<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
CARDIAC PATHWAYS CORPORATION
- --------------------------------------------------------------------------------
(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/ $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(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):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / 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:
_
(2) Form, Schedule or Registration Statement No.:
_
(3) Filing Party:
_
(4) Date Filed:
_
<PAGE> 2
CARDIAC PATHWAYS CORPORATION
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 9, 1996
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of CARDIAC
PATHWAYS CORPORATION, a Delaware corporation (the "Company"), will be held on
Wednesday, October 9, 1996 at 9:00 a.m. local time, at 995 Benecia Avenue,
Sunnyvale, California 94086 for the following purposes:
1. To elect two (2) Class I directors to serve for a three-year term.
2. To ratify the appointment of Ernst & Young LLP as independent auditors
of the Company for the fiscal year ending June 30, 1997.
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. Only stockholders of record at the close of
business on August 15, 1996 are entitled to notice of and to vote at the
meeting.
All stockholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed Proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the meeting may vote in person even if he or she has returned a Proxy.
Sincerely,
William N. Starling
President and Chief Executive Officer
Sunnyvale, California
September 5, 1996
YOUR VOTE IS IMPORTANT.
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE REQUESTED
TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE AND
RETURN IT IN THE ENCLOSED ENVELOPE.
<PAGE> 3
CARDIAC PATHWAYS CORPORATION
------------------------
PROXY STATEMENT FOR 1996
ANNUAL MEETING OF STOCKHOLDERS
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
CARDIAC PATHWAYS CORPORATION, a Delaware corporation (the "Company"), for use at
the Annual Meeting of Stockholders to be held Wednesday, October 9, 1996 at 9:00
a.m. local time, or at any adjournment thereof, for the purposes set forth
herein and in the accompanying Notice of Annual Meeting of Stockholders. The
Annual Meeting will be held at the Company's principal executive offices which
are located at 995 Benecia Avenue, Sunnyvale, California 94086. The Company's
telephone number at that location is (408) 737-0505.
These proxy solicitation materials and the Annual Report to Stockholders
for the year ended June 30, 1996, including financial statements, were first
mailed on or about September 5, 1996 to all stockholders entitled to vote at the
meeting.
RECORD DATE AND PRINCIPAL SHARE OWNERSHIP
Stockholders of record at the close of business on August 15, 1996 are
entitled to notice of and to vote at the meeting. The Company has one series of
Common shares outstanding, designated Common Stock, $.001 par value. At the
record date, 9,285,731 shares of the Company's Common Stock were issued and
outstanding and held of record by 244 stockholders. No shares of the Company's
Preferred Stock were outstanding.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a later
date or by attending the meeting and voting in person.
VOTING AND SOLICITATION
Each stockholder is entitled to one vote for each share held. Every
stockholder voting for the election of directors (Proposal One) may cumulate
such stockholder's votes and give one candidate a number of votes equal to the
number of directors to be elected multiplied by the number of shares that such
stockholder is entitled to vote, or distribute such stockholder's votes on the
same principle among as many candidates as the stockholder may select, provided
that votes cannot be cast for more than two candidates. However, no stockholder
shall be entitled to cumulate votes unless the candidate's name has been placed
in nomination prior to the voting and the stockholder, or any other stockholder,
has given notice at the meeting, prior to the voting, of the intention to
cumulate the stockholder's votes. On all other matters, each share of Common
Stock has one vote. A quorum comprising the holders of the majority of the
outstanding shares of Common Stock on the record date must be present or
represented for the transaction of business at the Annual Meeting. Abstentions
and broker non-votes will be counted in establishing the quorum.
This solicitation of proxies is made by the Company, and all related costs
will be borne by the Company. The Company may reimburse brokerage firms and
other persons representing beneficial owners of shares for their expenses in
forwarding solicitation material to such beneficial owners. Proxies may also be
solicited by certain of the Company's directors, officers and regular employees,
without additional compensation, personally or by telephone or telegram.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be presented
by such stockholders at the Company's 1997 Annual Meeting of Stockholders must
be received by the Company no later than May 8, 1997 in order that they may be
considered for inclusion in the proxy statement and form of proxy relating to
that meeting.
1
<PAGE> 4
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock of the Company as of August 15, 1996 as to (i) each
person or entity who is known by the Company to own beneficially more than 5% of
the outstanding shares of Common Stock, (ii) each director of the Company, (iii)
each of the Named Executive Officers (as defined below under "Executive
Compensation and Other Matters -- Executive Compensation -- Summary Compensation
Table") and (iv) all directors and executive officers of the Company as a group.
Except as otherwise noted, the stockholders named in the table have sole voting
and investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to applicable community property laws.
<TABLE>
<CAPTION>
APPROXIMATE
COMMON STOCK PERCENTAGE
BENEFICIAL OWNER BENEFICIALLY OWNED OWNED (1)
- ---------------------------------------------------------------- ------------------ -----------
<S> <C> <C>
Mohr, Davidow Ventures II(2).................................... 860,112 9.3%
(Lawrence G. Mohr)
3000 Sand Hill Road
Bldg. 1, Ste. 240
Menlo Park, CA 94025
Arrow International, Inc.(3).................................... 614,334 6.6%
P.O. Box 12888
3000 Bernville Road
Reading, PA 19612
Entities affiliated with Delphi BioVentures, L.P.(4)............ 546,556 5.9%
3000 Sand Hill Road
Bldg. 1, Ste. 135
Menlo Park, CA 94025
Mir A. Imran(5)................................................. 532,153 5.7%
c/o Cardiac Pathways Corporation
995 Benecia Avenue
Sunnyvale, CA 94086
Entities affiliated with Oak Investment Partners(6)............. 485,556 5.2%
One Gorham Island
Westport, CT 06880
William N. Starling(7).......................................... 323,945 3.4%
Annette J. Campbell-White(8).................................... 293,746 3.2%
Thomas J. Fogarty, M.D.(9)...................................... 245,779 2.7%
Joseph P. Ilvento, M.D.(10)..................................... 54,235 *
Michael L. Eagle................................................ 0 --
Richard E. Riley(11)............................................ 87,292 *
Eric N. Doelling(12)............................................ 71,737 *
David W. Gryska(13)............................................. 66,042 *
Mark L. Pomeranz(14)............................................ 46,054 *
All Directors and executive officers as a group
(13 persons)(15).............................................. 2,194,288 22.8%
</TABLE>
- ---------------
* Less than 1%
(1) Applicable percentage ownership is based on 9,285,731 shares of Common
Stock outstanding as of August 15, 1996 together with applicable options or
warrants for such stockholder. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission, based
on factors including voting and investment power with respect to shares
subject to the applicable community property laws. Shares of Common Stock
subject to options or warrants currently exercisable or exercisable within
60 days after August 15, 1996 are deemed outstanding for computing the
percentage ownership of the person holding such options, but are not deemed
outstanding for computing the percentage of any other person.
2
<PAGE> 5
(2) Includes 16,667 shares held by Lawrence G. Mohr. Also includes 12,000
shares of Common Stock which may be acquired upon exercise of a warrant
exercisable within 60 days of August 15, 1996 held by Mohr, Davidow
Ventures II. Mr. Mohr is a general partner of Mohr, Davidow Ventures II and
disclaims beneficial ownership of the shares held by such entity except to
the extent of his proportionate partnership interest therein.
(3) Includes 7,667 shares of Common Stock which may be acquired upon exercise
of a warrant exercisable within 60 days of August 15, 1996.
(4) Consists of (i) 1,369 shares of Common Stock and 9 shares of Common Stock
which may be acquired upon exercise of a warrant exercisable within 60 days
of August 15, 1996 held by Delphi BioInvestment, L.P., (ii) 848 shares of
Common Stock and 29 shares of Common Stock which may be acquired upon
exercise of a warrant exercisable within 60 days of August 15, 1996 held by
Delphi BioInvestment II, L.P., (iii) 385,753 shares of Common Stock and
2,391 shares of Common Stock which may be acquired upon exercise of a
warrant exercisable within 60 days of August 15, 1996 held by Delphi
BioVentures, L.P. and (iv) 150,586 shares of Common Stock and 5,571 shares
of Common Stock which may be acquired upon exercise of a warrant
exercisable within 60 days of August 15, 1996 held by Delphi BioVentures
II, L.P.
(5) Includes 11,111 shares of Common Stock which may be acquired upon exercise
of stock options exercisable within 60 days of August 15, 1996.
(6) Consists of (i) 458,009 shares of Common Stock and 6,376 shares of Common
Stock which may be acquired upon exercise of a warrant exercisable within
60 days of August 15, 1996 held by Oak Investment Partners IV and (ii)
20,880 shares of Common Stock and 291 shares of Common Stock which may be
acquired upon exercise of a warrant exercisable within 60 days of August
15, 1996 held by Oak IV Affiliates Fund.
(7) Consists of 151,111 shares of Common Stock held by Starling Family Trust,
8,867 shares of Common Stock held by the Starling Irrevocable Trust and
163,967 shares of Common Stock which may be acquired upon exercise of stock
options exercisable within 60 days of August 15, 1996. Mr. Starling holds
voting and dispositive control over all of such shares.
(8) Consists of 289,746 shares of Common Stock and 4,000 shares of Common Stock
which may be acquired upon exercise of a warrant exercisable within 60 days
of August 15, 1996 held by MedVenture Associates. Ms. Campbell-White is a
general partner of MedVenture Associates and disclaims beneficial ownership
of the shares held by such entity except to the extent of her proportionate
partnership interest therein.
(9) Includes 185,112 shares of Common Stock and 667 shares of Common Stock
which may be acquired upon exercise of a warrant exercisable within 60 days
of August 15, 1996 held by Fogarty Family Revocable Trust, over which Dr.
Fogarty holds voting and dispositive control.
(10) Includes 2,847 shares of Common Stock which may be acquired upon exercise
of stock options exercisable within 60 days of August 15, 1996.
(11) Includes 59,792 shares of Common Stock which may be acquired upon exercise
of stock options exercisable within 60 days of August 15, 1996.
(12) Mr. Doelling resigned as Vice President, Manufacturing in July 1996.
(13) Includes 52,042 shares of Common Stock which may be acquired upon exercise
of stock options exercisable within 60 days of August 15, 1996.
(14) Includes 19,725 shares of Common Stock which may be acquired upon exercise
of stock options exercisable within 60 days of August 15, 1996.
(15) Includes 327,538 and 16,667 shares of Common Stock which may be acquired
upon exercise of stock options and warrants, respectively, exercisable
within 60 days of August 15, 1996.
3
<PAGE> 6
PROPOSAL ONE
ELECTION OF DIRECTORS
Pursuant to the Company's Restated Certificate of Incorporation, the
Company's Board of Directors currently consists of six persons, divided into
three classes serving staggered terms of three years. Currently, there are two
directors in Class I, two directors in Class II and two directors in Class III.
Two Class I directors are to be elected at the Annual Meeting of Stockholders.
The Class II and Class III directors will be elected at the Company's 1997 and
1998 Annual Meetings of Stockholders, respectively. Each of the Class I
directors will hold office until the 1999 Annual Meeting of Stockholders or
until his or her successor has been duly elected and qualified.
Unless otherwise instructed, the proxy holders will vote the proxies
received by them for the Company's two nominees named below, both of whom are
presently directors of the Company. In the event that any nominee of the Company
is unable or declines to serve as a director at the time of the Annual Meeting
of Stockholders, the proxies will be voted for any nominee who shall be
designated by the present Board of Directors to fill the vacancy. The Company is
not aware of any nominee who will be unable or will decline to serve as a
director. In the event that additional persons are nominated for election as
directors, the proxy holders intend to vote all proxies received by them in such
a manner (in accordance with cumulative voting) as will assure the election of
as many of the nominees listed below as possible, and, in such event, the
specific nominees to be voted for will be determined by the proxy holders.
VOTE REQUIRED
If a quorum is present and voting, the two nominees receiving the highest
number of votes will be elected to the Board of Directors. Abstentions and
"broker non-votes" are not counted in the election of directors.
INFORMATION CONCERNING THE NOMINEES AND INCUMBENT DIRECTORS
The following table sets forth the name and age of each nominee and each
director of the Company whose term of office continues after the Annual Meeting,
the principal occupation of each during the past five years, and the period
during which each has served as a director of the Company.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DIRECTOR
NAME DURING THE PAST FIVE YEARS AGE SINCE
- ------------------------------ ------------------------------------------------- --- --------
<S> <C> <C> <C>
NOMINEES FOR CLASS I DIRECTORS:
Annette J. Campbell-White..... Annette J. Campbell-White has been a member of 49 1991
the Board of Directors of the Company since May
1991. Ms. Campbell-White has been a general
partner of MedVenture Associates, a venture
capital investment firm, since its formation in
1986. From September 1992 to July 1994 she was a
general partner of Paragon Venture Partners, a
venture capital investment firm. From January
1990 to January 1993, she was a special limited
partner and a venture partner with InterWest
Partners IV and US Venture Partners,
respectively, both venture capital investment
firms. Ms. Campbell-White serves as director of
Physiometrix, Inc., ArthroCare Corporation and
several privately-held companies.
</TABLE>
4
<PAGE> 7
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DIRECTOR
NAME DURING THE PAST FIVE YEARS AGE SINCE
- ------------------------------ ------------------------------------------------- --- --------
<S> <C> <C> <C>
Michael L. Eagle.............. Michael L. Eagle has been a member of the Board 49... 1996
of Directors of the Company since July 1996. Mr.
Eagle has held various management positions in
the pharmaceutical and medical device units of
Eli Lilly and Company ("Lilly"), a diversified
pharmaceutical and medical products company,
since 1983, and currently serves as Vice
President, Manufacturing. From June 1993 until
January 1994, he served as Vice President of
pharmaceutical manufacturing for Lilly, and from
January 1991 until June 1993, he served as Vice
President of the vascular intervention component
of the Medical Devices and Diagnostics Division
of Lilly. From 1988 to 1991, Mr. Eagle was
President and Chief Executive Officer of IVAC
Corporation, a Lilly subsidiary.
CONTINUING CLASS II DIRECTORS:
Dr. Thomas J. Fogarty......... Dr. Thomas J. Fogarty has been a member of the 62 1991
Board of Directors of the Company since May 1991.
Dr. Fogarty has been a cardiovascular surgeon and
Professor of Surgery at Stanford University
Medical Center since July 1993. Dr. Fogarty was a
co-founder of Imagyn Medical, Incorporated,
Cardiovascular Imaging Systems, Inc., Aneurx,
Inc., Raytel Medical Corporation, and Ventritex,
Inc., all medical device companies. Dr. Fogarty
serves as director of Raytel Medical Corporation,
Cardiothoracic Systems, Inc., Physiometrix, Inc.
and several privately-held companies.
Dr. Joseph P. Ilvento......... Dr. Joseph P. Ilvento has been a member of the 42 1995
Board of Directors of the Company since September
1995. Dr. Ilvento is also a Cardiac
Electrophysiologist as well as Chairman of the
Santa Barbara Cottage Hospital Heart Institute,
Medical Director of Cardiac Electrophysiology at
Santa Barbara Cottage Hospital, and Director of
Electrophysiology at Community Memorial Hospital
in Ventura, California.
CONTINUING CLASS III DIRECTORS:
Lawrence G. Mohr, Jr.......... Lawrence G. Mohr, Jr. has been a Director of the 51 1991
Company since May 1991. Mr. Mohr has been a
general partner of Mohr, Davidow Ventures, a
venture capital investment firm, since its
formation in 1983. Prior to that Mr. Mohr was a
venture capitalist with Hambrecht & Quist Venture
Partners.
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DIRECTOR
NAME DURING THE PAST FIVE YEARS AGE SINCE
- ------------------------------ ------------------------------------------------- --- --------
<S> <C> <C> <C>
William N. Starling........... William N. Starling has been a Director of the 43 1991
Company since April 1991. Mr. Starling became
President and Chief Executive Officer of the
Company in January 1992 and Chairman of the Board
of Directors in January 1996. Prior to joining
the Company, Mr. Starling co-founded and was a
director and a vice president of Ventritex, Inc.,
a medical device company, from 1985 to 1991. From
1982 to 1985, Mr. Starling was the Director of
Marketing of Advanced Cardiovascular Systems, a
division of Guidant, Inc. Mr. Starling serves on
the Board of Visitors of the University of North
Carolina at Chapel Hill.
</TABLE>
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of four meetings during
fiscal 1996. Except for Dr. Fogarty, no director attended fewer than 75% of the
meetings of the Board of Directors and committees thereof, if any, upon which
such director served. The Board of Directors has an Audit Committee and a
Compensation Committee. The Board of Directors has no nominating committee or
any committee performing such functions.
The Audit Committee, which consisted of directors Campbell-White, Ilvento
and Mohr during fiscal 1996, is responsible for overseeing actions taken by the
Company's independent auditors and reviews the Company's internal financial
controls. The Audit Committee met one time during fiscal 1996.
The Compensation Committee, which consisted of directors Campbell-White,
Fogarty and Mohr during fiscal 1996, met 11 times during fiscal 1996. Mr. Eagle
replaced Ms. Campbell-White on the Compensation Committee in July 1996. The
duties of the Compensation Committee include determining salaries, incentives
and other forms of compensation for directors, officers and other employees of
the Company and administering various incentive compensation and benefit plans.
COMPENSATION OF DIRECTORS
Members of the Company's Board of Directors do not receive compensation for
their services as directors. The Company's 1996 Director Option Plan (the
"Director Plan") provides that options may be granted to non-employee directors
of the Company pursuant to an automatic nondiscretionary grant mechanism. The
exercise price of the options is 100% of the fair market value of the Common
Stock on the grant date. The Director Plan provides for an initial grant of
options to purchase 13,000 shares of Common Stock to each new non-employee
director of the Company who is neither affiliated with nor nominated by a
stockholder that owns one percent or more of the outstanding capital stock of
the Company on the date he or she first becomes a director. In addition, each
non-employee director will automatically be granted an option to purchase 700
shares of Common Stock at the next meeting of the Board of Directors following
the Annual Meeting of Stockholders in each year beginning with the 1996 Annual
Meeting of Stockholders, if on such date, such director has served on the Board
of Directors for at least the preceding six months. The term of such options is
ten years, provided that such options shall terminate three months following the
termination of the optionee's status as a director (or twelve months if the
termination is due to death or disability). 13,000 share options granted to a
director vest at a rate of 25% on the first anniversary of the date of grant and
at a rate of 1/48th of the shares per month thereafter. 700 share options
granted to a director vest at a rate of 1/8th of the shares subject to the
option six months after the date of grant and at a rate of 1/48 of the shares
per month thereafter.
In 1996, prior to being named director of the Company, Mr. Eagle was
granted an option to purchase 13,333 shares of Common Stock at an exercise price
of $15.00 per share. Such option vests at a rate of 25% on the first anniversary
of the date of grant and at a rate of 1/48th of the shares per month thereafter.
6
<PAGE> 9
In April 1996, the Company entered into a consulting agreement with Dr.
Ilvento pursuant to which Dr. Ilvento provided consulting services to the
Company in connection with its initial public offering in June 1996 which
included participating in the Company's roadshow presentations to potential
investors. In exchange for these services, Dr. Ilvento received a lump sum
payment of $35,000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consisted of directors Campbell-White, Fogarty
and Mohr during fiscal 1996. See "Executive Compensation -- Certain
Transactions -- Private Placement of Securities" for a discussion of
transactions between the Company and members of the Compensation Committee.
PROPOSAL TWO
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP, independent
auditors, to audit the consolidated financial statements of the Company for the
fiscal year ending June 30, 1997. Although action by stockholders is not
required by law, the Board of Directors has determined that it is desirable to
request approval of this selection by the stockholders. Notwithstanding the
selection, the Board of Directors, in its discretion, may direct the appointment
of new independent auditors at any time during the year, if the Board of
Directors feels that such a change would be in the best interest of the Company
and its stockholders. In the event of a negative vote on ratification, the Board
of Directors will reconsider its selection.
Ernst & Young LLP has audited the Company's financial statements annually
since 1991. Representatives of Ernst & Young LLP are expected to be present at
the meeting with the opportunity to make a statement if they desire to do so and
are expected to be available to respond to appropriate questions.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS.
7
<PAGE> 10
EXECUTIVE COMPENSATION AND OTHER MATTERS
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth certain information
regarding the compensation of the Chief Executive Officer of the Company and the
four next most highly compensated executive officers (the "Named Executive
Officers") of the Company for services rendered in all capacities to the Company
for the fiscal years indicated.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
NUMBER
ANNUAL COMPENSATION(1) OF SECURITIES
FISCAL ---------------------- OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION OPTIONS(#)(1)
- ---------------------------------- ------ --------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C>
William N. Starling............... 1996 $ 175,000 $ -- $ -- --
President, Chief Executive
Officer 1995 158,269 -- -- 116,667
and Director
Richard E. Riley.................. 1996 130,999 -- -- 10,000
Vice President, Product
Development 1995 130,661 -- -- 33,333
David W. Gryska................... 1996 133,750 -- -- 16,667
Vice President, Finance and
Chief 1995 129,231 -- -- 21,667
Financial Officer
Eric N. Doelling(2)............... 1996 131,100 -- -- --
Vice President, Manufacturing 1995 132,061 -- -- 36,666
Mark L. Pomeranz.................. 1996 120,812 10,600 -- 67
Vice President, Advanced Product 1995 98,628 -- -- 35,000
Development
</TABLE>
- ---------------
(1) These shares are subject to exercise under stock options granted under the
Company's stock option plans.
(2) Mr. Doelling resigned in July 1996.
STOCK OPTIONS
The following table provides information relating to stock options awarded
to each of the Named Executive Officers during fiscal 1996. All such options
were awarded under the Company's 1991 Stock Plan.
OPTIONS GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
INDIVIDUAL GRANTS ASSUMED RATES OF
----------------------------------------------------------- STOCK PRICE
NUMBER OF PERCENT OF APPRECIATION
SECURITIES TOTAL OPTIONS FOR OPTIONS'
UNDERLYING GRANTED TO EXERCISE TERM(1)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION -------------------
NAME GRANTED(1) FISCAL 1996 SHARE(2)(3) DATE(4) 5%($) 10%($)
- --------------------- ---------- ------------- ----------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
William N.
Starling........... -- -- $ -- -- $ -- $ --
Richard E. Riley..... 10,000 4.0% 1.50 7/26/2005 9,435 23,910
David W. Gryska...... 16,667 6.6% 1.50 9/20/2005 15,726 39,851
Eric N.
Doelling(5)........ -- -- -- -- -- --
Mark L. Pomeranz..... 67 0.0% 12.38 3/27/2006 522 1,333
</TABLE>
- ---------------
(1) Potential realizable value is based on the assumption that the Common Stock
of the Company appreciates at the annual rate shown (compounded annually)
from the date of grant until the expiration
8
<PAGE> 11
of the ten year option term. These numbers are calculated based on the
requirements promulgated by the Securities and Exchange Commission and do
not reflect the Company's estimate of future stock price growth.
(2) Options were granted at an exercise price equal to the fair market value of
the Company's Common Stock, as determined by the Board of Directors on the
date of grant.
(3) Exercise price may be paid in cash, check, promissory note, by delivery of
already-owned shares of the Company's Common Stock subject to certain
conditions, delivery of a properly executed exercise notice together with
irrevocable instructions to a broker to deliver promptly to the Company
amount of sale or loan proceeds required to pay the exercise price, a
reduction in the amount of any Company liability to an optionee, or any
combination of the foregoing methods of payment or such other consideration
or method of payment to the extent permitted under applicable law.
(4) Options become exercisable as to 25% of the option shares on the first
anniversary of the date of grant and as to 1/48th of the option shares each
month thereafter, with full vesting occurring on the fourth anniversary of
the date of grant.
(5) Mr. Doelling resigned in July 1996.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information regarding the exercise
of stock options by the Named Executive Officers during fiscal 1996 and the
value of stock options held as of June 30, 1996 by the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES VALUE OPTIONS AT JUNE 30, 1996(#) OPTIONS AT JUNE 30, 1996(2)
ACQUIRED ON REALIZED ---------------------------- ----------------------------
NAME EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William N. Starling.... 8,867 $ 17,911 151,287 96,513 $ 2,086,620 $ 1,283,719
Richard E. Riley....... 27,500 80,663 53,958 28,542 748,155 377,682
David W. Gryska........ 14,000 87,670 43,639 47,362 588,300 631,794
Eric N. Doelling(3).... 69,583 751,057 70 33,680 910 453,465
Mark L. Pomeranz....... -- -- 14,676 25,729 195,940 336,539
</TABLE>
- ---------------
(1) Fair market value of the Company's Common Stock on the date of exercise (as
determined by the Board of Directors) minus the exercise price.
(2) Fair market value of the Company's Common Stock at fiscal year-end ($14.50
based on the last reported sale price of the Company's Common Stock on June
30, 1996) minus the exercise price.
(3) Mr. Doelling resigned in July 1996.
EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS
Earle L. Canty, Vice President, Regulatory Affairs and Quality Assurance,
Harold A. Heitzmann, Vice President, Catheter Development, and Messrs. Starling,
Riley, Gryska, and Pomeranz have entered into employment agreements with the
Company pursuant to which the Company may terminate the employee's employment at
any time with or without cause; provided, however, that if employment is
terminated with cause, the Company will pay the employee a severance payment in
an amount equal to one month of the employee's then-current monthly base salary
and if the employee's employment is terminated without cause, the Company will
pay the employee a severance payment of an amount equal to six months of the
employee's then-current monthly base salary. The agreements, other than Mr.
Starling's agreement, also provide that all outstanding stock options held by
the employees become immediately exercisable in the event that the employee's
employment is terminated without cause or is constructively terminated in
connection with a merger, reorganization or sale of substantially all of the
assets of the Company in which stockholders of the
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<PAGE> 12
Company immediately prior to the transaction possess less than fifty percent
(50%) of the voting power of the surviving entity (or its parent) immediately
after the transaction.
CERTAIN TRANSACTIONS
Private Placement of Securities
Between June 1995 and December 1995, the Company sold 673,001 shares of
Series F Preferred Stock at a price of $15.00 per share in private placement
transactions. In connection with such private placement transactions, the
Company issued warrants to purchase 67,333 shares of Series F Preferred Stock at
an exercise price of $13.125 per share. Each share of Series F Preferred Stock
was automatically converted into one share of Common Stock of the Company upon
the closing of the initial public offering of the Company's Common Stock in June
1996. The purchasers of Series F Preferred Stock included, among others, the
following officers, directors and holders of more than five percent of the
Company's voting securities:
<TABLE>
<CAPTION>
SHARES OF
SERIES F
PREFERRED
STOCK(1)(2)
-----------
<S> <C>
DIRECTORS
Thomas J. Fogarty, M.D.(3)............................................. 667
ENTITIES AFFILIATED WITH DIRECTORS
MedVenture Associates (Annette J. Campbell-White)...................... 4,000
Mohr, Davidow Ventures II (Lawrence G. Mohr)........................... 12,000
OTHER 5% STOCKHOLDERS
Arrow International, Inc............................................... 606,667
Delphi BioVentures, L.P. Entities(4)................................... 8,000
Oak Investment Partners Entities(5).................................... 6,667
</TABLE>
- ---------------
(1) The purchasers of these securities are entitled to registration rights.
(2) Does not include shares of Common Stock issuable upon the exercise of
warrants held by such entities issued in connection with the Series F
Preferred Stock Financing.
(3) Represents shares held by the Fogarty Family Revocable Trust of which Dr.
Fogarty is a trustee.
(4) Includes Delphi BioInvestment, L.P., Delphi BioInvestment II, L.P., Delphi
BioVentures, L.P. and Delphi BioVentures II, L.P.
(5) Includes Oak Investment Partners IV, Limited Partnership and Oak IV
Affiliates Fund.
Transactions with Directors and Executive Officers
The Company entered into a Consulting Agreement dated June 1, 1995 with Mir
A. Imran, the holder of 5.7% of the Company's outstanding capital stock,
pursuant to which Mr. Imran provides consulting services to the Company for
which he is paid a monthly fee of $4,167. Under the terms of the Consulting
Agreement, Mr. Imran has assigned to the Company his right, title, and interest
in and to any discoveries for the application area of cardiac electrophysiology
(excluding cardiac pacemakers, defibrillators and leads that are used with these
devices). Mr. Imran retains the rights to such discoveries outside the area of
cardiac electrophysiology. The Company also held Mr. Imran's promissory note in
the principal amount of $200,000 which was given to the Company in connection
with a loan advanced in December 1992. The promissory note bore interest at the
rate of 5.68% per annum. All principal and accrued interest under the note
became due and payable upon the effectiveness of the initial public offering of
the Company's Common Stock in June 1996 and was repaid in August 1996.
As part of the Company's employment agreement with Earle L. Canty, Vice
President, Regulatory Affairs and Quality Assurance, the Company loaned Mr.
Canty $385,000 at an annual interest rate of 5.88%. The proceeds of the loan
were used to exercise a stock option granted to Mr. Canty in January 1996. The
loan
10
<PAGE> 13
is due upon the sale of the shares, or any portion thereof, underlying the
option and up to an amount equal to fifty percent (50%) of the proceeds from
such sale. The entire outstanding balance of the note is due and payable on the
earlier of the termination or cessation of Mr. Canty's employment, or January
2001.
Arrow International, Inc. Relationship
In June 1995 and December 1995, the Company sold an aggregate of 606,667
shares of its Series F Preferred Stock to Arrow International, Inc. ("Arrow") at
a price of $15.00 per share for an aggregate purchase price of approximately
$9.1 million. In the transaction Arrow also acquired warrants to purchase 7,667
shares of Series F Preferred Stock at an exercise price of $13.125, which expire
on the earlier of June 2000 or the closing date of a transaction involving a
change of control of the Company. Each share of Series F Preferred Stock was
automatically converted into one share of Common Stock of the Company upon the
closing of the initial public offering of the Company's Common Stock in June
1996. As of August 15, 1996, Arrow beneficially owned 6.6% of the Company's
outstanding Common Stock. Arrow has the same right as other preferred
stockholders to require the Company to file a registration statement under the
Securities Act of 1933, as amended, with respect to any shares of the Company's
Common Stock held by Arrow, subject to certain conditions and limitations.
Arrow also has the exclusive right to distribute the Company's
Trio/Ensemble diagnostic catheters in all territories of the world except
southern Europe and Japan and the Company's Radii supraventricular tachycardia
mapping and ablation catheters and ablation equipment in all countries in the
world except the United States, Canada, Japan and southern Europe, Scandinavia
and the Benelux countries. As part of a manufacturing agreement, Arrow has the
right to manufacture the Radii supraventricular tachycardia mapping and ablation
catheter. If Arrow elects to exercise this right, the territory for the
distribution of the Radii supraventricular tachycardia mapping and ablation
catheters and ablation equipment will expand to include the United States.
Sales to Arrow under its distributorship accounted for approximately
$560,000 for the fiscal year ended June 30, 1996, representing 33% of the
Company's net sales.
------------------------
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans, between
the Company and its officers, directors, principal stockholders and their
affiliates will be approved by a majority of the Board of Directors, including a
majority of the independent and disinterested outside directors, and will
continue to be on terms no less favorable to the Company than could be obtained
from unaffiliated third parties.
REPORT OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
During the fiscal year ended June 30, 1996 the Company's executive
compensation program was approved by the Compensation Committee of the Board of
Directors. The following is the report of the Board of Directors with respect to
the compensation paid to the Company's executive officers during fiscal 1996.
Actual compensation earned during the fiscal year by the Named Executive
Officers is shown in the Summary Compensation Table above.
Compensation Philosophy
The Company's philosophy in setting its compensation policies for executive
officers is to maximize stockholder value over time. The primary goal of the
Company's executive compensation program is therefore to closely align the
interests of the executive officers with those of the Company's stockholders. To
achieve this goal the Company attempts to (i) offer compensation opportunities
that attract and retain executives whose abilities are critical to the long-term
success of the Company, motivate individuals to perform at their highest level
and reward outstanding achievement, (ii) maintain a significant portion of the
executive's total compensation at risk, tied to achievement of financial,
organizational and management performance goals, and (iii) encourage executives
to manage from the perspective of owners with an equity stake in the Company.
11
<PAGE> 14
The compensation program for the Company's executive officers consists of
the following components:
- Base Salary
- Long-Term Stock Option Incentives
Base Salary
The Board of Directors reviewed and approved fiscal 1996 base salaries for
the Chief Executive Officer and other executive officers at the beginning of the
fiscal year. Base salaries were established by the Compensation Committee based
upon competitive compensation data, an executive's job responsibilities, level
of experience, individual performance and contribution to the business.
Executive officer salaries have been targeted at or above the average rates paid
by competitors to enable the Company to attract, motivate, reward and retain
highly skilled executives. In order to evaluate the Company's competitive
posture in the industry, the Board reviewed and analyzed the compensation
packages, including base salary levels, offered by other medical device
companies. The competitive information was obtained from surveys prepared by
national consulting companies or industry associations. The surveys include, but
are not limited to, data from all industries represented in Hambrecht & Quist
Healthcare, Excluding Biotechnology index, the "line of business index" used in
the stock performance graph set forth below. See "Performance Graph." In making
base salary decisions, the Board exercised its discretion and judgment based
upon these factors. No specific formula was applied to determine the weight of
each factor.
Long-Term Stock Option Incentives
The Board provides the Company's executive officers with long-term
incentive compensation through grants of stock options under the Company's 1991
Stock Plan. The Board believes that stock options provide the Company's
executive officers with the opportunity to purchase and maintain an equity
interest in the Company and to share in the appreciation of the value of the
Company's Common Stock. The Board believes that stock options directly motivate
an executive to maximize long-term stockholder value. The options also utilize
vesting periods that encourage key executives to continue in the employ of the
Company. All options granted to executive officers to date have been granted at
the fair market value of the Company's Common Stock on the date of grant. The
Board considers the grant of each option subjectively, considering factors such
as the individual performance of the executive officer and the anticipated
contribution of the executive officer to the attainment of the Company's
long-term strategic performance goals. Long-term incentives granted in prior
years are also taken into consideration.
SECTION 162(M)
The Board has considered the potential future effects of Section 162(m) of
the Internal Revenue Code on the compensation paid to the Company's executive
officers. Section 162(m) disallows a tax deduction for any publicly-held
corporation for individual compensation exceeding $1.0 million in any taxable
year for any of the executive officers named in the proxy statement, unless
compensation is performance-based. The Company has adopted a policy that, where
reasonably practicable, the Company will seek to qualify the variable
compensation paid to its executive officers for an exemption from the
deductibility limitations of Section 162(m). As a result, in April 1996, the
stockholders approved certain amendments to the Company's 1991 Stock Plan
intended to preserve the Company's ability to deduct the compensation expense
relating to stock options granted under the 1991 Stock Plan. In approving the
amount and form of compensation for the Company's executive officers, the
Compensation Committee will continue to consider all elements of the cost to the
Company of providing such compensation, including the potential impact of
Section 162(m).
Respectfully submitted by:
Annette J. Campbell-White
Thomas J. Fogarty, M.D.
Lawrence G. Mohr, Jr.
12
<PAGE> 15
PERFORMANCE GRAPH
Set forth below is a line graph comparing the percentage change in the
cumulative return to the stockholders of the Company's Common Stock with the
cumulative return of the Nasdaq National Market, U.S. index and of the Hambrecht
& Quist Healthcare, Excluding Biotechnology index for the period commencing June
13, 1996 (the date the Company's Common Stock commenced trading publicly) and
ending on June 30, 1996. Returns for the indices are weighted based on market
capitalization at the beginning of each fiscal year.
COMPARISON OF CUMULATIVE TOTAL RETURN*
AMONG CARDIAC PATHWAYS CORPORATION,
THE NASDAQ NATIONAL MARKET, U.S. INDEX AND
THE HAMBRECHT & QUIST HEALTHCARE, EXCLUDING BIOTECHNOLOGY INDEX
<TABLE>
<CAPTION>
HAMBRECHT &
QUIST HEALTH-
CARE, EXCLUD-
CARDIAC NASDAQ ING
MEASUREMENT PERIOD PATHWAYS NATIONAL BIOTECHNOL-
(FISCAL YEAR COVERED) CORPORATION MARKET, U.S. OGY
<S> <C> <C> <C>
6/13/96 100 100 100
6/30/96 76 97 97
</TABLE>
- ---------------
* The graph assumes that $100 was invested on June 13, 1996 in the Company's
Common Stock and in the Nasdaq National Market, U.S. index and in the
Hambrecht & Quist Healthcare, Excluding Biotechnology index and that all
dividends were reinvested. No dividends have been declared or paid on the
Company's Common Stock. Stockholder returns over the indicated period should
not be considered indicative of future stockholder returns.
The information contained above under the captions "Report of the Board of
Directors on Executive Compensation" and "Performance Graph" shall not be deemed
to be "soliciting material" or to be "filed" with the Securities and Exchange
Commission, nor shall such information be incorporated by reference into any
future filing under the Securities Act or Exchange Act, except to the extent
that the Company specifically incorporates it by reference into such filing.
13
<PAGE> 16
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's executive officers and directors, and persons who own
more than ten percent of a registered class of the Company's equity securities
to file reports of ownership and changes in ownership with the Securities and
Exchange Commission ("SEC") and the National Association of Securities Dealers,
Inc. Executive 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. Based solely on its review of the copies of such forms
received by it, or written representations from certain reporting persons, the
Company believes that, during fiscal 1996 all executive officers and directors
of the Company complied with all applicable filing requirements.
OTHER MATTERS
The Company knows of no other matters to be submitted at the meeting. If
any other matters properly come before the meeting, it is the intention of the
persons named in the enclosed form of Proxy to vote the shares they represent as
the Board of Directors may recommend.
THE BOARD OF DIRECTORS
Dated: September 5, 1996
14
<PAGE> 17
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
CARDIAC PATHWAYS CORPORATION
1996 ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 9, 1996
The undersigned stockholder of CARDIAC PATHWAYS CORPORATION, a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement, each dated September 5, 1996, and hereby
appoints William N. Starling and David W. Gryska and each of them, proxies and
attorneys-in-fact, with full power to each of substitution, on behalf and in the
name of the undersigned, to represent the undersigned at the 1996 Annual Meeting
of Stockholders of CARDIAC PATHWAYS CORPORATION to be held on October 9, 1996 at
9:00 a.m. local time, at 995 Benecia Avenue, Sunnyvale, California 94086 and at
any adjournment or adjournments thereof, and to vote all shares of Common Stock
which the undersigned would be entitled to vote if then and there personally
present, on the matters set forth below:
1. ELECTION OF DIRECTORS:
<TABLE>
<S> <C>
/ / FOR all nominees listed below / / WITHHOLD
(except as indicated)
</TABLE>
IF YOU WISH TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE
A LINE THROUGH THAT NOMINEE'S NAME IN THE LIST BELOW:
Annette J. Campbell-White, Michael L. Eagle
2. PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS THE
INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL PERIOD ENDING JUNE 30,
1997:
/ / FOR / / AGAINST / / ABSTAIN
and, in their discretion, upon such other matter or matters which may properly
come before the meeting or any adjournment or adjournments thereof.
<PAGE> 18
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED FOR THE ELECTION OF DIRECTORS, FOR THE RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS AND AS SAID PROXIES
DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
Dated: , 1996
----------------------------
Signature
----------------------------
Signature
(This Proxy should be
marked, dated and signed by
the stockholder(s) exactly
as his or her name appears
hereon, and returned
promptly in the enclosed
envelope. Persons signing in
a fiduciary capacity should
so indicate. If shares are
held by joint tenants or as
community property, both
should sign.)
