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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
FEMRX, INC.
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(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction 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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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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FEMRX, INC.
1221 INNSBRUCK DRIVE
SUNNYVALE, CALIFORNIA 94089
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 12, 1997
TO THE STOCKHOLDERS OF FEMRX, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of FEMRX,
INC., a Delaware corporation (the "Company"), will be held on Monday, May 12,
1997 at 9:30 a.m., local time, at the Company's principal executive offices at
1221 Innsbruck Drive, Sunnyvale, California 94089 for the following purposes:
1. To elect directors to serve for the ensuing year and until their
successors are elected.
2. To approve the Company's 1995 Stock Option Plan, as amended, to increase
the aggregate number of shares of Common Stock authorized for issuance
under such plan by 800,000 shares.
3. To ratify the selection of Ernst & Young LLP as independent auditors of
the Company for its fiscal year ending December 31, 1997.
4. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on March 18, 1997, as
the record date for the determination of stockholders entitled to notice of and
to vote at this Annual Meeting and at any adjournment or postponement thereof.
By Order of the Board of Directors
/s/ CRAIG E. DAUCHY
Craig E. Dauchy
SECRETARY
Sunnyvale, California
April 21, 1997
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE>
FEMRX, INC.
1221 INNSBRUCK DRIVE
SUNNYVALE, CALIFORNIA 94089
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 12, 1997
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
FemRx, Inc., a Delaware corporation (the "Company"), for use at the Annual
Meeting of Stockholders to be held on Monday, May 12, 1997, at 9:30 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 Company's principal executive offices at
1221 Innsbruck Drive, Sunnyvale, California 94089. The Company intends to mail
this proxy statement and accompanying proxy card on or about Monday, April 21,
1997, to all stockholders entitled to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of Common Stock beneficially owned by
others to forward to such beneficial owners. The Company may reimburse persons
representing beneficial owners of Common Stock for their costs of forwarding
solicitation materials to such beneficial owners. Original solicitation of
proxies by mail may be supplemented by telephone, telegram or personal
solicitation by directors, officers or other regular employees of the Company.
No additional compensation will be paid to directors, officers or other regular
employees for such services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on March 18,
1997 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on March 18, 1997, the Company had outstanding and entitled to
vote 8,701,988 shares of Common Stock.
Each holder of record of Common Stock on such date will be entitled to one
vote for each share held on all matters to be voted upon at the Annual Meeting.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter has
been approved.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive offices at 1221
Innsbruck Drive, Sunnyvale, California 94089, 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.
<PAGE>
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the Company's
1998 Annual Meeting of Stockholders must be received by the Company not later
than Monday, December 22, 1997 in order to be included in the proxy statement
and proxy relating to that Annual Meeting. Stockholders are also advised to
review the Company's By-laws, which contain additional requirements with respect
to advance notice of stockholder proposals and Director nominations.
PROPOSAL 1
ELECTION OF DIRECTORS
There are seven nominees for the seven Board positions presently authorized
in the Company's By-laws. 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, six directors
having been elected by the stockholders, and one director having been elected by
the Board.
Shares represented by executed proxies will be voted if authority to do so
is not withheld, for the election of the seven 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.
NOMINEES
The names of the nominees and certain information about them are set forth
below:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION/
NAME AGE POSITION HELD WITH THE COMPANY
- - ----------------------------------- --- ----------------------------------------------------------------------
<S> <C> <C>
Kathleen D. LaPorte................ 35 Chairman of the Board of Directors, and General Partner, Sprout Group
Andrew M. Thompson................. 33 President and Chief Executive Officer
George M. Savage, M.D.............. 37 Senior Vice President, Research and Development
Richard M. Ferrari................. 43 President and Chief Executive Officer, CardioThoracic Systems, Inc.
Gail Gaumer........................ 45 Corporate Vice President of Cost Management Services and Strategy,
Allegiance Healthcare Corporation
James W. McLane.................... 58 Consultant
Philip M. Young.................... 57 General Partner, U.S. Venture Partners
</TABLE>
NOMINEES FOR ELECTION FOR A TERM EXPIRING AT THE 1998 ANNUAL MEETING
KATHLEEN D. LAPORTE has served the Company as a director since April 1995
and is currently the Chairman of the Board of Directors. From January 1993 to
the present, Ms. LaPorte has been affiliated with the Sprout Group, the venture
capital affiliate of Donaldson, Lufkin & Jenrette Inc., and has served as a
General Partner since December 1993. From August 1987 to January 1993, Ms.
LaPorte was a principal at Asset Management Company, a venture capital firm
focused on early stage health care and technology investments. Ms. LaPorte
currently serves on the Board of Directors of Lynx Therapeutics, Inc.
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and Onyx Pharmaceuticals, Inc. She holds a B.S. in Biology from Yale University
and an M.B.A. from Stanford University.
ANDREW M. THOMPSON has served as President, Chief Executive Officer and a
director of the Company since its incorporation in November 1994. From May 1994
to November 1994, Mr. Thompson consulted in the medical device industry as a
partner of Savage-Thompson Management. From May 1991 to November 1994, he served
as Vice President, Finance of Medtronic CardioRhythm, a medical device company
focused on catheter ablation systems for electrophysiology, which he co-founded
in May 1991 and which was acquired by Medtronic, Inc. in May 1992. He received
an M.A. in Production Engineering from Corpus Christi College, Cambridge, an
M.A. in Education and an M.B.A. from Stanford University.
GEORGE M. SAVAGE, M.D., has served as Senior Vice President, Research and
Development and a director of the Company since its incorporation in November
1994. From May 1994 to November 1994, Dr. Savage consulted in the medical device
industry as a partner of Savage-Thompson Management. From May 1991 to November
1994, he served as Vice President, Clinical and Regulatory Affairs of Medtronic
CardioRhythm, a medical device company focused on catheter ablation systems for
electrophysiology, which he co-founded in May 1991 and which was acquired by
Medtronic, Inc. in May 1992. Dr. Savage received a B.S. in Biomedical
Engineering from Boston University, an M.D. from Tufts University and an M.B.A.
from Stanford University.
RICHARD M. FERRARI has served the Company as a director since October 1995.
From October 1995 to the present, Mr. Ferrari has served as Director and
President and Chief Executive Officer of CardioThoracic Systems, Inc., a company
that develops products and systems for Minimally Invasive Direct Coronary Artery
Bypass (MIDCAB-TM-). From January 1991 to October 1995, Mr. Ferrari served as
President and Chief Executive Officer of Cardiovascular Imaging Systems, Inc., a
manufacturer of imaging systems and devices used in interventional cardiology,
which was acquired by Boston Scientific Corporation in March 1995. He received a
B.S. in Education from Ashland College, a degree in Nuclear Medicine Technology
from the Radiology Institute in New York and an M.B.A. from the University of
South Florida.
GAIL GAUMER has served the Company as a director since October 1995. From
1980 to 1996, Ms. Gaumer held numerous marketing, international, product
development and general management positions with Baxter Healthcare Corporation
including President, Renal Europe, from 1991 to 1994. Ms. Gaumer is currently
Corporate Vice President of Cost Management Services and Strategy for Allegiance
Healthcare Corporation. Ms. Gaumer received a B.S. in Psychobiology from the
University of California, Santa Cruz, a N.I.H Fellowship in Neurophysiology at
the University of Wisconsin and an M.B.A. from Stanford University.
JAMES W. MCLANE has served the Company as a director since November 1996.
From February 1991 to June 1996, Mr. McLane served as Executive Vice President
of Aetna Life & Casualty Company and Chief Executive Officer of Aetna Health
Plans. Prior to that, he was a Senior Vice President and Division Executive of
Citicorp, Inc. He currently is working as a consultant and advisor to several
venture capital funds in the health care field. Mr. McLane currently serves on
the Board of Directors of Aliginis Inc., the Hartford Healthcare Corp. and
Outward Bound USA. He holds a B.A. in History from Yale University and an M.B.A.
from Harvard University.
PHILIP M. YOUNG has served the Company as a director since April 1995. From
April 1990 to the present, Mr. Young has served as a General Partner of U.S.
Venture Partners, a venture capital firm. Mr. Young currently serves on the
Boards of Directors of CardioThoracic Systems, Inc., The Immune Response
Corporation, Vical Inc. and Zoran Corporation. He received a B.M.E. from Cornell
University, an M.S. from George Washington University, and an M.B.A. from
Harvard University where he was a Baker Scholar.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
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BOARD COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1996, the Board of Directors held
nine meetings. The Board has an Audit Committee and a Compensation Committee.
The Audit Committee meets with the Company's independent auditors at least
annually to review the results of the annual audit and discuss the financial
statements; recommends to the Board the independent auditors to be retained; and
receives and considers the accountants' comments as to controls, adequacy of
staff and management performance and procedures in connection with audit and
financial controls. The Audit Committee is composed of two non-employee
directors: Ms. Gaumer and Ms. LaPorte. The Audit Committee met twice during the
year ended December 31, 1996.
The Compensation Committee makes recommendations concerning salaries and
incentive compensation, awards stock options to employees and consultants under
the Company's stock option plans and otherwise determines compensation levels
and performs such other functions regarding compensation as the Board may
delegate. The Compensation Committee is composed of three non-employee
directors: Messrs. Ferrari, McLane and Young. The Compensation Committee met
once during the year ended December 31, 1996.
During the fiscal year ended December 31, 1996, each Board member attended
75% or more of the aggregate of the meetings of the Board and of the committees
on which he or she served, held during the period for which he was a director or
committee member, respectively.
PROPOSAL 2
APPROVAL OF 1995 STOCK OPTION PLAN, AS AMENDED
In April 1995, the Board of Directors adopted, and the stockholders
subsequently approved, the Company's 1995 Stock Option Plan (the "1995 Plan").
As a result of a series of amendments, at February 28, 1997 there were 1,155,625
shares of the Company's Common Stock authorized for issuance under the 1995
Plan.
At February 28, 1997, options (net of cancelled or expired options) covering
an aggregate of 796,351 shares of the Company's Common Stock had been granted
under the 1995 Plan, and only 359,274 shares (plus any shares that might in the
future be returned to the plan as a result of cancellations or expiration of
options) remained available for future grant under the 1995 Plan. During the
year ended December 31, 1996, under the 1995 Plan, the Company granted to all
current executive officers as a group options to purchase 50,000 shares at an
exercise price of $9.00 per share and to all employees and consultants
(excluding executive officers) as a group options to purchase 409,000 shares at
exercise prices ranging from $4.50 to $14.50 per share.
On March 3, 1997, the Compensation Committee approved an offer to employees
of the Company to reprice outstanding options granted between January 30, 1996
and December 17, 1996 (the "Repricing Program"). Under the Repricing Program, as
of March 11, 1997, 384,750 options were converted into repriced options with an
exercise price of $2.5625 (based on the closing price as reported on the Nasdaq
National Market on such date). As consideration for the grant of repriced
options, optionees are prohibited from exercising the repriced options for a
period of six months after the date such repriced options were granted. The
Repricing Program terminated on March 31, 1997. No Named Executive Officers were
eligible to participate in the Repricing Program.
In February 1997, the Board approved an amendment to the 1995 Plan, subject
to stockholder approval, to enhance the flexibility of the Board and the
Compensation Committee in granting stock options to the Company's employees and
consultants. The amendment increases the number of shares authorized for
issuance under the 1995 Plan by 800,000 shares from a total of 1,155,625 shares
to 1,955,625 shares. In March 1997, under the 1995 Plan, the Compensation
Committee granted, subject to stockholder
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approval, to all current executive officers as a group options to purchase
370,000 shares at an exercise price of $2.9375 per share. The Board adopted this
amendment to ensure that the Company can continue to grant stock options to
employees at levels determined appropriate by the Board and the Compensation
Committee.
Stockholders are requested in this Proposal 2 to approve the 1995 Plan, as
amended. 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 meeting will be
required to approve the 1995 Plan, as amended.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
The essential features of the 1995 Plan are outlined below:
GENERAL
The 1995 Plan provides for the grant of both incentive and nonstatutory
stock options. Incentive stock options granted under the 1995 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 1995 Plan are intended not to qualify as incentive
stock options under the Code. See "Federal Income Tax Information" for a
discussion of the tax treatment of incentive and nonstatutory stock options.
PURPOSE
The 1995 Plan was adopted to provide a means by which selected employees
(including officers and directors) 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.
ADMINISTRATION
The 1995 Plan provides for administration by the Board of Directors of the
Company. The Board has the power to construe and interpret the 1995 Plan and,
subject to the provisions of the 1995 Plan, to determine the persons to whom and
the dates on which options will be granted, the number of shares to be subject
to each option, the time or times during the term of each option within which
all or a portion of such option may be exercised, the exercise price, the type
of consideration and other terms of the option. The Board of Directors is
authorized to delegate administration of the 1995 Plan to a committee composed
of not fewer than two members of the Board. Currently, the Board and the
Compensation Committee jointly administer the 1995 Plan. As used herein with
respect to the 1995 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 1995 Plan only to employees
(including officers) of the Company and its affiliates. Employees (including
officers), directors and consultants are eligible to receive nonstatutory stock
options under the 1995 Plan.
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No option may be granted under the 1995 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. In addition, the aggregate
fair market value, determined at the time of grant, of the shares of Common
Stock with respect to which incentive stock options are exercisable for the
first time by an optionee during any calendar year (under the 1995 Plan and all
other plans of the Company and its affiliates) may not exceed $100,000.
No person shall be eligible during any calendar year to be granted stock
options covering more than 500,000 shares of Common Stock. To date, the Company
has not granted to any person in any calendar year options to purchase a number
of shares equal to or in excess of the limitation.
STOCK SUBJECT TO THE 1995 PLAN
If options granted under the 1995 Plan expire or otherwise terminate without
being exercised, the Common Stock not purchased pursuant to such options again
becomes available for issuance under the 1995 Plan.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under the
1995 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 1995 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"), may not be less than 110% of such fair market value. The
exercise price of nonstatutory options under the 1995 Plan may not be less than
85% of the fair market value of the Common Stock subject to the option on the
date of the option grant. However, if options were granted with exercise prices
below market value, deductions for compensation attributable to the exercise of
such options could be limited by Section 162(m) of the Code. See "Federal Income
Tax Information." At February 28, 1997, the closing price of the Company's
Common Stock as reported on the Nasdaq National Market was $2.9375 per share.
In the event of a decline in the value of the 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 Section 162(m), an option repriced under the
1995 Plan is deemed to be cancelled and a new option granted. On March 3, 1997,
the Compensation Committee approved an offer to employees of the Company to
reprice 384,750 outstanding options granted between January 30, 1996 and
December 17, 1996.
The exercise price of options granted under the 1995 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 1995 Plan may become exercisable
in cumulative increments ("vest") as determined by the Board. Shares covered by
currently outstanding options under the 1995 Plan typically vest at the rate of
12.5% of the shares subject to option on the six-month anniversary of the date
of hire and 1/48th of such shares monthly thereafter. Shares covered by options
granted in the future under the 1995 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 1995 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
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vested at their exercise price should the optionee terminate his or her service
relationship with the Company. To the extent provided by the terms of an option,
an optionee may satisfy any federal, state or local tax withholding obligation
relating to the exercise of such option by a cash payment upon exercise, by
authorizing the Company to withhold a portion of the stock otherwise issuable to
the optionee, by delivering already-owned stock of the Company or by a
combination of these means.
TERM. The maximum term of options under the 1995 Plan is 10 years, except
that in certain cases (see "Eligibility") the maximum term is five years.
Options under the 1995 Plan generally terminate three months after termination
of the optionee's employment or relationship as a consultant or director of the
Company or any affiliate of the Company, unless (a) such termination 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 at any time
within one year of such termination; (b) the optionee dies while employed by or
serving as a consultant or director of the Company or any affiliate of the
Company, or within three months after termination of such relationship, in which
case the option may, but need not, provide that it may be exercised (to the
extent the option was exercisable at the time of the optionee's death) within
eighteen months of the optionee's death by the person or persons to whom the
rights to such option pass by will or by the laws of descent and distribution;
or (c) the option by its terms specifically provides otherwise. Individual
options by their terms may provide for exercise within a longer period of time
following termination of employment or relationship as a consultant or director.
The option term may also be extended in the event that exercise of the option
within these periods is prohibited for specified reasons.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the 1995 Plan or subject to
any option granted under the 1995 Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the 1995 Plan and options outstanding
thereunder will be appropriately adjusted as to the class and the maximum number
of shares subject to such plan, the maximum number of shares which may be
granted to an employee during a calendar year, and the class, number of shares
and price per share of stock subject to such outstanding options.
EFFECT OF CERTAIN CORPORATE EVENTS
The 1995 Plan provides that, in the event of a dissolution or liquidation of
the Company, sale of substantially all of the Company's assets, specified type
of merger or other corporate reorganization in which the Company is not the
surviving corporation, to the extent permitted by law, the surviving corporation
will be required to either assume options outstanding under the 1995 Plan or
substitute similar options for those outstanding under such plan, or such
outstanding options will continue in full force and effect. In the event that
any surviving corporation declines to assume or continue options outstanding
under the 1995 Plan, or to substitute similar options, then the time during
which such options may be exercised will be accelerated and the options
terminated if not exercised during such time. In addition, whether or not the
acquiring company assumes outstanding options or substitutes comparable options,
upon a corporate transaction as described above, the vesting and exercisability
of outstanding options shall be accelerated (and any repurchase right of
unvested shares shall lapse) with respect to one (1) year of vesting. The
acceleration of an option 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 1995 Plan without stockholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the 1995 Plan will terminate in April 2005.
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The Board may also amend the 1995 Plan at any time or from time to time.
However, no amendment will be effective unless approved by the stockholders of
the Company within twelve months before or after its adoption by the Board if
the amendment would: (a) modify the requirements as to eligibility for
participation (to the extent such modification requires stockholder approval in
order for the Plan to satisfy Section 422 of the Code, if applicable, or Rule
16b-3; (b) increase the number of shares reserved for issuance upon exercise of
options; or (c) change any other provision of the Plan in any other way if such
modification requires stockholder approval in order to comply with Rule 16b-3 or
satisfy the requirements of Section 422 of the Code. The Board may submit any
other amendment to the 1995 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 1995 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 the optionee, may be exercised only by the optionee. A
nonstatutory stock option may not be transferred except by will or by the laws
of descent and distribution or pursuant to a domestic relations order. In any
case, the optionee may designate in writing a third party who may exercise the
option in the event of the optionee's death. In addition, 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 1995 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 long-term capital gain or loss. Generally, if the optionee
disposes of the stock before the expiration of either of these holding periods
(a "disqualifying disposition"), at the time of disposition, the optionee will
realize taxable ordinary income equal to the lesser of (a) the excess of the
stock's fair market value on the date of exercise over the exercise price, or
(b) the optionee's actual gain, if any, on the purchase and sale. The optionee's
additional gain, or any loss, upon the disqualifying disposition will be a
capital gain or loss, which will be long-term or short-term depending on whether
the stock was held for more than one year. Long-term capital gains currently are
generally subject to lower tax rates than ordinary income. The maximum capital
gains rate for federal income tax purposes is currently 28% while the maximum
ordinary income rate is effectively 39.6% at the present time. Slightly
different rules may apply to optionees who acquire stock subject to certain
repurchase options or who are subject to Section 16(b) 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.
8
<PAGE>
NONSTATUTORY STOCK OPTIONS. Nonstatutory stock options granted under the
1995 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. Such gain or loss will be long
or short-term depending on whether the stock was held for more than one year.
Slightly different rules may apply to optionees who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Exchange
Act.
POTENTIAL LIMITATION ON COMPANY DEDUCTIONS. As part of the Omnibus Budget
Reconciliation Act of 1993, the U.S. Congress amended the Code to add Section
162(m), which denies a deduction to any publicly held corporation for
compensation paid to certain employees in a taxable year to the extent that
compensation exceeds $1,000,000 for a covered employee. It is possible that
compensation attributable to stock options, 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 Treasury regulations issued under Section 162(m), compensation
attributable to stock options will qualify as performance-based compensation,
provided that the option is granted by a compensation committee comprised solely
of "outside directors" and either: (i) the option plan contains a per-employee
limitation on the number of shares for which options may be granted during a
specified period, the per-employee limitation is approved by the stockholders,
and the exercise price of the option is no less than the fair market value of
the stock on the date of grant; or (ii) the option is granted (or exercisable)
only upon the achievement (as certified in writing by the compensation
committee) of an objective performance goal established in writing by the
compensation committee while the outcome is substantially uncertain, and the
option is approved by stockholders.
GRANTS TO NAMED EXECUTIVE OFFICERS
No options were granted under the 1995 Plan to the Named Executive Officers
during the fiscal year ended December 31, 1996.
PROPOSAL 3
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 December 31, 1997 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 audited the Company's financial statements since its inception in 1994.
Representatives of Ernst & Young LLP are expected to be present at the Annual
Meeting, will have an opportunity to make a statement if they so desire and will
be available to respond to appropriate questions.
Stockholder ratification of the selection of Ernst & Young LLP as the
Company's independent auditors is not required by the Company's By-laws or
otherwise. However, the Board is submitting the
9
<PAGE>
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 3.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of February 28, 1997 by: (i) each director and
nominee for director; (ii) each of the executive officers named in the Summary
Compensation Table employed by the Company in that capacity on February 28,
1997; (iii) all executive officers and directors of the Company as a group; and
(iv) all those known by the Company to be beneficial owners of more than five
percent of its Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP(1)
----------------------
NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES TOTAL
- - ------------------------------------------------------------------------ --------- -----------
<S> <C> <C>
Sprout Group (2)........................................................ 2,204,373 25.29%
3000 Sand Hill Road
Building 4, Suite 270
Menlo Park, CA 94025
U.S. Venture Partners (3)............................................... 1,093,748 12.57%
2180 Sand Hill Road, Suite 300
Menlo Park, CA 94025
Andrew M. Thompson (4).................................................. 458,128 5.27%
George M. Savage, M.D. (5).............................................. 458,128 5.27%
Arnold J. Kresch, M.D. (6).............................................. 457,501 5.25%
Richard M. Ferrari (7).................................................. 14,791 *
Gail Gaumer (8)......................................................... 14,791 *
Kathleen D. LaPorte (9)................................................. 2,204,373 25.29%
James W. McLane (10).................................................... 11,083 *
Philip M. Young (11).................................................... 1,108,539 12.72%
Jeffrey J. Christian (12)............................................... 173,750 1.99%
Edward W. Unkart (13)................................................... 80,670 *
All executive officers and directors as a group (10 persons)(14)........ 4,537,753 51.66%
</TABLE>
- - ------------------------
* Less than one percent.
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G 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
10
<PAGE>
percentages are based on 8,698,994 shares outstanding on February 28,
1997, adjusted as required by rules promulgated by the Commission.
(2) Represents 1,359,618 shares held by Sprout Capital VII, L.P. ("SVII"),
714,700 shares held by Sprout Capital VI, L.P. ("SVI") and 113,181 shares
held by DLJ Capital Corporation ("DLJ"). Also includes 16,874 shares
issuable pursuant to option exercisable within 60 days of February 28,
1997 by DLJ. DLJ is the Managing General Partner of both SVI and SVII. Ms.
LaPorte, a director of the Company, is a general partner of DLJ Associates
VI, L.P. and DLJ Associates VII, L.P., the general partners of SVI and
SVII, respectively. Ms. LaPorte disclaims beneficial ownership of the
shares held by such entities, except to the extent of her pecuniary
interest therein. Ms. LaPorte may be deemed to exercise voting and
investment power over the shares held by affiliates of Sprout Group.
(3) Represents 946,093 shares held by U.S. Venture Partners IV, L.P. ("USVP
IV"), 114,843 shares held by Second Ventures II, L.P. ("SVLP II") and
32,812 shares held by USVP Entrepreneur Partners II, L.P. ("USVEP II").
Mr. Young, a director of the Company, is a general partner of Presidio
Management Group IV, L.P., the general partner of each of USVP IV, SVLP II
and USVEP II. Mr. Young disclaims beneficial ownership of the shares held
by such entities, except to the extent of his pecuniary interest therein.
Mr. Young may be deemed to exercise voting and investment power over the
shares held by affiliates of U.S. Venture Partners.
(4) Represents 448,128 shares held by The Thompson Family Trust, of which Mr.
Thompson and his wife are trustees, and 10,000 shares held by
Savage-Thompson Management, of which Mr. Thompson is a partner.
(5) Represents 448,128 shares held by The George and Nancy Savage Living
Trust, of which Dr. Savage and his wife are trustees, and 10,000 shares
held by Savage-Thompson Management, of which Dr. Savage is a partner.
(6) Represents 448,126 shares held by Kresch Medical Research, LLC. Also
includes 9,375 shares issuable pursuant to options exercisable within 60
days of February 28, 1997 by Dr. Kresch. Dr. Kresch is an owner and the
sole manager of Kresch Medical Research, LLC and may be deemed to exercise
voting and investment power over the shares held by such entity.
(7) Represents 14,791 shares issuable pursuant to options exercisable within
60 days of February 28, 1997.
(8) Represents 14,791 shares issuable pursuant to options exercisable within
60 days of February 28, 1997.
(9) Includes 2,187,499 shares held by entities affiliated with Sprout Group.
Also includes 16,874 shares issuable pursuant to options exercisable
within 60 days of February 28, 1997 by DLJ. Ms. LaPorte, a director of the
Company, disclaims beneficial ownership of the shares held by such
entities, except to the extent of her pecuniary interest therein.
(10) Includes 6,083 shares issuable pursuant to options exercisable within 60
days of February 28, 1997.
(11) Includes 1,093,748 shares held by entities affiliated with U.S. Venture
Partners. Mr. Young, a director of the Company, disclaims beneficial
ownership of the shares held by such entities, except to the extent of his
pecuniary interest therein. Also includes 14,791 shares issuable pursuant
to options exercisable within 60 days of February 28, 1997 by Mr. Young.
(12) Includes 5,000 shares issuable pursuant to options exercisable within 60
days of February 28, 1997.
(13) Includes 78,125 shares held by Takei Unkart Family Trust, of which Mr.
Unkart and his wife are trustees.
(14) Includes 84,830 shares issuable pursuant to options exercisable within 60
days of February 28, 1997 by the officers and directors as a group.
11
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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 December 31, 1996, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with; except that a
report of change in ownership was filed late by Craig E. Dauchy.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Directors do not currently receive any cash compensation from the Company
for their service as members of the Board of Directors, although they are
eligible for reimbursement for their expenses incurred in connection with
attendance at Board and Committee 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"). Only non-employee directors of the Company are eligible to receive
options under the Directors' Plan. Options granted under the Directors' Plan are
intended by the Company not to qualify as incentive stock options under the
Code.
Option grants under the Directors' Plan are non-discretionary. Pursuant to
the terms of the Directors' Plan, each non-employee director who was serving on
the date of the Company's initial public offering was granted on such date an
option to purchase 20,000 shares of Common Stock. In addition, each non-employee
director subsequently elected to the Board will automatically be granted on the
date of his or her election to the Board an option to purchase 20,000 shares of
Common Stock (the "Initial Grant"). On the one year anniversary date of the
Company's initial public offering, or the anniversary date of a non-employee
directors' election to the Board, if such non-employee director was not serving
in such capacity as of the date of the Company's initial public offering, and
each one-year anniversary thereafter, each member of the Company's Board of
Directors who is not an employee of the Company and has served as a non-employee
director for at least the full six month period prior, is automatically granted
an option to purchase 5,000 shares of Common Stock of the Company (the "Annual
Grant"). No other options may be granted at any time under the Directors' Plan.
The exercise price of options granted under the Directors' Plan is 100% of the
fair market value of the Common Stock subject to the option on the date of the
option grant. The Initial Grant under the Directors' Plan will generally vest at
the rate of 1/48th of the shares monthly. Annual Grants under the Directors'
Plan will vest entirely on, but not before, the first annual anniversary of the
Annual Grant. The term of options granted under the Directors' Plan is ten
years. In the event of a merger, dissolution, consolidation, certain reverse
mergers or certain acquisitions, options outstanding under the Directors' Plan
will automatically become fully vested and will terminate if not exercised prior
to the consummation of the transaction.
At February 28, 1997, there were 200,000 shares of the Company's Common
Stock authorized for issuance under the Directors' Plan. During the last fiscal
year, the Company granted options covering an aggregate of 100,000 shares to the
non-employee directors of the Company, at exercise prices ranging from $4.875 to
$9.00 per share. The fair market value of such Common Stock on the date of
grants was $4.875 and $9.00 per share (based on the closing price as reported on
the Nasdaq National Market for the day preceding the date of grant). As of
February 28, 1997, no options had been exercised under the Directors' Plan.
12
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF COMPENSATION
The following table shows for the fiscal years ended December 31, 1996 and
1995, compensation awarded or paid to, or earned by, the Company's Chief
Executive Officer and its other four most highly compensated executive officers
at December 31, 1996 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
-----------------------------------
OTHER ANNUAL ALL OTHER
SALARY BONUS COMPENSATION COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($)
- - ------------------------------------------ --------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Andrew M. Thompson 1996 150,000 16,500 -- --
President and Chief Executive Officer 1995 106,714 25,000 -- --
George M. Savage, M.D. 1996 150,000 16,500 -- --
Senior Vice President, Research and 1995 106,714 25,000 -- --
Development
Edward W. Unkart 1996 125,008 11,563 -- --
Vice President, Finance and 1995(1) -- -- -- --
Administration, Chief Financial Officer
and Assistant Secretary
Jeffrey J. Christian 1996 142,789 17,325 -- --
Vice President, Engineering 1995(1) -- -- -- --
John P. Costello 1996 135,000 25,000 117,153(3) 33,750(4)
Former Vice President, Sales and 1995(1) -- -- -- --
Marketing (2)
</TABLE>
- - ------------------------
(1) Messrs. Unkart, Christian and Costello were employed by the Company for less
than a full year during the fiscal year ended December 31, 1995 and for that
reason, earned less than $100,000 in compensation from the Company.
(2) Mr. Costello resigned from the Company, effective January 3, 1997.
(3) Includes $17,153 in direct reimbursement of moving and other expense
incurred in connection with relocating to California and $100,000 in loan
forgiveness related to promissory note secured by principal residence.
(4) Represents severance payments in connection with Mr. Costello's resignation
from the Company.
STOCK OPTION GRANTS AND EXERCISES
The Company grants options to its executive officers under its 1995 Plan as
previously described in detail in Proposal 2. The 1995 Plan was adopted by the
Board of Directors in April 1995 and has been amended three times, most recently
in March 1997. As of February 28, 1997, options to purchase a total of 796,351
shares were outstanding under the 1995 Plan and options to purchase 359,274
shares remained available for grant thereunder.
Pursuant to the 1995 Plan, the Company may grant incentive and nonstatutory
stock options to key employees, directors of or consultants or advisors to the
Company. If Proposal 2 is approved by the
13
<PAGE>
Stockholders of the Company a total of 1,955,625 shares of Common Stock will be
reserved for issuance under the 1995 Plan.
The 1995 Plan is administered by the Board of Directors and the Compensation
Committee. No vesting is required under the 1995 Plan, although it may be
imposed by the Board of Directors. The maximum term of a stock option under the
1995 Plan is 10 years, but if the optionee at the time of grant has voting power
over more than 10% of the Company's outstanding capital stock, the maximum term
of an incentive stock option is five years. The exercise price of stock options
granted under the 1995 Plan is determined by the Board of Directors. Options
granted under the 1995 Plan are generally non-transferable. The exercise price
may be paid in cash or any other form of consideration that may be acceptable to
the Board of Directors.
Options generally terminate three months after termination of the optionee's
employment or relationship as a consultant or director unless such termination
is caused by the permanent disability or death of the optionee. The 1995 Plan
may be amended at any time by the Board of Directors, although certain
amendments would require stockholder approval. The 1995 Plan will terminate in
April 2005, unless earlier terminated by the Board of Directors.
The following table sets forth certain information for the fiscal year ended
December 31, 1996, regarding options held at year-end by the Named Executive
Officers. No options to purchase shares of the Company's Common Stock were
exercised by the Named Executive Officers during the last fiscal year. For the
fiscal year ended December 31, 1996, the Company did not grant any stock options
to the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN FISCAL 1996, AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1996 DECEMBER 31, 1996
SHARES ACQUIRED VALUE (#) ($)
ON EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE(1)
- - ------------------------------------------ --------------- ----------- ----------------- -----------------
<S> <C> <C> <C> <C>
Andrew M. Thompson -- -- -0-/-0- -0-/-0-
George M. Savage, M.D. -- -- -0-/-0- -0-/-0-
Edward W. Unkart -- -- -0-/-0- -0-/-0-
Jeffrey J. Christian -- -- 5,000/-0- $ 19,140/-0-
John P. Costello (2) -- -- -0-/-0- -0-/-0-
</TABLE>
- - ------------------------
(1) Based on the closing price as reported on the Nasdaq National Market as of
December 31, 1996 ($4.50), minus the exercise price, multiplied by the
number of shares underlying the option.
(2) Mr. Costello resigned from the Company, effective January 3, 1997.
EMPLOYEE STOCK PURCHASE PLAN
In January 1996, the Company adopted the Employee Stock Purchase Plan (the
"Purchase Plan") covering an aggregate of 150,000 shares of Common Stock. The
Purchase Plan is intended to qualify as an employee stock purchase plan within
the meaning of Section 423 of the Code. Under the Purchase Plan, the Board of
Directors may authorize participation by eligible employees, including officers,
in periodic offerings following the adoption of the Purchase Plan. The offering
period for any offering will be no more than 27 months.
14
<PAGE>
Employees are generally not eligible to participate unless they are employed
by the Company or an affiliate of the Company for at least 20 hours per week and
are employed by the Company or a subsidiary of the Company designated by the
Board for at least five months per calendar year. Employees who participate in
an offering can have up to 15% of their earnings withheld and applied to the
purchase of Common Stock on specified dates determined by the Board of
Directors. The price of Common Stock purchased under the Purchase Plan will be
equal to 85% of the lower of the fair market value of the Common Stock on the
commencement date of each offering period or the relevant purchase date.
Employees may end their participation in the offering at any time during the
offering period, and participation ends automatically on termination of
employment with the Company.
In the event of a merger, dissolution, consolidation, certain reverse
mergers or certain acquisitions, the Board of Directors has discretion to
provide that each right to purchase Common Stock will be assumed or an
equivalent right substituted by the successor corporation, or the Board may
shorten the offering period and provide for all sums collected by payroll
deductions to be applied to purchase stock immediately prior to such
transaction. The Purchase Plan will terminate at the Board's discretion, subject
to the limitation that no such action may adversely affect any outstanding
rights to purchase Common Stock.
During the fiscal year ended December 31, 1996, the only Named Executive
Officer to purchase shares of Common Stock under the Purchase Plan was Edward W.
Unkart. Mr. Unkart purchased 2,545 shares of Common Stock, at $4.25 per share.
401(k) PLAN
In December 1995, the Company adopted an employee savings plan (the "401(k)
Plan") covering the Company's employees who have not elected out of 401(k) Plan
participation. Pursuant to the 401(k) Plan, eligible employees may elect to
reduce their current compensation by up to the lesser of 20% of their annual
compensation or the statutorily prescribed annual limit ($9,500 in 1996) and
have the amount of such reduction contributed to the 401(k) Plan. In addition,
eligible employees may make roll-over contributions to the 401(k) Plan from a
tax-qualified retirement plan. 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 401(k) Plan employee salary deferrals in selected investment
options.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION(1)
The Compensation Committee of the Board of Directors ("Committee") is
composed of Messrs. Ferrari, McLane and Young, none of whom are currently
officers or employees of the Company. The Committee is responsible for
establishing the Company's compensation programs for all employees, including
executives. For executive officers, the Committee evaluates performance and
determines compensation policies and levels.
- - ------------------------
(1) Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the
Exchange Act that might incorporate future filings, including this Proxy
Statement, in whole or in part, the following report and Performance Graph
on page shall not be incorporated by reference into any such filings. The
Committee's objective is to set executive compensation at the market average
when compared to leading companies in the medical device industry. The
primary components of executive compensation are base salary, annual
incentives and long-term equity incentives.
15
<PAGE>
COMPENSATION PHILOSOPHY
The goals of the compensation program are to align compensation with
business objectives and performance and to enable the Company to attract, retain
and reward executive officers and other key employees who contribute to the
long-term success of the Company and to motivate them to enhance long-term
stockholder value. Key elements of this philosophy are:
- The Company pays competitively with leading medical device companies with
which the Company competes for talent. To ensure that pay is competitive,
the Company regularly compares its pay practices with these companies and
sets it pay parameters based on this review.
- The Company maintains the FemRx Annual Bonus Plan to provide motivation to
achieve specific operating goals and to generate rewards that bring total
compensation to competitive levels.
- The Company provides significant equity-based incentives for executives
and other key employees to ensure that they are motivated over the
long-term to respond to the Company's business challenges and
opportunities as owners and not just as employees.
BASE SALARY. The Committee annually reviews each executive officer's base
salary. When reviewing base salaries, the Committee considers individual and
corporate performance, levels of responsibility, prior experience, breadth of
knowledge and competitive pay practices.
ANNUAL INCENTIVE. The FemRx Annual Bonus Plan, an annual incentive award
plan, is the variable pay program for officers and other senior managers of the
Company to earn additional annual compensation. The actual incentive award
earned depends on the extent to which Company and individual performance
objectives are achieved. At the start of each year, the Committee and the full
Board of Directors review and approve the annual performance objectives for the
Company and individual officers. The Company objectives consist of operating,
strategic and financial goals that are considered to be critical to the
Company's fundamental long-term goal -- building stockholder value. For fiscal
1996, these goals were:
- clinical and regulatory milestones for key products
- implementing strategies relating to the sale of the Company's products in
various international markets
- Company financial performance
After the end of the year, the Committee evaluates the degree to which the
Company has met its goals and establishes a total incentive award pool under the
FemRx Annual Bonus Plan. Individual awards are determined by evaluating each
participant's performance against objectives and allocating a portion of the
award pool based on the participant's contributions during the year. Awards are
paid in cash and distributions are made in the February following the
performance year.
LONG-TERM INCENTIVES. The Company's long-term incentive program consists of
the 1995 Plan and the Purchase Plan. The option program utilizes vesting periods
(generally four years) to encourage key employees to continue in the employ of
the Company. Through option grants, executives receive significant equity
incentives to build long-term stockholder value. Grants are made at 100% of fair
market value on the date of grant. Executives receive value from these grants
only if the Company's Common Stock appreciates over the long-term. The size of
option grants is determined based on competitive practices at leading companies
in the medical device industry and the Company's philosophy of significantly
linking executive compensation with stockholder interests. During the last
fiscal year, the Board did not grant any options to purchase shares of Common
Stock of the Company to the Named Executive Officers, however, in March 1997,
the Board granted options to purchase an aggregate of 310,000 shares of Common
Stock of the Company to the Named Executive Officers.
16
<PAGE>
The Company established the Purchase Plan both to encourage employees to
continue in the employ of the Company and to motivate employees through
ownership interest in the Company. Under the Purchase Plan, employees, including
officers, may have up to 15% of their earnings withheld for purchases of Common
Stock on certain dates specified by the Board. The price of Common Stock
purchased will not be less than the lesser of an amount equal to 85% of the
lower of the fair market value of the Common Stock on the commencement date of
the offering or the relevant purchase date.
CORPORATE PERFORMANCE AND CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Thompson's base salary at the beginning of 1996 as President and Chief
Executive Officer was $150,000. Following the Committee's review of compensation
paid by leading medical device companies, the Committee set Mr. Thompson's base
annual salary through 1996 at $150,000. This amount, in addition to the annual
incentive provided by the FemRx Annual Bonus Plan, was estimated to provide an
annual cash compensation level at the average as compared to a selected group of
leading medical device companies. In setting this amount, the Committee took
into account (i) its belief that Mr. Thompson is one of the CEOs of leading
medical device companies who has significant and broad-based experience in the
medical device industry, (ii) the scope of Mr. Thompson's responsibility, and
(iii) the Board's confidence in Mr. Thompson to lead the Company's continued
development.
FEDERAL TAX CONSIDERATION
Section 162(m) of the Code limits the Company to a deduction for federal
income tax purposes of no more than $1 million of compensation paid to certain
Named Executive Officers in a taxable year. Compensation above $1 million may be
deducted if it is "performance-based compensation" within the meaning of the
Code.
The 500,000 shares per person limitation in the 1995 Plan is intended to
comply with the provisions of Section 162(m) of the Code. The Compensation
Committee intends to continue to evaluate the effects of the statute and the
Treasury regulations and to comply with Code Section 162(m) in the future to the
extent consistent with the best interests of the Company.
CONCLUSION
Through the plans described above, a significant portion of the Company's
compensation program and Mr. Thompson's compensation are contingent on Company
performance, and realization of benefits is closely linked to increases in
long-term stockholder value. The Company remains committed to this philosophy of
pay for performance, recognizing that the competitive market for talented
executives and the volatility of the Company's business may result in highly
variable compensation for a particular time period.
COMPENSATION COMMITTEE
Richard M. Ferrari
James W. McLane
Philip M. Young
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As stated above, the Compensation Committee consists of Messrs. Ferrari,
McLane and Young. The Compensation Committee makes recommendations concerning
salaries and incentive compensation, awards stock options to employees and
consultants under the Company's stock option plans and otherwise determines
compensation levels and performs such other functions regarding compensation as
the Board may delegate.
17
<PAGE>
PERFORMANCE MEASUREMENT COMPARISON(1)
The following graph shows the total stockholder return of an investment of
$100 in cash on March 27, 1996 for (i) the Company's Common Stock, (ii) the
Nasdaq Stock Market (U.S.) Index and (iii) the Standard & Poor's Health Care
(Medical Products and Supplies) Index. All values assume reinvestment of the
full amount of all dividends and are calculated as of the end of each month:
COMPARISON OF 9 MONTH CUMULATIVE TOTAL RETURN ON INVESTMENT
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
S & P HEALTH CARE
<S> <C> <C> <C>
FEMRX, INC. NASDAQ STOCK MARKET-US (MEDICAL PRODUCTS & SUPPLIES)
3/27/96 $100 $100 $100
3/96 108 100 99
4/96 129 109 96
5/96 181 114 97
6/96 120 109 98
7/96 92 99 91
8/96 75 104 95
9/96 92 112 109
10/96 56 111 107
11/96 64 118 109
12/96 50 118 110
</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 1933 Act or the 1934 Act whether made before or after the date
hereof and irrespective of any general incorporation language in any such
filing.
18
<PAGE>
CERTAIN TRANSACTIONS
The Company has entered into indemnity agreements with certain officers and
directors which provide, among other things, that the Company will indemnify
such officer or director, under the circumstances and to the extent provided for
therein, for expenses, damages, judgments, fines and settlements he may be
required to pay in actions or proceedings which he is or may be made a party by
reason of his position as a director, officer or other agent of the Company, and
otherwise to the full extent permitted under Delaware law and the Company's
By-laws.
On January 8, 1996, the Company sold and John P. Costello, former Vice
President, Sales and Marketing, purchased 112,500 shares of Common Stock for an
aggregate purchase price of $75,600. Mr. Costello paid the purchase price for
the shares of Common Stock with a combination of $18,000 cash and a promissory
note in the principal amount of $57,600. On January 9, 1997 the Company
repurchased 84,375 unvested shares of Common Stock for an aggregate purchase
price of $56,700 and 28,125 vested shares of Common Stock for an aggregate
purchase price of $46,912.50
In 1996, the Company loaned Mr. Costello $100,000 in connection with his
relocation to California and Mr. Costello resigned from the Company effective
January 3, 1997. In connection with Mr. Costello's separation from the Company,
the Company paid Mr. Costello $33,750, his base salary for three months, a
$25,000 performance bonus for 1996, and forgave the $100,000 balance on Mr.
Costello's loan from the Company.
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
/s/ CRAIG E. DAUCHY
Craig E. Dauchy
SECRETARY
April 21, 1997
A COPY OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 IS AVAILABLE
WITHOUT CHARGE UPON WRITTEN REQUEST TO: INVESTOR RELATIONS, FEMRX, INC., 1221
INNSBRUCK, SUNNYVALE, CALIFORNIA 94089.
19
<PAGE>
FEMRX, INC. APPENDIX A
1995 STOCK OPTION PLAN
ADOPTED APRIL 5, 1995
APPROVED BY STOCKHOLDERS APRIL 5, 1995
AMENDED APRIL 10, 1995
AMENDED JANUARY 30, 1996
APPROVED BY STOCKHOLDERS FEBRUARY 21, 1996
AMENDED MARCH 3, 1997
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company, and its Affiliates,
may be given an opportunity to purchase stock of the Company.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of or Consultants to the Company or
its Affiliates, to secure and retain the services of new Employees, Directors
and Consultants, and to provide incentives for such persons to exert maximum
efforts for the success of the Company and its Affiliates.
(c) The Company intends that the Options issued under the Plan shall, in
the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3(c), be
either Incentive Stock Options or Nonstatutory Stock Options. All Options shall
be separately designated Incentive Stock Options or Nonstatutory Stock Options
at the time of grant, and in such form as issued pursuant to Section 6, and a
separate certificate or certificates will be issued for shares purchased on
exercise of each type of Option.
<PAGE>
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
(e) "COMPANY" means FemRx, Inc.
(f) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
(g) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means the
employment or relationship as a Director or Consultant is not interrupted or
terminated. The Board, in its sole discretion, may determine whether Continuous
Status as an Employee, Director or Consultant shall be considered interrupted in
the case of: (i) any leave of absence approved by the Board, including sick
leave, military leave, or any other personal leave; or (ii) transfers between
locations of the Company or between the Company, Affiliates or their successors.
(h) "COVERED EMPLOYEE" means the chief executive officer and the four (4)
other highest compensated officers of the Company for whom total compensation is
required to be
2.
<PAGE>
reported to stockholders under the Exchange Act, as determined for purposes of
Section 162(m) of the Code.
(i) "DIRECTOR" means a member of the Board.
(j) "DISINTERESTED PERSON" means a Director who either (i) was not during
the one year prior to service as an administrator of the Plan granted or awarded
equity securities pursuant to the Plan or any other plan of the Company or any
Affiliate entitling the participants therein to acquire equity securities of the
Company or any Affiliate except as permitted by Rule 16b-3(c)(2)(i); or (ii) is
otherwise considered to be a "disinterested person" in accordance with Rule 16b-
3(c)(2)(i), or any other applicable rules, regulations or interpretations of the
Securities and Exchange Commission.
(k) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of the common
stock of the Company determined as follows:
(1) If the common stock is listed on any established stock exchange
or a national market system, including without limitation the National Market
System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, the Fair Market Value of a share of common stock
shall be the closing sales price for such stock (or the closing bid, if no sales
were reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in common stock) on the last market trading day prior
to the
3.
<PAGE>
day of determination, as reported in the Wall Street Journal or such other
source as the Board deems reliable;
(2) If the common stock is quoted on the NASDAQ System (but not on
the National Market System thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a share of common stock shall be the mean between the bid and asked prices for
the common stock on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable;
(3) In the absence of an established market for the common stock, the
Fair Market Value shall be determined in good faith by the Board.
(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as
an Incentive Stock Option.
(p) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(q) "OPTION" means a stock option granted pursuant to the Plan.
(r) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.
(s) "OPTIONEE" means an Employee, Director or Consultant who holds an
outstanding Option.
4.
<PAGE>
(t) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
the Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(u) "PLAN" means this 1995 Stock Option Plan.
(v) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3, as in effect when discretion is being exercised with respect to the
Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the Board
delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(1) To determine from time to time which of the persons eligible
under the Plan shall be granted Options; when and how each Option shall be
granted; whether an Option will be an Incentive Stock Option or a Nonstatutory
Stock Option; the provisions of each Option granted (which need not be
identical), including the time or times such Option may be exercised in whole or
in part; and the number of shares for which an Option shall be granted to each
such person.
5.
<PAGE>
(2) To construe and interpret the Plan and Options granted under it,
and to establish, amend and revoke rules and regulations for its administration.
The Board, in the exercise of this power, may correct any defect, omission or
inconsistency in the Plan or in any Option Agreement, in a manner and to the
extent it shall deem necessary or expedient to make the Plan fully effective.
(3) To amend the Plan or an Option as provided in Section 11.
(4) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company.
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members (the "Committee"), all of the members
of which Committee shall be Disinterested Persons and may also be, in the
discretion of the Board, Outside Directors. If administration is delegated to a
Committee, the Committee shall have, in connection with the administration of
the Plan, the powers theretofore possessed by the Board (and references in this
Plan to the Board shall thereafter be to the Committee), subject, however, to
such resolutions, not inconsistent with the provisions of the Plan, as may be
adopted from time to time by the Board. The Board may abolish the Committee at
any time and revest in the Board the administration of the Plan.
Notwithstanding anything in this Section 3 to the contrary, the Board or the
Committee may delegate to a committee of one or more members of the Board the
authority to grant Options to eligible persons who (1) are not then subject to
Section 16 of the Exchange Act and/or (2) are either (i) not then Covered
Employees and are not expected to be Covered Employees at the time of
recognition of income resulting from such Option, or (ii) not persons with
respect to whom the Company wishes to comply with Section 162(m) of the Code.
6.
<PAGE>
(d) Any requirement that an administrator of the Plan be a Disinterested
Person shall not apply if the Board or the Committee expressly declares that
such requirement shall not apply. Any Disinterested Person shall otherwise
comply with the requirements of Rule 16b-3.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 10 relating to adjustments upon
changes in stock, the stock that may be sold pursuant to Options shall not
exceed in the aggregate one million nine hundred fifty-five thousand six hundred
twenty-five (1,955,625) shares of the Company's common stock. If any Option
shall for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full, the stock not purchased under such Option shall
revert to and again become available for issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to Employees.
Nonstatutory Stock Options may be granted only to Employees, Directors or
Consultants.
(b) A Director shall in no event be eligible for the benefits of the Plan
unless at the time discretion is exercised in the selection of the Director as a
person to whom Options may be granted, or in the determination of the number of
shares which may be covered by Options granted to the Director: (i) the Board
has delegated its discretionary authority over the Plan to a Committee which
consists solely of Disinterested Persons; or (ii) the Plan otherwise complies
with the requirements of Rule 16b-3. The Board shall otherwise comply with the
requirements of Rule 16b-3. This subsection 5(b) shall not apply if the Board
or Committee expressly declares that it shall not apply.
7.
<PAGE>
(c) No person shall be eligible for the grant of an Incentive Stock Option
if, at the time of grant, such person owns (or is deemed to own pursuant to
Section 424(d) of the Code) stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or of any of
its Affiliates unless the exercise price of such Incentive Stock Option is at
least one hundred ten percent (110%) of the Fair Market Value of such stock at
the date of grant and the Option is not exercisable after the expiration of five
(5) years from the date of grant.
(d) Subject to the provisions of Section 10 relating to adjustments upon
changes in stock, no person shall be eligible to be granted Options covering
more than five hundred thousand (500,000) shares of the Company's common stock
in any calendar year.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option shall be not
less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted. The exercise price of
each Nonstatutory Stock Option shall be not less than eighty-five percent (85%)
percent of the Fair Market Value of the stock subject to the Option on the date
the Option is granted.
8.
<PAGE>
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, at the time of the grant of the
Option, (A) by delivery to the Company of other common stock of the Company,
(B) according to a deferred payment arrangement, except that payment of the
common stock's "par value" (as defined in the Delaware General Corporation Law)
shall not be made by deferred payment, or other arrangement (which may include,
without limiting the generality of the foregoing, the use of other common stock
of the Company) with the person to whom the Option is granted or to whom the
Option is transferred pursuant to subsection 6(d), or (C) in any other form of
legal consideration that may be acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be payable
at least annually and shall be charged at the minimum rate of interest necessary
to avoid the treatment as interest, under any applicable provisions of the Code,
of any amounts other than amounts stated to be interest under the deferred
payment arrangement.
(d) TRANSFERABILITY. An Incentive Stock Option shall not be transferable
except by will or by the laws of descent and distribution, and shall be
exercisable during the lifetime of the person to whom the Incentive Stock Option
is granted only by such person. A Nonstatutory Stock Option shall not be
transferable except by will or by the laws of descent and distribution or
pursuant to a qualified domestic relations order satisfying the requirements of
Rule 16b-3 and the rules thereunder (a "QDRO"), and shall be exercisable during
the lifetime of the person to whom the Option is granted only by such person or
any transferee pursuant to a QDRO. The person to whom the Option is granted
may, by delivering written notice to the Company, in a
9.
<PAGE>
form satisfactory to the Company, designate a third party who, in the event
of the death of the Optionee, shall thereafter be entitled to exercise the
Option.
(e) VESTING. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option Agreement may provide that from time to time during
each of such installment periods, the Option may become exercisable ("vest")
with respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The provisions of this
subsection 6(e) are subject to any Option provisions governing the minimum
number of shares as to which an Option may be exercised.
(f) SECURITIES LAW COMPLIANCE. The Company may require any Optionee, or
any person to whom an Option is transferred under subsection 6(d), as a
condition of exercising any such Option, (1) to give written assurances
satisfactory to the Company as to the Optionee's knowledge and experience in
financial and business matters and/or to employ a purchaser representative
reasonably satisfactory to the Company who is knowledgeable and experienced in
financial and business matters, and that he or she is capable of evaluating,
alone or together with the purchaser representative, the merits and risks of
exercising the Option; and (2) to give written assurances satisfactory to the
Company stating that such person is acquiring the stock subject to the Option
for such person's own account and not with any present intention of selling or
otherwise distributing the stock. The foregoing requirements, and any
assurances given pursuant to such requirements, shall be inoperative if (i) the
issuance of the shares upon the
10.
<PAGE>
exercise of the Option has been registered under a then currently effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), or (ii) as to any particular requirement, a determination
is made by counsel for the Company that such requirement need not be met in
the circumstances under the then applicable securities laws. The Company
may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including,
but not limited to, legends restricting the transfer of the stock.
(g) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR CONSULTANT.
In the event an Optionee's Continuous Status as an Employee, Director or
Consultant terminates (other than upon the Optionee's death or disability), the
Optionee may exercise his or her Option (to the extent that the Optionee was
entitled to exercise it at the date of termination) but only within such period
of time ending on the earlier of (i) the date three (3) months after the
termination of the Optionee's Continuous Status as an Employee, Director or
Consultant, or such longer or shorter period specified in the Option Agreement,
or (ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, after termination, the Optionee does not exercise his or her
Option within the time specified in the Option Agreement, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
(h) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous Status
as an Employee, Director or Consultant terminates as a result of the Optionee's
disability, the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified
11.
<PAGE>
in the Option Agreement), or (ii) the expiration of the term of the Option as
set forth in the Option Agreement. If, at the date of termination, the
Optionee is not entitled to exercise his or her entire Option, the shares
covered by the unexercisable portion of the Option shall revert to and again
become available for issuance under the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified
herein, the Option shall terminate, and the shares covered by such Option
shall revert to and again become available for issuance under the Plan.
(i) DEATH OF OPTIONEE. In the event of the death of an Optionee during,
or within a period specified in the Option after the termination of, the
Optionee's Continuous Status as an Employee, Director or Consultant, the Option
may be exercised (to the extent the Optionee was entitled to exercise the Option
at the date of death) by the Optionee's estate, by a person who acquired the
right to exercise the Option by bequest or inheritance or by a person designated
to exercise the option upon the Optionee's death pursuant to subsection 6(d),
but only within the period ending on the earlier of (i) the date eighteen (18)
months following the date of death (or such longer or shorter period specified
in the Option Agreement), or (ii) the expiration of the term of such Option as
set forth in the Option Agreement. If, at the time of death, the Optionee was
not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate, and the shares
covered by such Option shall revert to and again become available for issuance
under the Plan.
(j) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the
12.
<PAGE>
Option as to any part or all of the shares subject to the Option prior to the
full vesting of the Option. Any unvested shares so purchased may be subject
to a repurchase right in favor of the Company or to any other restriction the
Board determines to be appropriate.
(k) WITHHOLDING. To the extent provided by the terms of an Option
Agreement, the Optionee may satisfy any federal, state or local tax withholding
obligation relating to the exercise of such Option by any of the following means
or by a combination of such means: (1) tendering a cash payment; (2)
authorizing the Company to withhold shares from the shares of the common stock
otherwise issuable to the participant as a result of the exercise of the Option;
or (3) delivering to the Company owned and unencumbered shares of the common
stock of the Company.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the Options, the Company shall keep available at
all times the number of shares of stock required to satisfy such Options.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the Options; PROVIDED, HOWEVER,
that this undertaking shall not require the Company to register under the
Securities Act either the Plan, any Option or any stock issued or issuable
pursuant to any such Option. If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such Options unless and until
such authority is obtained.
13.
<PAGE>
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
9. MISCELLANEOUS.
(a) The Board shall have the power to accelerate the time at which an
Option may first be exercised or the time during which an Option or any part
thereof will vest pursuant to subsection 6(e), notwithstanding the provisions in
the Option stating the time at which it may first be exercised or the time
during which it will vest.
(b) Neither an Optionee nor any person to whom an Option is transferred
under subsection 6(d) shall be deemed to be the holder of, or to have any of the
rights of a holder with respect to, any shares subject to such Option unless and
until such person has satisfied all requirements for exercise of the Option
pursuant to its terms.
(c) Nothing in the Plan or any instrument executed or Option granted
pursuant thereto shall confer upon any Employee, Director, Consultant or
Optionee any right to continue in the employ of the Company or any Affiliate (or
to continue acting as a Director or Consultant) or shall affect the right of the
Company or any Affiliate to terminate the employment of any Employee, with or
without cause, to remove any Director as provided in the Company's bylaws and
the provisions of the General Corporation Law of the State of Delaware, or to
terminate the relationship of any Consultant in accordance with the terms of
that Consultant's agreement with the Company or Affiliate to which such
Consultant is providing services.
(d) To the extent that the aggregate Fair Market Value (determined at the
time of grant) of stock with respect to which Incentive Stock Options granted
after 1986 are exercisable for the first time by any Optionee during any
calendar year under all plans of the Company and
14.
<PAGE>
its Affiliates exceeds one hundred thousand dollars ($100,000), the Options
or portions thereof which exceed such limit (according to the order in which
they were granted) shall be treated as Nonstatutory Stock Options.
(e) (1) The Board or the Committee shall have the authority to effect, at
any time and from time to time (i) the repricing of any outstanding Options
under the Plan and/or (ii) with the consent of the affected holders of Options,
the cancellation of any outstanding Options and the grant in substitution
therefor of new Options under the Plan covering the same or different numbers of
shares of Common Stock, but having an exercise price per share not less than
eighty-five percent (85%) percent of the Fair Market Value (one hundred percent
(100%) of the Fair Market Value in the case of an Incentive Stock Option or, in
the case of a ten percent (10%) stockholder (as defined in subsection 5(c)), not
less than one hundred and ten percent (110%) of the Fair Market Value) per share
of Common Stock underlying the Incentive Stock Option on the new grant date.
(2) Shares subject to an Option canceled under this subsection 9(e)
shall continue to be counted against the maximum award of Options permitted to
be granted pursuant to subsection 5(d) of the Plan. The repricing of an Option
under this subsection 9(e), resulting in a reduction of the exercise price,
shall be deemed to be a cancellation of the original Option and the grant of a
substitute Option; in the event of such repricing, both the original and the
substituted Options shall be counted against the maximum awards of Options
permitted to be granted pursuant to subsection 5(d) of the Plan. The provisions
of this subsection 9(e) shall be applicable only to the extent required by
Section 162(m) of the Code.
15.
<PAGE>
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject to
any Option (through merger, consolidation, reorganization, recapitalization,
stock dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of shares subject to the Plan pursuant to subsection 4(a) and the maximum
number of shares subject to award to any person during any calendar year
pursuant to subsection 5(d), and the outstanding Options will be appropriately
adjusted in the class(es) and number of shares and price per share of stock
subject to such outstanding Options.
(B) In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation; or (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Company's
common stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise; or (4) the acquisition by any person, entity or group within
the meaning of Section 13(d) or 14(d) of the Exchange Act, or any comparable
successor provisions (excluding any employee benefit plan, or related trust,
sponsored or maintained by the Company or any Affiliate of the Company) of the
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of directors, then to the extent permitted by applicable
law: (i) any surviving or acquiring corporation shall assume any Options
outstanding under the Plan or shall substitute
16.
<PAGE>
similar Options (including an option to acquire the same consideration paid
to the stockholders in the transaction described in this subsection 10(b))
for those outstanding under the Plan, or (ii) such Options shall continue in
full force and effect. In the event any surviving or acquiring corporation
refuses to assume such Options, or to substitute similar options for those
outstanding under the Plan, then, with respect to Options held by persons
then performing services as Employees, Directors or Consultants, the time
during which such Options may be exercised shall be accelerated prior to such
event and the Options terminated if not exercised after such acceleration and
at or prior to such event.
11. AMENDMENT OF THE PLAN AND OPTIONS.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 10 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(1) Increase the number of shares reserved for Options under the
Plan;
(2) Modify the requirements as to eligibility for participation in
the Plan (to the extent such modification requires stockholder approval in order
for the Plan to satisfy the requirements of Section 422 of the Code); or
(3) Modify the Plan in any other way if such modification requires
stockholder approval in order for the Plan to satisfy the requirements of
Section 422 of the Code or to comply with the requirements of Rule 16b-3.
(b) The Board may in its sole discretion submit any other amendment to the
Plan for stockholder approval, including, but not limited to, amendments to the
Plan intended to satisfy the requirements of Section 162(m) of the Code and the
regulations promulgated thereunder
17.
<PAGE>
regarding the exclusion of performance-based compensation from the limit on
corporate deductibility of compensation paid to certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide Optionees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to Incentive Stock Options
and/or to bring the Plan and/or Incentive Stock Options granted under it into
compliance therewith.
(d) Rights and obligations under any Option granted before amendment of
the Plan shall not be impaired by any amendment of the Plan unless (i) the
Company requests the consent of the person to whom the Option was granted and
(ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms of
any one or more Options; PROVIDED, HOWEVER, that the rights and obligations
under any Option shall not be impaired by any such amendment unless (i) the
Company requests the consent of the person to whom the Option was granted and
(ii) such person consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on April 1, 2005, which shall be
within ten (10) years from the date the Plan is adopted by the Board or approved
by the stockholders of the Company, whichever is earlier. No Options may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Option granted while the Plan is in
effect shall not be impaired by suspension or termination of the Plan, except
with the consent of the person to whom the Option was granted.
18.
<PAGE>
13. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Options
granted under the Plan shall be exercised unless and until the Plan has been
approved by the stockholders of the Company, which approval shall be within
twelve (12) months before or after the date the Plan is adopted by the Board.
19.
<PAGE>
APPENDIX B
FEMRX, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 12, 1997
The undersigned hereby appoints ANDREW M. THOMPSON, GEORGE M. SAVAGE and
EDWARD W. UNKART, and each of them, as attorneys and proxies of the
undersigned, with full power of substitution, to vote all of the shares of
stock of FemRx, Inc. which the undersigned may be entitled to vote at the
Annual Meeting of Stockholders of FemRx, Inc. to be held at the Company's
principal executive offices at 1221 Innsbruck Drive, Sunnyvale, California
94089 on Monday, May 12, 1997 at 9:30 a.m., (local time, and at any and all
postponements, continuations and adjournments thereof, with all powers that
the undersigned would possess if personally present, upon and in respect of
the following matters and in accordance with the following instructions, with
discretionary authority as to any and all other matters that may properly
come before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
ALL NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2 AND 3, AS MORE
SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE
INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
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^FOLD AND DETACH HERE^
<PAGE>
Please mark / X /
your vote as
indicated in
this example
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW.
PROPOSAL 1: To elect directors to hold office until the next Annual
Meeting of Stockholders and until their successors are elected.
/ / FOR all nominees listed below / / WITHHOLD AUTHORITY to
(except as marked to the contrary vote for all nominees
below). listed below.
NOMINEES: Kathleen D. LaPorte, Andrew M. Thompson, George M. Savage,
Richard M. Ferrari, Gail Gaumer, James W. McLane and Philip M. Young.
TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE(S), WRITE SUCH NOMINEE(S)'
NAME(S) BELOW:
______________________________________________________________________________
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSALS 2 AND 3.
PROPOSAL 2: To approve the Company's 1995 Stock Option Plan, as amended,
to increase the aggregate number of shares of Common Stock
authorized for issuance under such plan by 800,000 shares.
/ / FOR / / AGAINST / / ABSTAIN
PROPOSAL 3: To ratify selection of Ernst & Young LLP as independent
auditors of the Company for its fiscal year ending
December 31, 1997.
/ / FOR / / AGAINST / / ABSTAIN
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS HEREON. IF THE STOCK IS REGISTERED
IN THE NAMES OF TWO OR MORE PERSONS, EACH SHOULD SIGN. EXECUTORS,
ADMINISTRATORS, TRUSTEES, GUARDIANS AND ATTORNEYS-IN-FACT SHOULD ADD THEIR
TITLES. IF SIGNER IS A CORPORATION, PLEASE GIVE FULL CORPORATE NAME AND HAVE
A DULY AUTHORIZED OFFICER SIGN, STATING TITLE. IF SIGNER IS A PARTNERSHIP,
PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
_________
|
|
|
SIGNATURE(S) ______________________________________
______________________________________ Dated ____________, 1997
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
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^FOLD AND DETACH HERE^
