executive Officer and its other six most highly compensated executive
officers (the "Named Executive Officers"):
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long Term
Compensation
------------
Awards
-----------
Annual Compensation Securities
------------------------- Underlying All Other
Name and Principal Position Year Salary($)(1) Bonus($) Options Compensation(2)($)
- --------------------------- ---- ------------ -------- ------- ------------------
<S> <C> <C> <C> <C> <C>
Scott J. Solano (3)................. 1998 225,000 75,214 -0- 1,979(4)
Chief Executive Officer, 1997 84,615 1,423 240,000 40,000(5)
President (from 8/1/97) and 1996 -0- -0- -0- -0-
Chairman of the Board (from
1/4/98)
John D. Miller...................... 1998 230,000 43,346 -0- 432
Chief Financial Officer and 1997 230,000 4,423 -0- 5,510
Treasurer 1996 229,797 28,877 -0- 676
Robert D. Lashinski (6)(7).......... 1998 227,203 43,346 -0- 332
Former Vice President of 1997 230,000 4,423 -0- 4,885
Research and Development and 1996 232,692 27,951 -0- 770
Business Development
(resigned 4/30/98)
W. Kevin Bedsole.................... 1998 188,558 34,866 -0- 352
Vice President of International 1997 185,000 3,558 -0- 4,950
Sales 1996 167,500 18,750 -0- 450
Bradly A. Jendersee (3)(6)(8)....... 1998 173,281 4,808 -0- -0-
Former Chief Executive Officer, 1997 250,008 4,808 -0- 5,200
President and Chairman of the 1996 257,840 31,377 -0- 1,050
Board (resigned 1/4/98)
Gregory M. French................... 1998 165,000 31,096 -0- 332
Vice President of Manufacturing 1997 165,000 3,173 -0- 4,925
1996 164,375 18,750 -0- 425
Glenn S. Foley...................... 1998 133,173 58,326 25,000 -0-
Vice President of Sales, 1997 50,481 70,673 50,000 -0-
North America 1996 -0- -0- -0- -0-
<FN>
- ---------------------
(1) Includes, for fiscal 1998, compensation for unused vacation accrued in
prior years.
(2) Consists of (i) premiums paid by the Company on life insurance policies,
(ii) for fiscal 1996, 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) In August 1997, Mr. Solano 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. In January 1998, Mr. Jendersee
terminated his employment with the Company and Mr. Solano was elected to
the position of Chairman of the Board of Directors.
(4) Consists of moving reimbursement expenses.
19
<PAGE>
(5) Consists of a one-time sign-on bonus.
(6) 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.
(7) Mr. Lashinski's employment with the Company terminated on April 30, 1998.
Following his termination of employment, Mr. Lashinski executed a personal
services agreement with the Company pursuant to which he has agreed to
serve until February 28, 1999 as a consultant to the Company in
consideration for the continued vesting of shares of stock purchased under
that certain restricted stock purchase agreement dated March 17, 1995
between the Company and Mr. Lashinski. See "Executive Compensation -
Employment and Related Agreements."
(8) Mr. Jendersee's employment with the Company terminated on January 4, 1998.
Following his termination of employment, Mr. Jendersee executed a personal
services agreement with the Company pursuant to which he has agreed to
serve until February 28, 1999 as a consultant to the Company in
consideration for the continued vesting of shares of stock purchased under
that certain restricted stock purchase agreement dated March 17, 1995
between the Company and Mr. Jendersee. See "Executive Compensation -
Employment and Related Agreements."
</FN>
</TABLE>
20
<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, 1998, options to purchase a total of 265,000 shares had been granted,
and as of September 16, 1998, options to purchase a total of 873,426 shares had
been granted to the Company's executive officers under the Incentive Plan.
The following tables show for the fiscal year ended June 30, 1998,
certain information regarding options granted to, exercised by, and held at
year-end by, the Named Executive Officers:
<TABLE>
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)(3) Date 5% ($) 10% ($)
---- ----------- ------------------ --------- --------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Mr. Solano................. -- -- -- -- -- --
Mr. Miller................. -- -- -- -- -- --
Mr. Lashinski.............. -- -- -- -- -- --
Mr. Bedsole................ -- -- -- -- -- --
Mr. Jendersee.............. -- -- -- -- -- --
Mr. French................. -- -- -- -- -- --
Mr. Foley(4)............... 25,000 1.3 39.5625 3/3/08 622,016 1,576,311
<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 1,859,050 options granted during the fiscal year
ended June 30, 1998.
(3) The exercise price per share of the option is equal to the fair market
value of the Common Stock on the date of grant.
(4) Options granted become exercisable in four equal annual installments on
March 3, 1999, 2000, 2001 and 2002.
</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
Options at Options at
Shares Value June 30, 1998(#) June 30, 1998($)
Acquired on Realized ------------------------- --------------------
Name Exercise (#) ($)(1)(2) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mr. Solano................. -- -- 60,000 180,000 1,751,250 5,253,750
Mr. Miller................. -- -- -- -- -- --
Mr. Lashinski.............. -- -- -- -- -- --
Mr. Bedsole................ 325,000 8,571,116 3,333 36,667 103,247 1,135,841
Mr. Jendersee.............. -- -- -- -- -- --
Mr. French................. -- -- -- -- -- --
Mr. Foley.................. 1,300 39,731 11,200 62,500 327,600 1,096,875
<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, 1998
($35.75) less the exercise price of the options. At September 16, 1998, the
per-share fair market value of the Common Stock was $45.00.
</FN>
</TABLE>
21
<PAGE>
Employment and Related Agreements. Pursuant to employment agreements
with the Company, Messrs. French and Miller have agreed to serve in their
respective positions until March 18, 1999; Messrs. Bedsole and John A. Schiek,
Vice President of Compliance, 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, 1998): Mr. Solano, $250,000; Mr. Miller, $230,000; 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, Foley and Schiek have entered into the Company's standard
Employee Inventions and Proprietary Rights Assignment and Confidentiality
Agreement.
In addition, Messrs. Jendersee and Lashinski had previously agreed to
serve under employment agreements until February 28, 1999 at salaries of
$250,000 and $200,000, respectively. Messrs. Jendersee and Lashinski terminated
their employment with the Company on January 4, 1998 and April 30, 1998,
respectively. Each of them have executed a personal services agreement with the
Company pursuant to which each has agreed to serve until February 28, 1999 as a
consultant to the Company in consideration for the continued vesting of shares
of stock purchased under restricted stock purchase agreements with the Company
dated March 17, 1995.
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, Vice President of Legal
Affairs, General Counsel and Secretary; Glenn S. Foley, Vice President of Sales;
and Andrew P. Rasdal, Vice President of Marketing, as well as with certain other
key employees of the Company. Pursuant to such agreements, all unvested stock
options held by such executive officers 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
22
<PAGE>
closing of such transaction that it be accounted for as a "pooling of
interests," then such executive officers shall instead be entitled to receive a
cash amount equal to 100% of their 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 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 ($10,000 in 1998) 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 1998, the Company made
no discretionary contributions to the 401(k) Plan on behalf of any participating
employees (including executive officers of the company), 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 made prior to July 1, 1998 after two
years of service, and increase their vested percentages by an additional 20% for
each year of service thereafter.
As of July 1, 1998, the 401(k) Plan was amended to provide for
mandatory matching Company contributions of 50% of each employee's contribution,
up to a maximum of 3% (based on an employee contribution of 6%) of such
employee's annual salary. Such matching contribution is deposited each pay
period, without any additional ongoing requirements, and is immediately and
fully vested.
The 401(k) Plan is intended to qualify under Section 401 of the Code 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 1998, the Compensation Committee consisted of Dr. Simon
Stertzer and Mr. Craig E. Dauchy until May 1, 1998, at which time George B.
Borkow replaced Dr. Stertzer. None of such directors has ever been an officer or
employee of the Company. During fiscal 1998, 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 1998 does not exceed five
percent of that firm's gross revenues for its last full fiscal year.
23
<PAGE>
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 the Board of Directors in its entirety
will continue to 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 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:
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, one joined the Company in 1998,
three (including the Company's current Chief Executive Officer) joined the
Company in 1997, three joined the Company in 1996, two joined the Company in
1995, three joined the Company in 1993, one joined the Company in 1992 and one
was a founder of the Company in 1991. With respect to each of the officers hired
since the beginning of fiscal 1998, 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 three- 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 1998. The data from such survey was used primarily
as a
- --------------------
(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.
24
<PAGE>
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 1997 salary, bonus and prior
equity grants in establishing such officers' fiscal 1998 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 1998, the Compensation Committee granted stock options to one
newly hired executive officer, four newly appointed executive officers and one
existing executive officer. The grant of options was in each case made either in
connection with the hiring or the promotion of such officers. During fiscal
1998, 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 1997 and not promoted in fiscal 1998 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 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, and in January of 1998,
the Board of Directors elected Mr. Solano to the position of Chairman of the
Board of Directors. Prior to those elections, Bradly A. Jendersee had served in
those respective positions. 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 1997, 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 success 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 1997, the Company
achieved several key objectives. These achievements included the successful
market introduction of the GFX(TM) family of coronary stent systems and an
increase in revenues from $55.2 million to $79.42 million and in income from
$20.4 million to net income of $21.7 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 1998.
25
<PAGE>
The salary, grant of stock options and potential bonus of Scott J.
Solano, the Company's current 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 120,000 shares of Common Stock
at 100% of fair market value on the date of grant, at $6.50 per share.
In April 1997, the Compensation Committee determined to grant Mr.
Solano an additional option to purchase 120,000 shares of Common Stock at 100%
of fair market value on the date of grant, at $6.625 per share. 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.
On October 29, 1997, at the Board of Directors' regular annual meeting,
the Compensation Committee determined to raise Mr. Solano's salary to $250,000
as of January 1, 1998. This salary rate was the same as was being paid to Mr.
Jendersee, the Company's former Chief Executive Officer and President who
remained the Chairman of the Company's Board of Directors until January 1998.
The increase was made in view of Mr. Solano's election to the position of Chief
Executive Officer and President and the attendant increase in his
responsibilities.
On December 25, 1997, the Compensation Committee determined to pay a
cash bonus to Mr. Solano of $30,984. In granting this bonus payment, the
Compensation Committee considered qualitative factors such as Mr. Solano's
leadership in the progress of the Company through a facilities audit by the U.S.
Food and Drug Administration (the "FDA") and the Company's then ongoing efforts
to gain FDA approval for the commercialization of the Company's 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 second fiscal quarter of fiscal 1998.
On July 17, 1998, at a regular meeting of the Board of Directors, the
Compensation Committee determined to raise Mr. Solano's salary to $450,000 as of
July 1, 1998. In granting this salary increase, the Compensation Committee
considered qualitative factors such as Mr. Solano's leadership in the progress
of the Company through the rapid growth in the Company's infrastructure and the
successful launch of its coronary stent systems in the United States. The
Compensation Committee also considered quantitative factors such as the marked
increase in the Company's net sales and earnings in fiscal 1998 and the
Company's successful business development efforts during the period, including
agreements to acquire World Medical Manufacturing Corporation and the coronary
catheter lab business of C.R. Bard, Inc. The Compensation Committee also
obtained and reviewed a compensation survey of other publicly held medical
device companies in order to ensure that Mr. Solano's total compensation package
was within the broad range of those packages granted to chief executive officers
of companies included in the survey.
Mr. Solano also participated in the periodic general employee bonuses
discussed below, and received in fiscal 1998 a total of $44,230 pursuant to such
bonuses.
Periodic 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 generally between one and two weeks' salary. The Company
paid one such bonus to all employees (including all executive
26
<PAGE>
officers) in the third quarter of fiscal 1998. In addition, a more significant
bonus was paid to all employees (including executive officers) in the fourth
quarter of fiscal 1998 in the form of 15% of each individual employee's annual
salary in connection with the significant efforts of all employees with respect
to the Company's manufacturing scale-up and U.S. sales efforts. A second
significant bonus was paid to all employees (including executive officers)
subsequent to fiscal 1998 in the form of 20% of each individual employee's
annual salary, again in connection with the significant efforts of all employees
with respect to the Company's manufacturing scale-up and U.S. sales efforts.
Certain Tax Consideration
Section 162(m) of the Code limits the Company to a deduction for
federal income tax purposes of not more than $1 million of compensation paid to
certain executive officers in a taxable year. Compensation above $1 million may
be deducted if it is "performance-based compensation" within the meaning of the
Code. 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 1998 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 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. Simon H. Stertzer (resigned May 1, 1998)
Craig E. Dauchy
George B. Borkow
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, 1998. The graph assumes that $100 was invested
on April 3, 1996 in the Common Stock and in each of the comparative indices.
<TABLE>
[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T]
Research Data Group Peer Group Total Return Worksheet
Arterial Vascular Engr Inc (AVEI)
<CAPTION>
Cumulative Total Return
-----------------------------------
4/30/96 6/96 6/97 6/98
<S> <C> <C> <C> <C>
ARTERIAL VASCULAR ENGINEERING, INC. 100.00 172.62 153.27 340.48
NASDAQ STOCK MARKET (U.S.) 100.00 108.16 131.51 173.59
S & P HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) 100.00 98.82 130.96 175.18
</TABLE>
- ---------------------
(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.
27
<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.
Solano 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 such
persons from and against any and all claims and liabilities by reason of their
being a director or officer of AVEC. In connection with certain litigation
relating to the Company's purchase from Endothelial Support Systems, Inc.
(subsequently known as Endovascular Support Systems, Inc.) of technology which
resulted in one of the Company's issued patents, 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 6,876,628 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,
1998, 1,182,500 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 and Lashinski terminated their
employment with the Company on January 4, 1998 and April 30, 1998, respectively,
and each of them have executed a personal services agreement with the Company
pursuant to which each has agreed to serve until February 28, 1999 as a
consultant to the Company in consideration for the continued vesting of shares
of stock purchased under their respective restricted stock purchase agreements.
See "Executive Compensation - Employment and Related Agreements."
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, Mr.
Foley and Mr. Rasdal are party to agreements with the Company providing for
accelerated vesting of their 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 1998, 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."
28
<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
Lawrence J. Fassler
Secretary
September 30, 1998
A copy of the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1998 is included in the Company's 1998 Annual Report to
Stockholders, 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.
29
<PAGE>
APPENDIX A
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 Scott J. Solano, John D. Miller and
Lawrence J. Fassler, 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 Thursday, November 12, 1998 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. Amended and Restated Certificate of Incorporation, FOR the
proposal to amend the Arterial Vascular Engineering, Inc. 1996 Equity Incentive
Plan, FOR the proposal to amend 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.
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. AMENDED AND RESTATED CERTIFICATE OF INCORPORATION, FOR THE PROPOSAL TO
AMEND THE ARTERIAL VASCULAR ENGINEERING, INC. 1996 EQUITY INCENTIVE PLAN, FOR
THE PROPOSAL TO AMEND 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.
1. To elect four Directors.
<TABLE>
Nominees: Scott J. Solano, John D. Miller, Craig E. Dauchy and
George B. Borkow
<CAPTION>
FOR WITHHELD
THE NOMINEES FROM THE NOMINEES
[ ] [ ]
[ ] --------------------------------------
FOR ALL NOMINEES EXCEPT AS NOTED ABOVE
FOR AGAINST ABSTAIN
<S> <C> <C> <C> <C>
2. To amend the Arterial Vascular Engineering, Inc. Amended [ ] [ ] [ ]
and Restated Certificate of Incorporation.
3. To amend the Arterial Vascular Engineering, Inc. 1996 [ ] [ ] [ ]
Equity Incentive Plan.
4. To amend the Arterial Vascular Engineering, Inc. 1997 [ ] [ ] [ ]
Employee Stock Purchase Plan.
5. To ratify the appointment of Ernst & Young LLP as [ ] [ ] [ ]
independent auditors.
6. 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 president 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
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Signature(s) Date
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</TABLE>
