<PAGE> 1
SCHEDULE 14A (RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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:
[ ] 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 RULE 14A-11(c) OR RULE 14A-12
- -------------------------------------------------------------------------------
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] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14A-6(i)(4) and 0-11.
(1) Title of each class of securities to which 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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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
CARDIAC PATHWAYS CORPORATION
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 30, 1998
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
Monday, November 30, 1998 at 12:00 p.m. local time, at 995 Benecia Avenue,
Sunnyvale, California 94086 for the following purposes:
1. To elect two (2) Class III directors to serve for a three-year term.
2. To approve (i) the adoption of the 1998 Employee Stock Purchase Plan,
(ii) the reservation of 100,000 shares of Common Stock for sale
thereunder and (iii) an annual increase in the number of shares of
Common Stock for sale thereunder, beginning on July 1, 1999, by the
lesser of (A) 200,000 shares, (B) 1.5% of the Common Stock (outstanding
as of the last day of the prior fiscal year) or (C) such amount as may
be determined by the Company's Board of Directors.
3. To approve an amendment of the Company's 1996 Director Option Plan to
increase the number of shares of the Company's Common Stock available
for issuance thereunder by 20,000 shares.
4. To approve an amendment of the Company's 1991 Stock Plan to increase the
number of shares of the Company's Common Stock available for issuance
thereunder by 300,000 shares.
5. To ratify the appointment of Ernst & Young LLP as independent auditors
of the Company for the fiscal year ending June 30, 1999.
6. To transact such other business as may properly come before the Annual
Meeting including any motion to adjourn to a later date to permit
further solicitation of proxies if necessary, or before 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 October 15, 1998 are entitled to notice of and to vote at the
meeting.
All stockholders are cordially invited to attend the meeting in person.
However, to ensure 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
October 28, 1998
YOUR VOTE IS IMPORTANT
IN ORDER TO ENSURE 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 1998
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 (the "Annual Meeting") to be held Monday,
November 30, 1998 at 12:00 p.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 on Form 10-K for
the year ended June 30, 1998, including financial statements, were first mailed
on or about October 28, 1998 to all stockholders entitled to vote at the
meeting.
RECORD DATE AND PRINCIPAL SHARE OWNERSHIP
Stockholders of record at the close of business on October 15, 1998 (the
"Record Date") 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, 9,869,983 shares of the Company's Common Stock were
issued and outstanding and held of record by 160 stockholders. The Company has
designated 25,000 shares of Preferred Stock as Series A Participating Preferred
Stock in connection with its Stockholder Rights Plan and the remaining shares of
authorized Preferred Stock are undesignated. No shares of the Company's
Preferred Stock were outstanding as of the Record Date.
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
Each stockholder is entitled to one vote for each share held as of the
Record Date. 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, prior to the voting, of
his or her intention to cumulate the stockholder's votes. On all other matters,
each share of Common Stock has one vote.
SOLICITATION OF PROXIES
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
<PAGE> 4
certain of the Company's directors, officers and regular employees, without
additional compensation, personally or by telephone or telegram.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the Inspector of Elections (the "Inspector") with the assistance of the
Company's Transfer Agent. The Inspector will also determine whether or not a
quorum is present. Except in certain specific circumstances, the affirmative
vote of a majority of shares present in person or represented by proxy at a duly
held meeting at which a quorum is present is required under Delaware law for
approval of proposals presented to stockholders. In general, Delaware law also
provides that a quorum consists of a majority of shares entitled to vote and
present or represented by proxy at the meeting.
The Inspector will treat shares that are voted "WITHHELD" or "ABSTAIN" as
being present and entitled to vote for purposes of determining the presence of a
quorum but will not be treated as votes in favor of approving any matter
submitted to the stockholders for a vote. When proxies are properly dated,
executed and returned, the shares represented by such proxies will be voted at
the Annual Meeting in accordance with the instructions of the stockholder. If no
specific instructions are given, the shares will be voted for the election of
the nominees for the Class III Directors set forth herein; for approval of the
adoption of the Company's 1998 Employee Stock Purchase Plan, the reservation of
100,000 shares of Common Stock for sale thereunder and an increase in the number
of shares reserved for issuance thereunder beginning July 1, 1999 in an amount
equal to the lesser of (i) 200,000 shares, (ii) 1.5% of the Company's Common
Stock outstanding on the last day of the prior fiscal year or (iii) such amount
as determined by the Company's Board of Directors; for the amendment of the 1996
Director Plan to increase the number of shares available for issuance thereunder
by 20,000 shares; for the amendment of the 1991 Stock Plan to increase the
number of shares available for issuance thereunder by 300,000 shares; for the
ratification of Ernst & Young LLP as independent auditors of the Company for the
fiscal year ending June 30, 1999; and at the discretion of the proxyholders,
upon such other business as may properly come before the Annual Meeting or any
adjournment thereof.
If a broker indicates on the enclosed proxy or its substitute that such
broker does not have discretionary authority as to certain shares to vote on a
particular matter ("Broker Non-Votes"), those shares will not be considered as
present with respect to that matter. The Company believes that the tabulation
procedures to be followed by the Inspector are consistent with the general
statutory requirements in Delaware concerning voting of shares and determination
of a quorum.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Stockholders are entitled to present proposals for action at a forthcoming
meeting if they comply with the requirements of the proxy rules established by
the Securities and Exchange Commission. Proposals of stockholders of the Company
that are intended to be presented by such stockholders at the Company's 1999
Annual Meeting of Stockholders must be received by the Company no later than
June 30, 1999 in order that they may be considered for inclusion in the proxy
statement and form of proxy relating to that meeting.
The attached proxy card grants the proxy holders discretionary authority to
vote on any matter raised at the Annual Meeting. If a stockholder intends to
submit a proposal at the Company's Annual Meeting, which is not eligible for
inclusion in the proxy statement relating to that meeting, the stockholder must
give the Company notice in accordance with the requirements set forth in the
Securities Exchange Act of 1934, as amended, no later than June 30, 1999. If
such a stockholder fails to comply with the foregoing notice provision the proxy
holders will be allowed to use their discretionary authority when and if the
proposal is raised at the Company's Annual Meeting in 1999.
2
<PAGE> 5
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock of the Company as of October 15, 1998 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>
State of Wisconsin Investment Board(2)...................... 1,655,000 16.8%
P.O. Box 7842
Madison, WI 53707
Entities affiliated with Institutional Venture
Partners(3)............................................... 836,539 8.5%
3000 Sand Hill Road, 2-290
Menlo Park, CA 94025
Capital Guardian Trust Company(4)........................... 695,600 7.1%
333 South Hope Street
55th Floor
Los Angeles, CA 90071
Arrow International, Inc.(5)................................ 614,334 6.2%
P.O. Box 12888
3000 Bernville Road
Reading, PA 19612
William N. Starling(6)...................................... 420,270 4.2%
Thomas J. Fogarty, M.D.(7).................................. 239,696 2.4%
Joseph P. Ilvento, M.D.(8).................................. 64,249 *
Michael L. Eagle(9)......................................... 13,538 *
Glendon E. French........................................... -- *
Louis G. Lange, M.D......................................... -- *
David W. Gryska(10)......................................... 100,093 1.0
Earle L. Canty(11).......................................... 66,667 *
Debra S. Echt, M.D.(12)..................................... 61,514 *
Mark L. Pomeranz(13)........................................ 78,003 *
All directors and executive officers as a group (14
persons)(14).............................................. 1,190,258 11.6%
</TABLE>
- ---------------
* Less than 1%
(1) Applicable percentage ownership is based on 9,869,983 shares of Common
Stock outstanding as of October 15, 1998 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 October 15, 1998 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) Reflects ownership as reported on Schedule 13G/A dated October 7, 1998
filed with the Commission by the State of Wisconsin Investment Board (the
"Board"). The Board is a government agency which manages public pension
funds and has sole dispositive and voting power over 1,655,000 shares of
the Company's Common Stock.
3
<PAGE> 6
(3) Reflects ownership as reported on Schedule 13G dated June 23, 1997 filed
with the Commission by Institutional Venture Partners V ("IVP V"), a
venture capital fund; Institutional Venture Management V ("IVPM V"); the
general partner of IVP V, Institutional Venture Partners VII ("IVP VII"), a
venture capital fund; Institutional Venture Management VII ("IVPM VII"),
the general partner of IVP VII; IVP Founders Fund I ("Founders"), a venture
capital fund; Institutional Venture Management VI ("IVPM VI"); Founders'
general partner, Samuel D. Colella; Reid W. Dennis; Mary Jane Elmore;
Norman A. Fogelsong; Ruthann Quindlen; L. James Strand; T. Peter Thomas and
Geoffrey Y. Yang. Mr. Strand and Ms. Quindlen are general partners of IVPM
VII. Messrs. Colella, Dennis, Fogelsong, Thomas and Yang and Ms. Elmore are
general partners of IVPM VII and IVPM V. Mr. Colella is also a general
partner of IVPM VI. IVP VII and IVPM VII have shared voting and dispositive
power over 400,000 shares of the Company's Common Stock. Founders also has
shared voting and dispositive power over 400,000 shares of the Company's
Common Stock. IVP V and IVPM V have shared voting and dispositive power
over 425,539 shares of the Company's Common Stock. Mr. Colella has shared
voting and dispositive power over 827,539 shares of the Company's Common
Stock. Each of Messrs. Dennis, Fogelsong, Thomas, and Mr. Yang and Ms.
Elmore has shared voting and dispositive power over 825,539 shares of the
Company's Common Stock. Each of Ms. Quindlen and Mr. Strand has shared
voting and dispositive power over 400,000 shares of the Company's Common
Stock.
(4) Reflects ownership as reported on Schedule 13G dated July 10, 1998 filed
with the Commission by Capital Guardian Trust Co. ("CGT"). CGT is a bank
which serves as the investment manager of various institutional accounts.
CGT has sole dispositive power over all of the shares and sole voting power
over 671,500 of the shares.
(5) Reflects ownership as reported on Schedule 13G dated February 2, 1997 filed
with the Commission by Arrow International, Inc. ("Arrow"). Arrow is a
medical device manufacturer with whom the Company has a strategic
relationship. Arrow has sole dispositive and voting power over 614,334
shares of the Company's Common Stock.
(6) Consists of 288,319 shares of Common Stock held by the Starling Family
Trust, 8,867 shares of Common Stock held by the Starling Irrevocable Trust
and 123,084 shares of Common Stock which may be acquired upon exercise of
stock options exercisable within 60 days after October 15, 1998. Mr.
Starling holds voting and dispositive control over all of such shares.
(7) Includes 238,445 shares of Common Stock and 667 shares of Common Stock
which may be acquired upon exercise of a warrant exercisable within 60 days
after October 15, 1998 held by the Fogarty Family Revocable Trust, over
which Dr. Fogarty holds voting and dispositive control. Also includes 584
shares of Common Stock which may be acquired upon exercise of stock options
exercisable within 60 days after October 15, 1998.
(8) Includes 6,139 shares of Common Stock which may be acquired upon exercise
of stock options exercisable within 60 days after October 15, 1998.
(9) Includes 13,538 shares of Common Stock which may be acquired upon exercise
of stock options exercisable within 60 days after October 15, 1998.
(10) Includes 65,829 shares of Common Stock which may be acquired upon exercise
of stock options exercisable within 60 days after October 15, 1998.
(11) Mr. Canty resigned as an officer of the Company in August 1998.
(12) Includes 60,938 shares of Common Stock which may be acquired upon exercise
of stock options exercisable within 60 days after October 15, 1998.
(13) Mr. Pomeranz resigned as an officer of the Company in July 1998.
(14) Includes 375,863 and 667 shares of Common Stock which may be acquired upon
exercise of stock options and warrants, respectively, exercisable within 60
days after October 15, 1998.
4
<PAGE> 7
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 III directors are to be elected at the Annual Meeting. The Class I and
Class II directors will be elected at the Company's 1999 and 2000 Annual
Meetings of Stockholders, respectively. Each of the Class III directors to be
elected at the 1998 Annual Meeting will hold office until the 2001 Annual
Meeting of Stockholders or until his 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,
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>
DIRECTOR
NAME PRINCIPAL OCCUPATION DURING THE PAST FIVE YEARS AGE SINCE
---- ----------------------------------------------- --- --------
<S> <C> <C> <C>
NOMINEES FOR CLASS III
DIRECTORS:
Louis G. Lange, M.D........... Dr. Louis G. Lange has been a Director of the 50 1998
Company since February 1998. Dr. Lange has been the
Chief Executive Officer and a director of CV
Therapeutics, Inc. since August 1992.
William N. Starling........... William N. Starling has been a Director of the 45 1991
Company since April 1991. Mr. Starling has been
President and Chief Executive Officer of the
Company since January 1992 and Chairman of the
Board of Directors since January 1996. Mr. Starling
serves as a director of several privately-held
companies and serves on the Board of Visitors of
the University of North Carolina at Chapel Hill.
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
DIRECTOR
NAME PRINCIPAL OCCUPATION DURING THE PAST FIVE YEARS AGE SINCE
---- ----------------------------------------------- --- --------
<S> <C> <C> <C>
CONTINUING CLASS I DIRECTORS:
Glendon E. French............. Glendon E. French has been a Director of the 64 1998
Company since February 1998. From January 1992 to
March 1995 Mr. French was the Chairman and Chief
Executive Officer of Imagyn Medical, Inc. Mr.
French has been retired since March 1995. Mr.
French is also a member of the Board of Directors
of VISX, Inc.
Michael L. Eagle.............. Michael L. Eagle has been a member of the Board of 51 1996
Directors of the Company since July 1996. Since
1983, 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. Mr. Eagle currently serves as Vice
President, Manufacturing at Lilly and, from June
1993 until January 1994, served as Vice President
of Pharmaceutical Manufacturing for Lilly. Mr.
Eagle is also a member of the Board of Directors of
Perclose, Inc.
CONTINUING CLASS II DIRECTORS:
Thomas J. Fogarty, M.D........ Dr. Thomas J. Fogarty has been a member of the 64 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, Inc., 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., General Surgical Innovations, Inc. and
several privately-held companies.
Joseph P. Ilvento, M.D........ Dr. Joseph P. Ilvento has been a member of the 44 1995
Board of Directors of the Company since September
1995. Dr. Ilvento has been a physician in private
practice since 1986, is a cardiac
electrophysiologist, has served as Medical Director
of Cardiac Electrophysiology at Santa Barbara
Cottage Hospital since 1991 and Director of
Electrophysiology at Ventura Community Memorial
Hospital since 1991. Dr. Ilvento is also a director
of several privately-held companies.
</TABLE>
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of 12 meetings during
fiscal 1998. Except for Dr. Fogarty, no director attended fewer than 75% of the
meetings of the Board of Directors held during the period he or she was a
director. 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 consists of directors French and Ilvento, is
responsible for overseeing actions taken by the Company's independent auditors
and reviewing the Company's internal financial controls. Mr. French replaced
former director Annette Campbell-White as a member of the Audit Committee in
April, 1998. Prior to his resignation as a director in June 1998, Lawrence Mohr
was also a member of the Audit
6
<PAGE> 9
Committee. The Audit Committee met three times during fiscal 1998 and, except
for Ms. Campbell-White and Mr. Mohr, no director attended fewer than 75% of the
meetings of the Audit Committee held during the period he or she sat on such
committee.
The Compensation Committee, which consists of directors Eagle, Fogarty and
Lange, is responsible for 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. Dr. Lange
replaced former director Lawrence Mohr on the Compensation Committee in July
1998. The Compensation Committee met six times during fiscal 1998 and no
director attended fewer than 75% of the meetings of the Compensation Committee
held during the period he or she sat on such committee.
COMPENSATION OF DIRECTORS
Nonemployee directors who are neither affiliated with or nominated by a
stockholder that owns one percent or more of the outstanding capital stock of
the Company (the "Outside Directors") currently receive a fee of $1,500 for
attendance at each general Board of Directors meeting, $500 if present at such
meeting by telephone, a fee of $150 for attendance at each committee meeting for
services provided in that capacity and are reimbursed for out of pocket expenses
incurred in connection with their attendance at Board of Director or committee
meetings.
The Company's 1996 Director Option Plan (the "Director Plan") provides that
options may be granted to Outside 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 option grant (the "Initial Grant") to
purchase 13,000 shares of Common Stock to each new Outside 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 Outside Director is
automatically granted an option (the "Annual Grant") to purchase 700 shares of
Common Stock at the next meeting of the Board of Directors following each 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 terms of the Initial
Grants and Annual Grants are 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).
The Initial Grant vests at a rate of 25% of the shares subject to such option on
the first anniversary of the date of grant and at a rate of 1/48 of such shares
per month thereafter. The Annual Grants vest at a rate of 1/8 of the shares
subject to such option six months after the date of grant and at a rate of 1/48
of such shares per month thereafter.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of directors Eagle, Fogarty and Lange.
Dr. Lange replaced Mr. Mohr as a member of the Compensation Committee in July
1998. There were no reportable transactions with any members of the Compensation
Committee in fiscal 1998.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
NOMINEES SET FORTH HEREIN.
7
<PAGE> 10
PROPOSAL TWO
ADOPTION OF 1998 EMPLOYEE STOCK PURCHASE PLAN
At the Annual Meeting, the stockholders are being asked to approve (i) the
adoption of the Company's 1998 Employee Stock Purchase Plan (the "Purchase
Plan"), (ii) the initial reservation of 100,000 shares for sale thereunder and
(iii) an annual increase in the number of shares reserved for sale thereunder by
the lesser of (A) 200,000 shares, (B) 1.5% of the Company's total outstanding
capital stock on the last day of the prior fiscal year or (C) such amount as may
be determined by the Company's Board of Directors. The Board of Directors
approved the adoption of the Purchase Plan and the reservation of shares set
forth above in August 1998, contingent upon stockholder approval at the 1998
Annual Meeting. The Board of Directors established the share thresholds for
annual increases based on the Company's current forecasts for share requirements
under the Purchase Plan. The number of shares actually purchased under the
Purchase Plan will depend on a number of factors outside the Company's control.
Accordingly, the Board of Directors has retained the right to fix the annual
increase at a lesser number of shares than otherwise established if, in its
discretion, such increase is too large relative to the forecasts of share
requirements then available to the Company.
In connection with its initial public offering in 1996, the Company
implemented the 1996 Employee Stock Purchase Plan (the "1996 Plan"). The 1996
Plan provided for 24 month offering periods divided into six month purchase
periods. Due to the volatility of the market price for the Company's Common
Stock in 1998, the number of shares of Common Stock to be purchased by
participants in the 1996 Plan exceeded the total number of shares of Common
Stock reserved for sale under the 1996 Plan that had been authorized by the
Company's stockholders. Pursuant to the terms of the 1996 Plan, the Board of
Directors terminated the open offering periods effective immediately after the
October 1998 purchase date and suspended the start of any future offering
periods of the 1996 Plan. The reserved shares in the 1996 Plan will be allocated
on a pro rata basis to the 1996 Plan participants when the offering periods
terminate in October 1998. Due to the Company's experience with the 1996 Plan,
the Purchase Plan differs from the 1996 Plan in that the number of shares
reserved for issuance thereunder will be refreshed annually (without further
action by the stockholders) by the lesser of (i) 200,000 shares, (ii) 1.5% of
the Company's outstanding capital stock on the last day of the prior fiscal year
or (iii) such amount as may be determined by the Company's Board of Directors.
The Company believes that this difference will make a pro rata distribution
under the Purchase Plan less likely. The Board of Directors' objective in
adopting the Purchase Plan is to avoid a pro rata distribution or adverse
accounting consequences that could result if the number of shares reserved under
an employee stock purchase plan proved insufficient at the end of an offering
period to cover the then outstanding rights under such a plan. See "-- Recent
Accounting Pronouncement."
RECENT ACCOUNTING PRONOUNCEMENT
A recent interpretation of generally accepted accounting principles
requires the Company to record a charge to earnings if certain conditions apply
to an employee stock purchase plan. This interpretation was announced in
September 1997 in the consensus interpretation issued by the Emerging Issues
Task Force entitled Accounting for Increased Share Authorizations in an IRS
Section 423 Employee Stock Purchase Plan under APB Opinion No. 25, Accounting
for Stock Issued to Employees (Issue No. 97-12) ("EITF 97-12"). Generally, EIFT
97-12 would require the Company to record compensation expense if (i) at the
beginning of an offering period, the shares reserved for issuance under an
employee stock purchase plan are insufficient to cover all shares issuable
throughout the offering period, (ii) stockholders subsequently approve
additional shares allocable to an offering period which commenced prior to the
stockholder approval date and (iii) the fair market value of the stock subject
to the plan on the subsequent stockholder approval date is higher than the fair
market value on the date when the offering period commenced.
Two variables that may affect the amount of an earnings charge required
under EITF 97-12 are substantial hiring rates, which affect new enrollments to
the plan, and volatility over time in the market price of the Company's Common
Stock. In order to minimize the possibility or extent of non-cash earnings
charges required by EITF 97-12 in the future and, in particular, to avoid a
charge relating to the offering period scheduled to commence in November 1998,
the Board of Directors terminated the 1996 Plan. However, the
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<PAGE> 11
Board of Directors believes that employee stock purchase plans provide valuable
incentives to employees and therefore has adopted the Purchase Plan. The
Purchase Plan provides for the automatic annual share reserve increase described
above in order to minimize the likelihood of future earnings charges relating to
EITF 97-12. If the adoption of the Purchase Plan is approved, the number of
shares reserved for issuance under the Purchase Plan would be increased
automatically each year on the first day of the fiscal year commencing in July
1999 by an amount equal to the lesser of (i) 200,000 shares, (ii) 1.5% of the
outstanding shares of the Company on the last day of the prior fiscal year or
(iii) such amount as may be determined by the Board of Directors. The maximum
number of shares that could be issued over the life of the Purchase Plan is
1,900,000.
PURPOSES OF EMPLOYEE STOCK PURCHASE PLANS; BOARD'S RECOMMENDED RESPONSE TO EITF
97-12
Employee stock purchase plans are intended to provide employees of the
Company with an opportunity to purchase its Common Stock through accumulated
payroll deductions. The Company believes that stock ownership is one of the
prime methods of attracting and retaining key personnel responsible for the
continued development and growth of the Company's business. The shortage of
qualified technical and management personnel is particularly acute in Silicon
Valley, where the Company's primary development and operational activities are
located. Attractive employee stock incentives, including employee stock purchase
plans, are considered by employees to be an important element of an employer's
compensation package, and by employers such as the Company to be a competitive
necessity.
The Board of Directors has recommended approval of the Purchase Plan (and
the termination of the 1996 Plan) in order to ensure that the Company continues
to offer competitive stock benefit programs while avoiding the adverse
accounting implications of EITF 97-12. In particular, the Board believes that
the automatic share increase provision of the Purchase Plan is necessary to
ensure the continued availability of an employee stock purchase plan given the
unpredictable effects of the application of EITF 97-12. The number of shares
purchased under an employee stock purchase plan is influenced by (i) an issuer's
hiring rates which affects the number of employees participating and (ii) the
volatility of the issuer's stock price which affects the number of shares each
participant purchases. For example, if an issuer's stock price falls
dramatically during an offering period, it could experience an unanticipated
increase in the number of shares purchased during each purchase period. Under
EITF 97-12, however, unless the issuer reduced the number of shares participants
could otherwise purchase based on a pro-rata allocation, it would be unable to
avoid recognizing a compensation expense if, as a result of increased hiring
rates or a decline in stock price, it realized after the commencement of the
offering period that it would have insufficient shares available for issuance.
Many issuers would be reluctant to require such a pro-rata allocation, however,
because of its adverse effects on employee morale.
The Board of Directors believes that the automatic annual increase feature
of the Purchase Plan should reduce the risk of insufficient share reserves. As a
result of such feature, the share reserve under the Purchase Plan cannot be
increased by more than 200,000 shares in any given year, which represents the
Company's current estimates of its annual share requirements under the 1996
Plan. As of October 31, 1998, no shares will remain available for issuance under
the 1996 Plan and the participants will receive a pro rata distribution of the
available shares at the October 31, 1998 purchase date.
VOTE REQUIRED
The affirmative vote of a majority of the Votes Cast will be required by
law to approve the adoption of the Purchase Plan. For this purpose, the "Votes
Cast" are defined to be the shares of the Company's Common Stock represented and
voting at the Annual Meeting. In addition, the affirmative votes must constitute
at least a majority of the required quorum, which quorum is a majority of the
shares outstanding at the Record Date. Votes that are cast against the proposal
will be counted for purposes of determining both (i) the presence or absence of
a quorum and (ii) the total number of Votes Cast with respect to the proposal.
Abstentions will be counted for purposes of determining both (i) the presence or
absence of a quorum for the transaction of business and (ii) the total number of
Votes Cast with respect to the proposal. Accordingly, abstentions will have the
same effect as a vote against the proposal. Broker nonvotes will be counted for
purposes of
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<PAGE> 12
determining the presence or absence of a quorum for the transaction of business,
but will not be counted for purposes of determining the number of Votes Cast
with respect to this proposal.
The essential terms of the Purchase Plan are summarized as follows:
SUMMARY OF THE PURCHASE PLAN
General. The purpose of the Purchase Plan is to provide employees of the
Company with an opportunity to purchase Common Stock of the Company through
accumulated payroll deductions.
Administration. The Purchase Plan may be administered by the Board of
Directors or a committee appointed by the Board of Directors. All questions of
interpretation or application of the Purchase Plan are determined by the Board
of Directors or its appointed committee, and its decisions are final, conclusive
and binding upon all participants.
Eligibility. Each employee of the Company (including officers), whose
customary employment with the Company is at least 20 hours per week and more
than five months in any calendar year, is eligible to participate in an Offering
Period (as defined below); provided, however, that no employee shall be granted
an option under the Purchase Plan (i) to the extent that, immediately after the
grant, such employee would own capital stock of the Company and/or hold
outstanding options to purchase such stock representing five percent or more of
the voting power or value of the stock of the Company, or (ii) to the extent
that his or her rights to purchase stock under all employee stock purchase plans
of the Company accrue at a rate which exceeds $25,000 worth of stock (determined
at the fair market value of the shares at the time such option is granted) for
each calendar year. Eligible employees become participants in the Purchase Plan
by filing with the Company a subscription agreement authorizing payroll
deductions prior to the beginning of each Offering Period unless a later time
for filing the subscription agreement has been set by the Board.
Participation in an Offering. The Purchase Plan is implemented by
consecutive overlapping offering periods lasting for 24 months (an "Offering
Period"), with a new Offering Period commencing on the first trading day on or
after May 1 and November 1 of each year; provided, however that the first
Offering Period under the Plan shall commence on December 1, 1998 or such later
date as determined by the Board of Directors in its discretion and end on
October 31, 2000. Common Stock may be purchased under the Purchase Plan every
six months (a "Purchase Period"), unless the participant withdraws or terminates
employment earlier. To the extent the fair market value of the Common Stock on
any exercise date in an Offering Period is lower than the fair market value of
the Common Stock on the first day of the Offering Period, then all participants
in such Offering Period will be automatically withdrawn from such Offering
Period immediately after the exercise of their options on such exercise date and
automatically re-enrolled in the immediately following Offering Period as of the
first day thereof. The Board of Directors may change the duration of the
Purchase Periods or the length or date of commencement of an Offering Period. To
participate in the Purchase Plan, each eligible employee must authorize payroll
deductions pursuant to the Purchase Plan. Such payroll deductions may not exceed
15% of a participant's compensation. Compensation is defined as base straight
time gross earnings, sales commissions, bonuses, incentive compensation and
payments for overtime and shift premiums. Once an employee becomes a participant
in the Purchase Plan, the employee will automatically participate in each
successive Offering Period until such time as the employee withdraws from the
Purchase Plan or the employee's employment with the Company terminates. At the
beginning of each Offering Period, each participant is automatically granted
options to purchase shares of the Company's Common Stock. The option expires at
the end of the Purchase Period or upon termination of employment, whichever is
earlier, but is exercised at the end of each Purchase Period to the extent of
the payroll deductions accumulated during such Purchase Period. The number of
shares subject to the option may not exceed 5,000 shares of the Company's Common
Stock in each Purchase Period.
Purchase Price, Shares Purchased. Shares of Common Stock may be purchased
under the Purchase Plan at a price not less than 85% of the lesser of the fair
market value of the Common Stock on the last market trading day prior to (i) the
first day of the Offering Period or (ii) the last day of Purchase Period;
provided, however, that under certain circumstances, the Purchase Price may be
adjusted to a price not less than 85% of
10
<PAGE> 13
the lesser of the fair market value of the Common Stock on (i) the date the
Company's stockholders approve an increase in shares reserved for issuance under
the Purchase Plan or (ii) the last day of the Purchase Period. The "fair market
value" of the Common Stock on any relevant date will be the closing price per
share as reported on The Nasdaq National Market (or the mean of the closing bid
and asked prices, if no sales were reported) as quoted on such exchange or
reported in The Wall Street Journal. The number of shares of Common Stock a
participant purchases in each Purchase Period is determined by dividing the
total amount of payroll deductions withheld from the participant's compensation
during that Purchase Period by the Purchase Price.
Termination of Employment. Termination of a participant's employment for
any reason, including disability or death, or the failure of the participant to
remain in the continuous scheduled employ of the Company for at least 20 hours
per week, cancels his or her option and participation in the Purchase Plan
immediately. In such event, the payroll deductions credited to the participant's
account will be returned to him or her or, in the case of death, to the person
or persons entitled thereto as provided in the Purchase Plan.
Adjustment Upon Change in Capitalization. In the event that the stock of
the Company is changed by reason of any stock split, reverse stock split, stock
dividend, combination, reclassification or other change in the capital structure
of the Company affected without the receipt of consideration, appropriate
proportional adjustments shall be made in the number and class of shares of
stock subject to the Purchase Plan, the number and class of shares of stock
subject to options outstanding under the Purchase Plan and the exercise price of
any such outstanding options. Any such adjustment shall be made by the Board of
Directors, whose determination shall be conclusive.
Dissolution or Liquidation. In the event of a proposed dissolution or
liquidation, the Offering Period then in progress will be shortened and a new
exercise date will be set.
Merger or Asset Sale. In the event of a merger of the Company with or into
another corporation or a sale of substantially all of the Company's assets, each
outstanding option may be assumed or substituted by the successor corporation.
If the successor corporation refuses to assume or substitute the outstanding
options, the Offering Period then in progress will be shortened and a new
exercise date will be set.
Amendment and Termination of the Plan. The Board of Directors may at any
time terminate or amend the Purchase Plan. An Offering Period may be terminated
by the Board of Directors at the end of any Purchase Period if the Board
determines that termination of the Purchase Plan is in the best interests of the
Company and its stockholders. No amendment shall be effective unless it is
approved by the holders of a majority of the votes cast at a duly held
stockholders' meeting, if such amendment would require shareholder approval in
order to comply with Section 423 of the Internal Revenue Code of 1986, as
amended (the "Code"). The Purchase Plan will terminate in August 2008.
Withdrawal. Generally, a participant may withdraw from an Offering Period
at any time without affecting his or her eligibility to participate in future
Offering Periods. However, once a participant withdraws from a particular
offering, that participant may not participate again in the same offering.
Federal Tax Information for Purchase Plan. The Purchase Plan, and the right
of participants to make purchases thereunder, is intended to qualify under the
provisions of Sections 421 and 423 of the Code. Under these provisions, no
income will be taxable to a participant until the shares purchased under the
Purchase Plan are sold or otherwise disposed of. Upon sale or other disposition
of the shares, the participant will generally be subject to tax and the amount
of the tax will depend upon the holding period. If the shares are sold or
otherwise disposed of more than two years from the first day of the Offering
Period or more than one year from the date of transfer of the stock to the
participant, then the participant will recognize ordinary income measured as the
lesser of (i) the excess of the fair market value of the shares at the time of
such sale or disposition over the Purchase Price, or (ii) an amount equal to 15%
of the fair market value of the shares as of the first day of the Offering
Period. Any additional gain will be treated as long-term capital gain. If the
shares are sold or otherwise disposed of before the expiration of this holding
period, the participant will recognize ordinary income generally measured as the
excess of the fair market value of the shares on the date the shares are
purchased over the Purchase Price. Any additional gain or loss on such sale or
disposition will be long-term
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<PAGE> 14
or short-term capital gain or loss, depending on the holding period. The Company
is not entitled to a deduction for amounts taxed as ordinary income or capital
gain to a participant except to the extent ordinary income is recognized by
participants upon a sale or disposition of shares prior to the expiration of the
holding periods described above.
The foregoing is only a summary of the effect of federal income taxation
upon the participant and the Company with respect to the shares purchased under
the Purchase Plan. Reference should be made to the applicable provisions of the
Code. In addition, the summary does not discuss the tax consequences of a
participant's death or the income tax laws of any state or foreign country in
which the participant may reside.
PARTICIPATION IN THE 1996 PLAN AND THE PURCHASE PLAN
Participation in the Purchase Plan is voluntary and is dependent on each
eligible employee's election to participate and his or her determination as to
the level of payroll deductions. Accordingly, future purchases under the
Purchase Plan are not determinable. Nonemployee directors are not eligible to
participate in the Purchase Plan and were not eligible to participate in the
1996 Plan.
The following table sets forth certain information regarding shares
purchased during the fiscal year ended June 30, 1998 by each of the executive
officers named in the Summary Compensation Table below, all current executive
officers as a group, all nonemployee directors as a group and all other
employees who participated in the 1996 Plan as a group:
<TABLE>
<CAPTION>
NUMBER OF
SHARES DOLLAR
NAME OF INDIVIDUAL OR IDENTITY OF GROUP AND POSITION PURCHASED(#) VALUE($)(1)
---------------------------------------------------- ------------ -----------
<S> <C> <C>
William N. Starling, President, Chief Executive Officer and
Chairman of the Board..................................... 4,000 $ 16,760
Debra S. Echt, M.D., Vice President and Chief Medical
Officer................................................... 396 1,659
David W. Gryska, Vice President Finance and Chief Financial
Officer................................................... 610 2,556
Earle L. Canty, Vice President, Regulatory Affairs and
Quality Assurance......................................... -- --
Mark L. Pomeranz, Executive Vice President, Research and
Development............................................... -- --
All executive officers as a group (9 persons)............... 5,778 24,210
All nonemployee directors................................... * *
All other employees as a group.............................. 57,775 235,701
</TABLE>
- ---------------
* Not eligible to participate in the Purchase Plan.
(1) Market value of shares on date of purchase minus the purchase price under
the Purchase Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ADOPTION OF THE
PURCHASE PLAN.
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<PAGE> 15
PROPOSAL THREE
AMENDMENT OF 1996 DIRECTOR OPTION PLAN
At the Annual Meeting, the stockholders are being asked to approve an
amendment of the Company's Director Plan to increase the number of shares of
Common Stock reserved for issuance thereunder by 20,000 shares. The adoption of
the Director Plan was approved by the Board of Directors and the stockholders in
March 1996 and April 1996, respectively. The amendment of the Director Plan to
increase the shares available for issuance thereunder by 20,000 shares was
approved by the Board of Directors and stockholders in August 1997 and October
1997, respectively. As of the Record Date, options to purchase an aggregate of
29,500 shares of the Company's Common Stock were outstanding, with a weighted
average exercise price of $8.25 per share, and 10,500 shares were available for
future grant, exclusive of the 20,000 shares for which approval is sought
hereunder. No shares have been purchased pursuant to exercise of stock options
under the Director Plan.
The Director Plan provides for the grant of nonqualified stock options to
nonemployee directors who are neither affiliated with or nominated by a
stockholder that owns one percent or more of the outstanding capital stock of
the Company (the "Outside Directors") pursuant to an automatic,
non-discretionary grant mechanism. The Company believes that the grant of
options to the Outside Directors has enabled the Company to attract and retain
directors with the talent that it continues to require.
The essential terms of the Director Plan are summarized as follows:
PURPOSE
The purposes of the Director Plan are to attract and retain the best
available Outside Directors, to provide additional incentive to the Outside
Directors to serve as directors and to encourage their continued service on the
Board of Directors.
AUTOMATIC, NON-DISCRETIONARY GRANTS AND ELIGIBILITY
The Director Plan provides that each future Outside Director, who does not
represent stockholders holding 1% or more of the Company's outstanding capital
stock, is automatically granted an option to purchase up to 13,000 shares of
Common Stock of the Company on the date upon which such person becomes an
Outside Director (the "First Option"). Each Outside Director regardless of
whether he or she represents stockholders holding 1% or more of the Company's
outstanding capital stock is automatically granted an option purchase up to 700
shares of Common Stock (the "Subsequent Option") each year on the date of the
Company's annual meeting of stockholders (if, on such date, he or she has served
as a director for at least the preceding six months), so long as he or she
remains an Outside Director.
TERMS OF OPTIONS
Each option is evidenced by a stock option agreement between the Company
and the optionee to whom such option is granted and is subject to the following
additional terms and conditions:
(1) Exercise of the Option: The options granted under the Director
Plan may be exercised after the shares subject to the option become vested.
The Director Plan provides for vesting of 25% of the shares subject to the
First Option one year after the date of grant, with an additional one
forty-eighth (1/48) of such shares vesting at the end of each month
thereafter. The shares subject to the Subsequent Option vest as to
one-eighth (1/8) of such shares six months after the date of grant, with an
additional one forty-eighth (1/48) of such shares vesting at the end of
each month thereafter. An option is exercised by giving written notice of
exercise to the Company, specifying the number of shares of Common Stock to
be purchased and tendering payment to the Company of the purchase price.
Payment for shares issued upon exercise of an option may consist of cash,
check, promissory note, delivery of already-owned shares of the Company's
Common Stock (subject to certain conditions), or any combination of the
foregoing methods of payment. Payment may also be made by a cashless
exercise procedure under which the optionee provides irrevocable
instructions to a brokerage firm to sell the purchased shares and to remit
to the
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<PAGE> 16
Company, out of the sale proceeds, an amount equal to the exercise price
plus all applicable withholding taxes or such other consideration as
determined by the Administrator and as permitted by the Delaware General
Corporation Law.
Options may be exercised at any time on or following the date the
options are first exercisable. An Option may not be exercised for a
fraction of a share.
(2) Option Price: The option price of nonqualified stock options
granted under the Director Plan is equal to 100% of the fair market value
of the Company's Common Stock on the date the option is granted. For
purposes of the Director Plan, fair market value is defined as the closing
price per share of the Company's Common Stock on the last market trading
day prior to the date of grant as reported on The Nasdaq National Market.
(3) Termination of Service as a Director: The Director Plan provides
that if the optionee's status as an Outside Director of the Company is
terminated for any reason, other than death or disability, options may be
exercised within three months after such termination and may be exercised
only to the extent the options were exercisable on the date of termination.
(4) Death: If an optionee should die while he or she is an Outside
Director of the Company, options may be exercised at any time within twelve
months after the date of death but only to the extent that such options
were exercisable on the date of death and in no event later than the
expiration of the term of such option.
(5) Disability: If an optionee's status as an Outside Director is
terminated due to a disability, such options may be exercised at any time
within twelve months from the date of such termination, but only to the
extent that such options were exercisable on the date of termination of the
individual's status as an Outside Director and in no event later than the
expiration of the term of such option.
(6) Termination of Options: Options granted under the Director Plan
expire ten years from the date of grant. No option may be exercised by any
person after such expiration.
(7) Nontransferability of Options: An option is nontransferable by the
optionee, other than by will or the laws of descent and distribution or a
qualified domestic relations order, and is exercisable only by the optionee
during his or her lifetime or, in the event of death, by a person who
acquires the right to exercise the option by bequest or inheritance or by
reason of the death of the optionee.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
In the event any change, such as a stock split or dividend, is made in the
Company's capitalization which results in an increase or decrease in the number
of outstanding shares of Common Stock without receipt of consideration by the
Company, an appropriate adjustment will be made in the option price and in the
number of shares subject to each option. In the event of the proposed
dissolution or liquidation of the Company, all outstanding options, which have
not been previously exercised, automatically terminate. In the event of a merger
of the Company with or into another corporation or sale of substantially all of
the assets of the Company, all outstanding options will be assumed or an
equivalent option substituted by the successor corporation. If an option is
assumed or substituted by the successor corporation, such option will continue
to be exercisable pursuant to its own terms for so long as the optionee serves
as a director of the Company or of the successor corporation. Following such
assumption or substitution, if the optionee's status as a director of the
Company or of the successor corporation is terminated other than upon a
voluntary resignation by the optionee, his or her option will immediately become
fully exercisable. If the options are not assumed or substituted by the
successor corporation, such options will immediately become fully exercisable
but terminate 30 days from the date notice is given to the optionee of the fully
vested status of his or her option.
AMENDMENT AND TERMINATION
With the exception of the administration of the Director Plan, including
the number, frequency and price of grants and the eligibility and vesting of
options, the Board of Directors may amend the Directors Plan at any
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<PAGE> 17
time or from time to time or may terminate it without approval of the
stockholders, provided, however, that stockholder approval is required for any
amendment which increases the number of shares which may be issued under the
Director Plan or for any amendment that would be required to enable the Director
Plan to comply with Rule 16b-3 promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"). However, no action by the Board of
Directors or stockholders may alter or impair any option previously granted
under the Director Plan without the consent of the optionee. In any event, the
Director Plan will terminate in March 2006.
TAX INFORMATION
Options granted under the Director Plan are nonqualified options. An
optionee will not recognize any taxable income at the time he or she is granted
a nonqualified option. However, upon its exercise, the optionee will recognize
ordinary income generally measured as the excess of the then fair market value
of the shares purchased over the purchase price. Any taxable income recognized
in connection with an option exercise by an optionee who is also an employee of
the Company will be subject to tax withholding by the Company. Upon resale of
such shares by the optionee, any difference between the sales price and the
optionee's purchase price, to the extent not recognized as taxable income as
described above, will be treated as long-term or short-term capital gain or
loss, depending on the holding period. Generally, the Company will be entitled
to a tax deduction in the same amount as the ordinary income recognized by the
optionee with respect to shares acquired upon exercise of a nonqualified option.
The foregoing is only a summary of the effect of federal income taxation
upon the optionee and the Company with respect to the grant and exercise of
options under the Director Plan, does not purport to be complete, and does not
discuss the tax consequences of the optionee's death or the income tax laws of
any municipality, state or foreign country in which an optionee may reside.
PARTICIPATION IN THE PLAN
The grant of options under the Director Plan to Outside Directors is
automatic and non-discretionary. Information regarding options granted to
Outside Directors pursuant to the 1996 Director Option Plan during fiscal 1998
is set forth under the heading "Proposal One -- Election of
Directors -- Compensation of Directors." During fiscal 1998, all current Outside
Directors as a group received options to purchase 28,100 shares pursuant to the
Director Plan. No other employee or director of the Company received any shares
pursuant to the Director Plan.
VOTE REQUIRED
The affirmative vote of a majority of the shares of the Company's Common
Stock present and voting at the Annual Meeting will be required to approve the
amendment of the Director Plan.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
APPROVAL OF THE AMENDMENT OF THE DIRECTOR PLAN.
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<PAGE> 18
PROPOSAL FOUR
AMENDMENT OF 1991 STOCK PLAN
At the Annual Meeting, the stockholders are being asked to approve an
amendment of the Company's 1991 Stock Plan (the "Stock Plan") to increase the
number of shares of Common Stock reserved for issuance thereunder by 300,000
shares. The adoption of the Stock Plan was approved by the Board of Directors
and by the stockholders in June 1991 and January 1992, respectively. The
amendment of the Stock Plan to increase the number of shares reserved for
issuance thereunder by 380,000 shares was approved by the Board of Directors and
the stockholders in August 1997 and October 1997, respectively. As of the Record
Date, options to purchase an aggregate of 1,141,774 shares of the Company's
Common Stock were outstanding, with a weighted average exercise price of $5.40
per share, and 87,886 shares were available for future grant, exclusive of the
300,000 shares for which approval is sought hereunder. In addition, 1,037,370
shares have been purchased pursuant to exercise of stock options under the Stock
Plan.
The Stock Plan authorizes the Board of Directors to grant stock options to
eligible employees and consultants of the Company. The Stock Plan is structured
to allow the Board of Directors broad discretion in creating equity incentives
in order to assist the Company in attracting, retaining and motivating the best
available personnel for the successful conduct of the Company's business. The
Company has had a longstanding practice of linking key employee compensation to
corporate performance because it believes that this increases employee
motivation to improve stockholder value. The Company has, therefore,
consistently included equity incentives as a significant component of
compensation for a broad range of the Company's employees. This practice has
enabled the Company to attract and retain the talent that it continues to
require.
The Board of Directors believes that the remaining shares available for
grant under the Stock Plan are insufficient to accomplish the purposes of the
Stock Plan described above. The Company anticipates there will be a need to hire
additional technical or management employees during fiscal 1999, such as a Vice
President of Regulatory Affairs and Quality Assurance, and it will be necessary
to offer equity incentives to attract and motivate these individuals,
particularly in the extremely competitive job market in Silicon Valley. In
addition, in order to retain the services of valuable employees as the Company
matures and its employee base grows larger, it will be necessary to grant
additional options to current employees as older options become fully vested.
The essential terms of the Stock Plan are summarized as follows:
PURPOSE
The purposes of the Stock Plan are to attract and retain the best available
personnel for positions of substantial responsibility, to provide additional
incentive to employees and consultants of the Company and to promote the success
of the Company's business.
ADMINISTRATION
The Stock Plan provides for administration by the Board of Directors of the
Company or one of its committees. The Stock Plan is currently being administered
by the Compensation Committee of the Board of Directors. The Board of Directors
or the Compensation Committee are referred to in this description as the
"Administrator." The Administrator determines the terms of options granted
including, but not limited to, the exercise price, number of shares subject to
the option and the exercisability thereof. All questions of interpretation are
determined by the Administrator and its decisions are final and binding upon all
participants. Members of the Board of Directors or the Compensation Committee,
as the case may be, receive no additional compensation for their services in
connection with the administration of the Stock Plan.
ELIGIBILITY
The Stock Plan provides that either incentive or nonqualified stock options
may be granted to employees (including officers and employee directors) of the
Company or any of its designated subsidiaries. In addition, the Stock Plan
provides that nonqualified stock options may be granted to consultants of the
Company or any of its designated subsidiaries. The Administrator elects the
optionees and determines the number of shares to
16
<PAGE> 19
be subject to each option. In making such determination, there are taken into
account the duties and responsibilities of the optionee, the value of the
optionee's services, the optionee's present and potential contribution to the
success of the Company and other relevant factors. The Stock Plan provides a
limit of $100,000 on the aggregate fair market value of shares subject to all
incentive options which become exercisable for the first time in any one
calendar year.
TERMS OF OPTIONS
Each option is evidenced by a stock option agreement between the Company
and the optionee to whom such option is granted and is subject to the following
additional terms and conditions:
(1) Exercise of the Option: The Administrator determines when options
granted under the Stock Plan may be exercised. An option is exercised when
the optionee gives written notice of exercise to the Company, specifying
the number of shares of Common Stock to be purchased and tenders payment to
the Company of the purchase price. Payment for shares issued upon exercise
of an option may consist of cash, check, promissory note, delivery of
already-owned shares of the Company's Common Stock (subject to certain
conditions), a reduction in the amount of any liability the Company may
have to the optionee or any combination of the foregoing methods. Payment
may also be made by a cashless exercise procedure under which the optionee
provides irrevocable instructions to a brokerage firm to sell the purchased
shares and to remit to the Company, out of the sale proceeds, an amount
equal to the exercise price plus all applicable withholding taxes or such
other consideration as determined by the Administrator and as permitted by
the Delaware General Corporation Law.
Options may be exercised at any time on or following the date the
options are first exercisable. An Option may not be exercised for a
fraction of a share.
(2) Option Price: The option price of all incentive stock options and
nonqualified stock options under the Stock Plan is determined by the
Administrator but, in the case of incentive stock options, in no event will
it be less than the fair market value of the Company's Common Stock on the
date the option is granted. For purposes of the Stock Plan, fair market
value is defined as the closing price per share of the Company's Common
Stock on the last market trading day prior to the date of grant as reported
on The Nasdaq National Market. In the case of an option granted to an
optionee who at the time of grant owns stock representing more than 10% of
the voting power of all classes of stock of the Company, the option price
must be not less than 110% of the fair market value on the date of grant.
(3) Termination of Employment: The Stock Plan provides that if the
optionee's employment by the Company is terminated for any reason, other
than death or disability, options may be exercised within three months (or
such other period of time not exceeding three months as determined by the
Administrator) after such termination and may be exercised only to the
extent the options were exercisable on the date of termination.
(4) Death: If an optionee should die while an employee or a consultant
of the Company, options may be exercised at any time within twelve months
after the date of death but only to the extent that the options were
exercisable on the date of death and in no event later than the expiration
of the term of such option.
(5) Disability: If an optionee's employment is terminated due to a
disability, options may be exercised at any time within twelve months from
the date of such termination, but only to the extent that the options were
exercisable on the date of termination of employment and in no event later
than the expiration of the term of such option.
(6) Termination of Options: Options granted under the Stock Plan have
a term as is determined by the Administrator, with incentive stock options
expiring no later than ten years from the date of grant. However, incentive
stock options granted to an optionee who immediately before the grant of
such option owns more than 10% of the voting power of all classes of stock
of the Company or a parent or subsidiary corporation may not have a term of
more than five years. No option may be exercised by any person after such
expiration.
17
<PAGE> 20
(7) Nontransferability of Options: An option is nontransferable by the
optionee, other than by will or the laws of descent and distribution or a
qualified domestic relations order and is exercisable only by the optionee
(or in the event of death by a person who acquires the right to exercise
the option by bequest or inheritance or by reason of the death of the
optionee).
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
In the event any change such as a stock split or dividend is made in the
Company's capitalization which results in an increase or decrease in the number
of outstanding shares of Common Stock without receipt of consideration by the
Company, an appropriate adjustment will be made in the option price and in the
number of shares subject to each option. In the event of the proposed
dissolution or liquidation of the Company, the Administrator may in its
discretion provide for an optionee to have the right to exercise his or her
option until 10 days prior to such transaction, including shares as to which the
option would not otherwise be exercisable. To the extent it has not been
previously exercised, an option will terminate immediately prior to the
consummation of such proposed action. In the event of a merger of the Company
with or into another corporation or sale of substantially all of the assets of
the Company, all outstanding options will be assumed or an equivalent option
substituted by the successor corporation. The Administrator may in its
discretion make provision for accelerating the exercisability of shares subject
to options under the Stock Plan in such event.
STOCK PURCHASE RIGHTS
The Board of Directors may also grant stock purchase rights to employees
and consultants under the Stock Plan. Such grants are made pursuant to a
restricted stock purchase agreement with the purchase price per share not being
less than 50% of the fair market value per share (as defined above) of the
Company's Common Stock. The Company is generally granted a repurchase option
exercisable on the voluntary or involuntary termination of the purchaser's
employment with the Company for any reason (including death or disability). Such
repurchase option will lapse at a rate determined by the Board of Directors.
Once the stock purchase right has been exercised, the purchaser will have the
rights equivalent to those of a stockholder.
PERFORMANCE-BASED COMPENSATION LIMITATIONS
No employee will be granted, in any fiscal year of the Company, options to
purchase more than 200,000 shares of Common Stock, except that in connection
with an employee's initial employment, he or she may be granted options to
purchase up to an additional 100,000 shares. The foregoing limitation, which
will be adjusted proportionately in connection with any change in the Company's
capitalization, is intended to satisfy the requirements applicable to options
intended to qualify as "performance-based compensation" within the meaning of
Section 162(m) of the Code. In the event that the Administrator determines that
such limitation is not required to qualify options as performance-based
compensation, the Administrator may modify or eliminate such limitation.
AMENDMENT AND TERMINATION
The Board of Directors may amend the Stock Plan at any time or from time to
time or may terminate it without approval of the stockholders; provided,
however, that stockholder approval is required for any amendment which increases
the number of shares which may be issued under the Stock Plan or as necessary to
remain in compliance with Rule 16b-3 of the Securities Exchange Act or 1934, as
amended, or Section 422 of the Code. However, no action by the Board of
Directors or stockholders may alter or impair any option previously granted
under the Stock Plan without the consent of the optionee. In any event, the
Stock Plan will terminate in June 2001.
TAX INFORMATION
Options granted under the Stock Plan may be either incentive stock options
(as defined in Section 422 of the Code) or nonqualified options.
18
<PAGE> 21
An optionee who is granted an incentive stock option will not recognize
taxable income either at the time the option is granted or upon its exercise,
although the exercise may subject the optionee to the alternative minimum tax.
Upon the sale or exchange of the shares more than two years after grant of the
option and one year after exercising the option, any gain or loss will be
treated as long-term capital gain or loss. If these holding periods are not
satisfied, the optionee will recognize ordinary income at the time of sale or
exchange equal to the difference between the exercise price and the lower of (i)
the fair market value of the shares at the date of the option exercise or (ii)
the sale price of the shares. A different rule for measuring ordinary income
upon such a premature disposition may apply if the optionee is also an officer,
director or 10% stockholder of the Company. Generally, the Company will be
entitled to a deduction in the same amount as the ordinary income recognized by
the optionee. Any gain or loss recognized on such a premature disposition of the
shares in excess of the amount treated as ordinary income will be characterized
as long-term or short-term capital gain or loss, depending on the holding
period.
All other options which do not qualify as incentive stock options are
referred to as nonqualified options. An optionee will not recognize any taxable
income at the time he or she is granted a nonqualified option. However, upon its
exercise, the optionee will recognize ordinary income generally measured as the
excess of the then fair market value of the shares purchased over the purchase
price. Any taxable income recognized in connection with an option exercise by an
optionee who is also an employee of the Company will be subject to tax
withholding by the Company. Upon resale of such shares by the optionee, any
difference between the sales price and the optionee's purchase price to the
extent not recognized as taxable income as described above will be treated as
long-term or short-term capital gain or loss depending on the holding period.
Generally, the Company will be entitled to a tax deduction in the same
amount as the ordinary income recognized by the optionee with respect to shares
acquired upon exercise of a nonqualified option.
The foregoing is only a summary of the effect of federal income taxation
upon the optionee and the Company with respect to the grant and exercise of
options under the Stock Plan, does not purport to be complete, and does not
discuss the tax consequences of the optionee's death or the income tax laws of
any municipality, state or foreign country in which an optionee may reside.
PARTICIPATION IN THE STOCK PLAN
The grant of options under the Stock Plan to executive officers, including
the officers named in the Summary Compensation Table below, is subject to the
discretion of the Administrator. As of the date of this proxy statement, there
has been no determination by the Administrator with respect to future awards
under the Stock Plan. Accordingly, future awards are not determinable. The table
of option grants under "Executive Compensation and Other Matters -- Option
Grants in Last Fiscal Year" provides information with respect to the grant of
options to the Named Executive Officers during fiscal 1998. Information
regarding options granted to Outside Directors pursuant to the 1996 Director
Option Plan during fiscal 1998 is set forth under the heading "Proposal
One -- Election of Directors -- Compensation of Directors." During fiscal 1998,
all current executive officers as a group and all other individuals as a group
received options to purchase 248,317 shares and 188,870 shares, respectively,
pursuant to the Stock Plan. As of the Record Date, approximately 170 employees
were eligible to participate in the Stock Plan.
VOTE REQUIRED
The affirmative vote of a majority of the shares of the Company's Common
Stock present and voting at the Annual Meeting will be required to approve the
amendment of the Stock Plan.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
APPROVAL OF THE AMENDMENT OF THE STOCK PLAN.
19
<PAGE> 22
PROPOSAL FIVE
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, 1999. 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 COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT
AUDITORS.
20
<PAGE> 23
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, the
four next most highly compensated executive officers in the fiscal year ended
June 30, 1998 (collectively, 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 OF
ANNUAL COMPENSATION SECURITIES
FISCAL -------------------- OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(#)(1)
--------------------------- ------ --------- -------- --------------- -------------
<S> <C> <C> <C> <C> <C>
William N. Starling......................... 1998 $233,154 $ -- $ -- 30,000
President, Chief Executive 1997 213,590 -- -- --
Officer and Director 1996 175,000 -- -- --
Debra S. Echt, M.D. ........................ 1998 212,394 -- 949(2) 15,000
Vice President and Chief Medical Officer 1997 165,257 -- 79,203(3) 100,000
1996 -- -- -- --
David W. Gryska............................. 1998 163,719 -- 36,812(4) 12,000
Vice President, Finance and Chief 1997 155,000 -- -- --
Financial Officer 1996 133,750 -- -- 16,667
Mark L. Pomeranz(5)......................... 1998 163,000 20,000 3,351(6) 15,000
Executive Vice President, Research and 1997 151,865 -- 17,105(4) 55,000
Development 1996 120,812 10,600 -- 67
Earle L. Canty(7)........................... 1998 160,000 -- 5,294(8) --
Vice President, Regulatory Affairs and 1997 152,500 -- 57,392(9) 7,000
Quality Assurance 1996 37,500 -- -- 66,667
</TABLE>
- ---------------
(1) These shares are subject to exercise under stock options granted under the
Company's 1991 Stock Option Plan. See "-- Option Grants in Last Fiscal
Year."
(2) Represents forgiveness of accrued interest on a loan and payment for certain
federal and state income tax obligations in connection with such
forgiveness.
(3) Consists of moving and relocation expenses and temporary housing allowance.
(4) Represents forgiveness of loan and related accrued interest, and payment for
certain federal and state income tax obligations in connection therewith.
(5) Mr. Pomeranz resigned as an officer of the Company in July 1998.
(6) Represents payment for certain federal and state income tax obligations in
connection with a loan which was forgiven in fiscal 1997.
(7) Mr. Canty resigned as an officer of the Company in August 1998 but continues
to provide consulting services to the Company on a part-time basis.
(8) Represents payment in connection with certain taxable medical benefits.
(9) Represents payment for certain federal and state income tax obligations in
connection with stock option exercise.
21
<PAGE> 24
OPTIONS GRANTS IN LAST FISCAL YEAR
The following table provides information relating to stock options awarded
to each of the Named Executive Officers during the fiscal year ended June 30,
1998. All such options were awarded under the Company's 1991 Stock Plan.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------------------- VALUE AT ASSUMED RATES
NUMBER OF PERCENT OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO PRICE PER OPTION TERM(1)
OPTIONS EMPLOYEES IN SHARE($) EXPIRATION -----------------------
NAME GRANTED(#)(2) FISCAL 1998(%) (3)(4) DATE 5%($) 10%($)
---- ------------- ---------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
William N. Starling....... 30,000 6.5% $8.50 10/14/2007 $160,368 $406,404
Debra S. Echt, M.D. ...... 15,000 3.3 8.50 10/14/2007 80,184 203,202
David W. Gryska........... 12,000 2.6 8.50 10/14/2007 64,147 162,562
Earle L. Canty............ -- -- -- -- -- --
Mark L. Pomeranz.......... 15,000 3.3 6.75 01/28/2008 63,676 161,366
</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 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 become exercisable as to 1/48 of the option shares at the end of
each month following the date of grant, with full vesting occurring on the
fourth anniversary of the date of grant.
(3) Options were granted at an exercise price equal to the fair market value of
the Company's Common Stock on the date of grant.
(4) 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.
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 the fiscal year ended
June 30, 1998 and the value of stock options held as of June 30, 1998 by the
Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
VALUE JUNE 30, 1998(#) JUNE 30, 1998($)(1)
SHARES ACQUIRED REALIZED --------------------------- ---------------------------
NAME ON EXERCISE(#) ($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William N. Starling....... 128,466 $841,102 113,362 35,972 $613,672 $72,579
Debra S. Echt, M.D. ...... -- -- 46,563 68,437 38,500 49,500
David W. Gryska........... 1,200 6,450 65,829 15,972 392,731 33,760
Earle L. Canty............ -- -- 2,042 4,958 -- --
Mark L. Pomeranz.......... -- -- 64,258 46,147 246,856 21,503
</TABLE>
- ---------------
(1) Fair market value of the Company's Common Stock at fiscal year-end ($7.13
based on the last reported sale price of the Company's Common Stock on June
30, 1998) minus the exercise price.
(2) Fair market value of the Company's Common Stock on the date of exercise
minus the exercise price.
22
<PAGE> 25
EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS
Ms. Echt and Messrs. Starling, Gryska, Canty, Hunt 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 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
Transactions with Directors, Executive Officers and Others
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% in April 1996. The proceeds
of the loan were used to exercise a stock option granted to Mr. Canty in January
1996. The loan was due upon the earlier of (i) 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 or (ii) the termination of Mr.
Canty's employment by the Company. In August 1998, Mr. Canty resigned from the
Company and became a consultant to the Company pursuant to a consulting
agreement, and the Company agreed to defer repayment of Mr. Canty's loans until
February 1999 as long as he continues to serve as a consultant to the Company.
Thus, in August 1998, the terms of the loan were amended to be due and payable
on the earlier of (i) the termination of Mr. Canty's service to the Company as a
consultant or (ii) February 1999. In December 1996, the Company loaned $197,450
to Mr. Canty at an annual interest rate of 6.40% pursuant to the same agreement.
The proceeds of the loan were used to pay certain federal and state income taxes
related to the above stock option exercise. The loan was due upon the earlier of
(i) the sale of the shares, or any portion thereof, underlying the option up to
an amount equal to fifty percent (50%) of the proceeds from such sale or (ii)
the termination of Mr. Canty's employment by the Company. In January 1998, Mr.
Canty repaid to the Company a portion of the $197,450 note, the outstanding
balance of which was $164,950 at October 15, 1998. In August 1998, the terms of
such loan were also amended such that the outstanding balance of the loan and
accrued interest shall be due and payable on the earlier of (i) the termination
of Mr. Canty's service to the Company as a consultant or (ii) February 1999.
Both loans were secured by the stock purchased and each loan is full recourse.
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
converted automatically 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 October 15, 1998, Arrow beneficially owned 614,334 shares of the
Company's outstanding Common Stock. Arrow has the right 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.
23
<PAGE> 26
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. Sales to Arrow under its distributorship accounted
for approximately $121,000 for the fiscal year ended June 30, 1998 and
represented approximately 5% 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 COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION
During the fiscal year ended June 30, 1998 the Company's executive
compensation program was approved by the Board's Compensation Committee and the
Board of Directors. The following is the report of the Compensation Committee
with respect to the compensation paid to the Company's executive officers during
fiscal 1998. 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.
The compensation program for the Company's executive officers consists of
the following components: base salary and long-term stock option incentives.
Base Salary
The Compensation Committee reviewed and approved fiscal 1998 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 for similarly situated companies in the
medical device industry, the 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 Compensation Committee 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. In making base salary decisions, the
Compensation Committee 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 Company provides its executive officers with long-term incentive
compensation through grants of stock options under the Company's 1991 Stock Plan
and otherwise. The Compensation Committee 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
24
<PAGE> 27
Stock. The Compensation Committee 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 in fiscal 1998 were granted
at an exercise price that was at the fair market value of the Company's Common
Stock on the date of grant. The Compensation Committee 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:
Michael L. Eagle
Thomas J. Fogarty, M.D.
Louis G. Lange, M.D.
25
<PAGE> 28
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 on the Nasdaq
National Market) and ending on June 30, 1998. 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>
6.00/13/96 JUN-96 JUN-97 JUN-98
<S> <C> <C> <C> <C>
CARDIAC PATHWAYS CORPORATION 100.00 76.32 47.37 37.50
NASDAQ STOCK MARKET (U.S.) 100.00 96.77 117.66 155.31
HAMBRECHT & QUIST HEALTHCARE
(EXCLUDING BIOTECHNOLOGY) 100.00 97.37 122.26 148.44
</TABLE>
- ---------------
* The graph assumes that $100 was invested on June 13, 1996 in the Company's
Common Stock, 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 of 1933, as amended, or Securities
Exchange Act of 1934, as amended (the "Exchange Act"), except to the extent that
the Company specifically incorporates it by reference into such filing.
26
<PAGE> 29
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of 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 reporting persons, the Company believes that, during the
fiscal year ended June 30, 1998, all such forms were filed on a timely basis.
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: October 28, 1998
27
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<PAGE> 31
APPENDIX A
CARDIAC PATHWAYS CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1998 Employee Stock
Purchase Plan of Cardiac Pathways Corporation.
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" shall mean the common stock of the Company.
(d) "Company" shall mean Cardiac Pathways Corporation and any
Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross
earnings, commissions, overtime, shift premium, incentive compensation,
incentive payments, and bonuses but exclusive of payments for any other
compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary which
has been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of
the Company for tax purposes whose customary employment with the Company is at
least twenty (20) hours per week and more than five (5) months in any calendar
year. For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first Trading Day of each
Offering Period.
(i) "Exercise Date" shall mean the last Trading Day of each
Purchase Period.
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(j) "Fair Market Value" shall mean, as of any date, the value
of Common Stock determined as follows:
(1) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day on the date of such determination, as reported in
The Wall Street Journal or such other source as the Board deems reliable;
(2) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Common Stock on the date of such determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable; or
(3) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Board.
(k) "Offering Periods" shall mean the periods of approximately
twenty-four (24) months during which an option granted pursuant to the Plan may
be exercised, commencing on the first Trading Day on or after May 1 and November
1 (beginning in 1998) of each year and terminating on the last Trading Day in
the periods ending twenty-four months later. The first Offering Period shall be
the period commencing with December 1, 1998 and terminating on the last Trading
Day on or before October 31, 2000. The duration and timing of Offering Periods
may be changed pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this 1998 Employee Stock Purchase Plan.
(m) "Purchase Period" shall mean the approximately six month
period commencing after one Exercise Date and ending with the next Exercise
Date, except that the first Purchase Period of any Offering Period shall
commence on the Enrollment Date and end with the next Exercise Date.
(n) "Purchase Price" shall mean 85% of the Fair Market Value
of a share of Common Stock on the Enrollment Date or on the Exercise Date,
whichever is lower; provided however, that the Purchase Price may be adjusted by
the Board pursuant to Section 20.
(o) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
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(p) "Subsidiary" shall mean a corporation, domestic or
foreign, of which not less than 50% of the voting shares are held by the Company
or a Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock
exchanges and the Nasdaq System are open for trading.
3. Eligibility.
(a) Any Employee who shall be employed by the Company on a
given Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan (i) to
the extent that, immediately after the grant, such Employee (or any other person
whose stock would be attributed to such Employee pursuant to Section 424(d) of
the Code) would own capital stock of the Company and/or hold outstanding options
to purchase such stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of the capital stock of the
Company or of any Subsidiary, or (ii) to the extent that his or her rights to
purchase stock under all employee stock purchase plans of the Company and its
subsidiaries accrues at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) worth of stock (determined at the fair market value of the shares at
the time such option is granted) for each calendar year in which such option is
outstanding at any time.
4. Offering Periods. The Plan shall be implemented by consecutive,
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after May 1 and November 1 of each year, or on such other date
as the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof. The first Offering Period shall begin on
December 1, 1998 and shall end on the last Trading Day on or before October 31,
2000. The Board shall have the power to change the duration of Offering Periods
(including the commencement dates thereof) with respect to future offerings
without stockholder approval if such change is announced prior to the scheduled
beginning of the first Offering Period to be affected thereafter.
5. Participation.
(a) An eligible Employee may become a participant in the Plan
by completing a subscription agreement authorizing payroll deductions in the
form of Exhibit A to this Plan and filing it with the Company's payroll office
prior to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
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6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding fifteen percent (15%) of
the Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may discontinue his or her participation in
the Plan as provided in Section 10 hereof, or may increase or decrease the rate
of his or her payroll deductions during the Offering Period by completing or
filing with the Company a new subscription agreement authorizing a change in
payroll deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to zero percent (0%) at any
time during a Purchase Period. Payroll deductions shall recommence at the rate
provided in such participant's subscription agreement at the beginning of the
first Purchase Period which is scheduled to end in the following calendar year,
unless terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part,
or at the time some or all of the Company's Common Stock issued under the Plan
is disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period,
each eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to
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purchase during each Purchase Period more than 5,000 shares of the Company's
Common Stock (subject to any adjustment pursuant to Section 19), and provided
further that such purchase shall be subject to the limitations set forth in
Sections 3(b) and 12 hereof. The Board may, for future Offering Periods,
increase or decrease, in its absolute discretion, the maximum number of shares
of the Company's Common Stock an Employee may purchase during each Purchase
Period of such Offering Period. Exercise of the option shall occur as provided
in Section 8 hereof, unless the participant has withdrawn pursuant to Section 10
hereof. The option shall expire on the last day of the Offering Period.
8. Exercise of Option.
(a) Unless a participant withdraws from the Plan as provided
in Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
(b) If the Board determines that, on a given Exercise Date,
the number of shares with respect to which options are to be exercised may
exceed (i) the number of shares of Common Stock that were available for sale
under the Plan on the Enrollment Date of the applicable Offering Period, or (ii)
the number of shares available for sale under the Plan on such Exercise Date,
the Board may in its sole discretion (x) provide that the Company shall make a
pro rata allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Exercise Date, and continue all Offering Periods then in effect, or (y) provide
that the Company shall make a pro rata allocation of the shares available for
purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform
a manner as shall be practicable and as it shall determine in its sole
discretion to be equitable among all participants exercising options to purchase
Common Stock on such Exercise Date, and terminate any or all Offering Periods
then in effect pursuant to Section 20 hereof. The Company may make pro rata
allocation of the shares available on the Enrollment Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional shares for issuance under the Plan by the Company's
stockholders subsequent to such Enrollment Date.
9. Delivery. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
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10. Withdrawal.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the participant's payroll
deductions credited to his or her account shall be paid to such participant
promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares shall be made for such Offering Period. If
a participant withdraws from an Offering Period, payroll deductions shall not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall
not have any effect upon his or her eligibility to participate in any similar
plan which may hereafter be adopted by the Company or in succeeding Offering
Periods which commence after the termination of the Offering Period from which
the participant withdraws.
11. Termination of Employment.
Upon a participant's ceasing to be an Employee, for any
reason, he or she shall be deemed to have elected to withdraw from the Plan and
the payroll deductions credited to such participant's account during the
Offering Period but not yet used to exercise the option shall be returned to
such participant or, in the case of his or her death, to the person or persons
entitled thereto under Section 15 hereof, and such participant's option shall be
automatically terminated. The preceding sentence notwithstanding, a participant
who receives payment in lieu of notice of termination of employment shall be
treated as continuing to be an Employee for the participant's customary number
of hours per week of employment during the period in which the participant is
subject to such payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. Stock.
(a) Subject to adjustment upon changes in capitalization of
the Company as provided in Section 19 hereof, the maximum number of shares of
the Company's Common Stock which shall be made available for sale under the Plan
shall be 100,000 shares, plus an annual increase to be added on the first day of
the Company's fiscal year beginning in 1999 equal to the lesser of (i) 200,000
shares, (ii) 1.5% of the outstanding shares on the last day of the Company's
prior fiscal year or (iii) such amount as may be determined by the Board.
(b) The participant shall have no interest or voting right in
shares covered by his option until such option has been exercised.
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(c) Shares to be delivered to a participant under the Plan
shall be registered in the name of the participant or in the name of the
participant and his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such partici pant's death
subsequent to an Exercise Date on which the option is exercised but prior to
delivery to such participant of such shares and cash. In addition, a participant
may file a written designation of a beneficiary who is to receive any cash from
the participant's account under the Plan in the event of such participant's
death prior to exercise of the option. If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required for
such designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements
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shall set forth the amounts of payroll deductions, the Purchase Price, the
number of shares purchased and the remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution,
Liquidation, Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action
by the stockholders of the Company, the Reserves, the maximum number of shares
each participant may purchase each Purchase Period (pursuant to Section 7), as
well as the price per share and the number of shares of Common Stock covered by
each option under the Plan which has not yet been exercised shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of shares of Common Stock effected without
receipt of consideration by the Company; provided, however, that conversion of
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration". Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of
all or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, each outstanding option shall be
assumed or an equivalent option substituted by the successor corporation or a
Parent or Subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the option, any
Purchase Periods then in progress shall be shortened by setting a new Exercise
Date (the "New Exercise Date") and any Offering Periods then in progress shall
end on the New Exercise Date. The New Exercise Date shall be before the date of
the Company's proposed sale or merger. The Board shall notify each participant
in writing, at least ten (10) business days prior to the New Exercise Date, that
the Exercise Date for the participant's option has been changed to the New
Exercise Date and that the participant's option shall be exercised
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automatically on the New Exercise Date, unless prior to such date the
participant has withdrawn from the Offering Period as provided in Section 10
hereof.
20. Amendment or Termination.
(a) The Board of Directors of the Company may at any time and
for any reason terminate or amend the Plan. Except as provided in Section 19
hereof, no such termination can affect options previously granted, provided that
an Offering Period may be terminated by the Board of Directors on any Exercise
Date if the Board determines that the termination of the Offering Period or the
Plan is in the best interests of the Company and its stockholders. Except as
provided in Section 19 and this Section 20 hereof, no amendment may make any
change in any option theretofore granted which adversely affects the rights of
any participant. To the extent necessary to comply with Section 423 of the Code
(or any successor rule or provision or any other applicable law, regulation or
stock exchange rule), the Company shall obtain stockholder approval in such a
manner and to such a degree as required.
(b) Without stockholder consent and without regard to whether
any participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
(c) In the event the Board determines that the ongoing
operation of the Plan may result in unfavorable financial accounting
consequences, the Board may, in its discretion and, to the extent necessary or
desirable, modify or amend the Plan to reduce or eliminate such accounting
consequence including, but not limited to:
(1) altering the Purchase Price for any Offering
Period including an Offering Period underway at the time of the change in
Purchase Price;
(2) shortening any Offering Period so that the
Offering Period ends on a new Exercise Date, including an Offering Period
underway at the time of the Board action; and
(3) allocating shares.
Such modifications or amendments shall not require
stockholder approval or the consent of any Plan participants.
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21. Notices. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may
require the person exercising such option to represent and warrant at the time
of any such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
24. Automatic Transfer to Low Price Offering Period. To the extent
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period as of the first day thereof.
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EXHIBIT A
CARDIAC PATHWAYS CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. __________________hereby elects to participate in the Cardiac Pathways
Corporation 1998 Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan") and subscribes to purchase shares of the Company's
Common Stock in accordance with this Sub scription Agreement and the
Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of ____% of my Compensation on each payday (from 1 to 15%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise
my option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is
in all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is
subject to stockholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should
be issued in the name(s) of (Employee or Employee and Spouse only):____
__________________________.
.
6. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after
the Exercise Date, I will be treated for federal income tax purposes
as having received ordinary income at the time of such disposition in
an amount equal to the excess of the fair market value of the shares at
the time such shares were purchased by me over the price which I paid
for the shares. I hereby agree to notify the Company in writing
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within 30 days after the date of any disposition of my shares and I
will make adequate provision for Federal, state or other tax
withholding obligations, if any, which arise upon the disposition of
the Common Stock. The Company may, but will not be obligated to,
withhold from my compensation the amount necessary to meet any
applicable withholding obligation including any withholding necessary
to make available to the Company any tax deductions or benefits
attributable to sale or early disposition of Common Stock by me. If I
dispose of such shares at any time after the expiration of the 2-year
and 1-year holding periods, I understand that I will be treated for
federal income tax purposes as having received income only at the time
of such disposition, and that such income will be taxed as ordinary
income only to the extent of an amount equal to the lesser of (1) the
excess of the fair market value of the shares at the time of such
disposition over the purchase price which I paid for the shares, or (2)
15% of the fair market value of the shares on the first day of the
Offering Period. The remainder of the gain, if any, recognized on such
disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent
upon my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)______________________________________________
(First) (Middle) (Last)
_________________________ ___________________________________
Relationship
___________________________________
(Address)
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Employee's Social
Security Number: ___________________________________
Employee's Address:
___________________________________
___________________________________
___________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_________________________ ___________________________________
Signature of Employee
____________________________________
Spouse's Signature (If beneficiary
other than spouse)
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EXHIBIT B
CARDIAC PATHWAYS CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Cardiac
Pathways Corporation 1998 Employee Stock Purchase Plan which began on
____________, 19____ (the "Enrollment Date") hereby notifies the Company that he
or she hereby withdraws from the Offering Period. He or she hereby directs the
Company to pay to the undersigned as promptly as practicable all the payroll
deductions credited to his or her account with respect to such Offering Period.
The under signed understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to partici
pate in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
___________________________________
___________________________________
___________________________________
Signature:
___________________________________
Date:______________________________
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APPENDIX B
CARDIAC PATHWAYS CORPORATION
1996 DIRECTOR OPTION PLAN
1. Purposes of the Plan. The purposes of this 1996 Director Option Plan
are to attract and retain the best available personnel for service as Outside
Directors (as defined herein) of the Company, to provide additional incentive to
the Outside Directors of the Company to serve as Directors, and to encourage
their continued service on the Board.
All options granted hereunder shall be nonstatutory stock
options.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" means the Common Stock of the Company.
(d) "Company" means Cardiac Pathways Corporation, a California
corporation.
(e) "Director" means a member of the Board.
(f) "Employee" means any person, including officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a Director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.
(g) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(h) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock 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 high bid
and low asked prices for the Common Stock on the date of
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<PAGE> 46
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable, or;
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith
by the Board.
(i) "Inside Director" means a Director who is an Employee.
(j) "Option" means a stock option granted pursuant to the
Plan.
(k) "Optioned Stock" means the Common Stock subject to an
Option.
(l) "Optionee" means a Director who holds an Option.
(m) "Outside Director" means a Director who is not an
Employee.
(n) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(o) "Plan" means this 1996 Director Option Plan.
(p) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.
(q) "Subsidiary" means a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Internal Revenue Code
of 1986.
3. Stock Subject to the Plan. Subject to the provisions of Section 10
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 60,000 Shares of Common Stock (the "Pool"). The Shares
may be authorized, but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having
been exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
4. Administration and Grants of Options under the Plan.
(a) Procedure for Grants. The provisions set forth in this
Section 4(a) shall not be amended more than once every six months, other than to
comport with changes in the Code, the Employee Retirement Income Security Act of
1974, as amended, or the rules thereunder. All grants of Options to Outside
Directors under this Plan shall be automatic and nondiscretionary and shall be
made strictly in accordance with the following provisions:
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(i) No person shall have any discretion to select
which Outside Directors shall be granted Options or to determine the number of
Shares to be covered by Options granted to Outside Directors.
(ii) Each Outside Director who is neither affiliated
with or nominated by a shareholder that owns one percent (1%) or more of the
outstanding capital stock of the Company (an "Unaffiliated Outside Director")
shall automatically be granted an Option to purchase 13,000 Shares (the "First
Option") on the date on which the later of the following events occurs: (A) the
effective date of this Plan, as determined in accordance with Section 6 hereof,
or (B) the date on which such person first becomes an Outside Director, whether
through election by the shareholders of the Company or appointment by the Board
to fill a vacancy. No Inside Director who ceases to be an Inside Director but
who remains a Director shall receive a First Option. No Outside Director who
upon first becoming an Outside Director is not an Unaffiliated Outside Director
but who subsequently becomes an Unaffiliated Outside Director shall thereby
become eligible to receive a First Option.
(iii) Each Outside Director, whether or not an
Unaffiliated Outside Director, shall be automatically granted an Option to
purchase 700 Shares (a "Subsequent Option") each year on the date of the annual
meeting of the shareholders of the Company, provided he or she is then an
Outside Director and if as of such date, he or she shall have served on the
Board for at least the preceding six (6) months.
(iv) Notwithstanding the provisions of subsections
(ii) and (iii) hereof, any exercise of an Option granted before the Company has
obtained shareholder approval of the Plan in accordance with Section 16 hereof
shall be conditioned upon obtaining such shareholder approval of the Plan in
accordance with Section 16 hereof.
(v) The terms of a First Option granted hereunder
shall be as follows:
(A) the term of the First Option shall be ten
(10) years.
(B) the First Option shall be exercisable only
while the Outside Director remains a Director of the Company, except as set
forth in Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of
the Fair Market Value per Share on the date of grant of the First Option. In the
event that the date of grant of the First Option is not a trading day, the
exercise price per Share shall be the Fair Market Value on the next trading day
immediately following the date of grant of the First Option.
(D) subject to Section 10 hereof, the First
Option shall become exercisable as to twenty-five percent (25%) of the Shares
subject to the First Option one (1) year after its date of grant, and as to an
additional one forty-eighth (1/48th) of the shares at the end of each month
thereafter, provided that the Optionee continues to serve as a Director on such
dates.
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(vi) The terms of a Subsequent Option granted
hereunder shall be as follows:
(A) the term of the Subsequent Option shall be
ten (10) years.
(B) the Subsequent Option shall be exercisable
only while the Outside Director remains a Director of the Company, except as set
forth in Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100%
of the Fair Market Value per Share on the date of grant of the Subsequent
Option. In the event that the date of grant of the Subsequent Option is not a
trading day, the exercise price per Share shall be the Fair Market Value on the
next trading day immediately following the date of grant of the Subsequent
Option.
(D) subject to Section 10 hereof, the Subsequent
Option shall become exercisable as to one-eighth (1/8th) of the Shares subject
to the Subsequent Option six (6) months after its date of grant, and as to an
additional one forty-eighth (1/48th) at the end of each month thereafter,
provided that the Optionee continues to serve as a Director on such dates.
(vii) In the event that any Option granted under the
Plan would cause the number of Shares subject to outstanding Options plus the
number of Shares previously purchased under Options to exceed the Pool, then the
remaining Shares available for Option grant shall be granted under Options to
the Outside Directors on a pro rata basis. No further grants shall be made until
such time, if any, as additional Shares become available for grant under the
Plan through action of the Board or the shareholders to increase the number of
Shares which may be issued under the Plan or through cancellation or expiration
of Options previously granted hereunder.
5. Eligibility. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth in
Section 4 hereof.
The Plan shall not confer upon any Optionee any right with
respect to continuation of service as a Director or nomination to serve as a
Director, nor shall it interfere in any way with any rights which the Director
or the Company may have to terminate the Director's relationship with the
Company at any time.
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 16 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 11 of the Plan.
7. Form of Consideration. The consideration to be paid for the Shares
to be issued upon exercise of an Option, including the method of payment, shall
consist of (i) cash, (ii) check, (iii) other shares which (x) in the case of
Shares acquired upon exercise of an Option, have been owned by the Optionee for
more than six (6) months on the date of surrender, and (y) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which
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<PAGE> 49
said Option shall be exercised, (iv) delivery of a properly executed exercise
notice together with such other documentation as the Company and the broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the exercise price, or
(v) any combination of the foregoing methods of payment.
8. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any
Option granted hereunder shall be exercisable at such times as are set forth in
Section 4 hereof; provided, however, that no Options shall be exercisable until
shareholder approval of the Plan in accordance with Section 16 hereof has been
obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the terms of
the Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received by
the Company. Full payment may consist of any consideration and method of payment
allowable under Section 7 of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date the stock certificate is issued, except as provided in Section 10 of
the Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Rule 16b-3. Options granted to Outside Directors must
comply with the applicable provisions of Rule 16b-3 promulgated under the
Exchange Act or any successor thereto and shall contain such additional
conditions or restrictions as may be required thereunder to qualify Plan
transactions, and other transactions by Outside Directors that otherwise could
be matched with Plan transactions, for the maximum exemption from Section 16 of
the Exchange Act.
(c) Termination of Continuous Status as a Director. Subject to
Section 10 hereof, in the event an Optionee's status as a Director terminates
(other than upon the Optionee's death or total and permanent disability (as
defined in Section 22(e)(3) of the Code)), the Optionee may exercise his or her
Option, but only within three (3) months following the date of such termination,
and only to the extent that the Optionee was entitled to exercise it on the date
of such termination (but in no event later than the expiration of its ten (10)
year term). To the extent that the Optionee was not entitled to exercise an
Option on the date of such termination, and to the extent that the
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Optionee does not exercise such Option (to the extent otherwise so entitled)
within the time specified herein, the Option shall terminate.
(d) Disability of Optionee. In the event Optionee's status as
a Director terminates as a result of total and permanent disability (as defined
in Section 22(e)(3) of the Code), the Optionee may exercise his or her Option,
but only within twelve (12) months following the date of such ter mination, and
only to the extent that the Optionee was entitled to exercise it on the date of
such termination (but in no event later than the expiration of its ten (10) year
term). To the extent that the Optionee was not entitled to exercise an Option on
the date of termination, or if he or she does not exercise such Option (to the
extent otherwise so entitled) within the time specified herein, the Option shall
terminate.
(e) Death of Optionee. In the event of an Optionee's death,
the Optionee's estate or a person who acquired the right to exercise the Option
by bequest or inheritance may exercise the Option, but only within twelve (12)
months following the date of death, and only to the extent that the Optionee was
entitled to exercise it on the date of death (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of death, and to the extent that the
Optionee's estate or a person who acquired the right to exercise such Option
does not exercise such Option (to the extent otherwise so entitled) within the
time specified herein, the Option shall terminate.
9. Non-Transferability of Options. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
10. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action
by the shareholders of the Company, the number of Shares covered by each
outstanding Option, the number of Shares which have been authorized for issuance
under the Plan but as to which no Options have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option, as well
as the price per Share covered by each such outstanding Option, and the number
of Shares issuable pursuant to the automatic grant provisions of Section 4
hereof shall be proportionately adjusted for any increase or decrease in the
number of issued Shares resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued Shares effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of Shares
subject to an Option.
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(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it shall terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the
Company with or into another corporation or the sale of substantially all of the
assets of the Company, outstanding Options may be assumed or equivalent options
may be substituted by the successor corporation or a Parent or Subsidiary
thereof (the "Successor Corporation"). If an Option is assumed or substituted
for, the Option or equivalent option shall continue to be exercisable as
provided in Section 4 hereof for so long as the Optionee serves as a Director or
a director of the Successor Corporation. Following such assumption or
substitution, if the Optionee's status as a Director or director of the
Successor Corporation, as applicable, is terminated other than upon a voluntary
resignation by the Optionee, the Option or option shall become fully
exercisable, including as to Shares for which it would not otherwise be
exercisable. Thereafter, the Option or option shall remain exercisable in
accordance with Sections 8(c) through (e) above.
If the Successor Corporation does not assume an outstanding Option or
substitute for it an equivalent option, the Option shall become fully vested and
exercisable, including as to Shares for which it would not otherwise be
exercisable. In such event the Board shall notify the Optionee that the Option
shall be fully exercisable for a period of thirty (30) days from the date of
such notice, and upon the expiration of such period the Option shall terminate.
For the purposes of this Section 10(c), an Option shall be considered
assumed if, following the merger or sale of assets, the Option confers the right
to purchase or receive, for each Share of Optioned Stock subject to the Option
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective date of
the transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding Shares).
11. Amendment and Termination of the Plan.
(a) Amendment and Termination. Except as set forth in Section
4, the Board may at any time amend, alter, suspend, or discontinue the Plan, but
no amendment, alteration, suspension, or discontinuation shall be made which
would impair the rights of any Optionee under any grant theretofore made,
without his or her consent. In addition, to the extent necessary and desirable
to comply with Rule 16b-3 under the Exchange Act (or any other applicable law or
regulation), the Company shall obtain shareholder approval of any Plan amendment
in such a manner and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
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12. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date determined in accordance with Section 4 hereof.
13. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated there
under, state securities laws, and the requirements of any stock exchange upon
which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
14. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
16. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company at or prior to the first annual
meeting of shareholders held subsequent to the granting of an Option hereunder.
Such shareholder approval shall be obtained in the degree and manner required
under applicable state and federal law.
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APPENDIX C
CARDIAC PATHWAYS CORPORATION
1991 STOCK PLAN
(AS AMENDED APRIL 1996)
(AS FURTHER AMENDED OCTOBER 1997)
(AS FURTHER AMENDED OCTOBER 1998)
1. PURPOSES OF THE PLAN. The purposes of this Stock Plan are to attract
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be incentive stock options (as
defined under Section 422 of the Code) or nonstatutory stock options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder. Stock purchase rights may also be granted
under the Plan.
2. CERTAIN DEFINITIONS. As used herein, the following definitions shall
apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as
amended.
(d) "COMMITTEE" means the Committee appointed by the Board of
Directors in accordance with paragraph (a) of Section 4 of the Plan.
(e) "COMMON STOCK" means the Common Stock of the company.
(f) "COMPANY" means Cardiac Pathways Corporation, a California
corporation.
(g) "CONSULTANT" means any person, including an advisor, who
is engaged by the Company or any Parent or Subsidiary to render services and is
compensated for such services. The term Consultant shall not include directors
who are not compensated for their services or are paid only a director's fee by
the Company.
(h) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" means
that the employment or consulting relationship with the Company, any Parent, or
Subsidiary, is not interrupted or terminated. Continuous Status as an Employee
or Consultant shall not be considered interrupted in the case of (i) any leave
of absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor. A
leave of absence approved by the Company shall include sick leave, military
leave, or any other
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<PAGE> 54
personal leave approved by an authorized representative of the Company. For
purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
(i) "EMPLOYEE" means any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
(j) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
(k) "FAIR MARKET VALUE" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock 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 high bid
and low 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 Administrator deems reliable;
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(l) "INCENTIVE STOCK OPTION" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
(m) "NONSTATUTORY STOCK OPTION" means an Option not intended
to qualify as an Incentive Stock Option.
(n) "OPTION" means a stock option granted pursuant to the
Plan.
(o) "OPTIONED STOCK" means the Common Stock subject to an
Option.
(p) "OPTIONEE" means an Employee or Consultant who receives an
Option.
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(q) "PARENT" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(r) "PLAN" means this 1991 Stock Plan.
(s) "RESTRICTED STOCK" means shares of Common Stock acquired
pursuant to a grant of a Stock Purchase Right under Section 11 below.
(t) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
(u) "SUBSIDIARY" means a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 14
of the Plan, the maximum aggregate number of shares which may be optioned and
sold under the Plan is 2,567,030 shares of Common Stock. The shares may be
authorized, but unissued, or re-acquired Common Stock.
If an Option or Stock Purchase Right should expire or become
unexercisable for any reason without having been exercised in full, the
unpurchased Shares which were subject thereto shall, unless the Plan shall have
been terminated, become available for future grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE.
(i) MULTIPLE ADMINISTRATIVE BODIES. If permitted by
Rule 16b-3, the Plan may be administered by different bodies with respect to
directors, officers who are not directors, and Employees who are neither
directors nor officers.
(ii) ADMINISTRATION WITH RESPECT TO DIRECTORS AND
OFFICERS SUBJECT TO SECTION 16(B). With respect to Option or Stock Purchase
Right grants made to Employees who are also officers or directors subject to
Section 16 of the Exchange Act, the Plan shall be administered by (A) the Board,
if the Board may administer the Plan in a manner complying with the rules under
Rule 16b-3 relating to the disinterested administration of employee benefit
plans under which Section 16(b) exempt discretionary grants and awards of equity
securities are to be made, or (B) a Committee designated by the Board to
administer the Plan, which Committee shall be constituted to comply with the
rules under Rule 16b-3 relating to the disinterested administration of employee
benefit plans under which Section 16(b) exempt discretionary grants and awards
of equity securities are to be made. Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board. From time to time the Board may increase the size of the Committee and
appoint additional members, remove members (with or without cause) and
substitute new members, fill vacancies (however caused), and remove all members
of the Committee and
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thereafter directly administer the Plan, all to the extent permitted by the
rules under Rule 16b-3 relating to the disinterested administration of employee
benefit plans under which Section 16(b) exempt discretionary grants and awards
of equity securities are to be made.
(iii) ADMINISTRATION WITH RESPECT TO OTHER PERSONS.
With respect to Option or Stock Purchase Right grants made to Employees or
Consultants who are neither directors nor officers of the Company, the Plan
shall be administered by (A) the Board or (B) a Committee designated by the
Board, which committee shall be constituted to satisfy the legal requirements
relating to the administration of incentive stock plans of California corporate
and securities laws and the Code (the "Applicable Laws"). Once appointed, such
Committee shall serve in its designated capacity until otherwise directed by the
Board. The Board may increase the size of the Committee and appoint additional
members, remove members (with or without cause) and substitute new members, fill
vacancies (however caused), and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by
Applicable Laws.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the Plan
and in the case of a Committee, the specific duties delegated by the Board to
such Committee, the Administrator shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common
Stock, in accordance with Section 2(k) of the Plan;
(ii) to select the Consultants and Employees to whom
Options and Stock Purchase Rights may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options
and Stock Purchase Rights or any combination thereof, are granted hereunder;
(iv) to determine the number of shares of Common
Stock to be covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the
Plan;
(vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder
(including, but not limited to, the share price and any restriction or
limitation or waiver of forfeiture restrictions regarding any Option or other
award and/or the shares of Common Stock relating thereto, based in each case on
such factors as the Administrator shall determine, in its sole discretion;
(vii) to determine whether and under what
circumstances an Option may be settled in cash under subsection 10(f) instead of
Common Stock;
(viii) to determine whether, to what extent and under
what circumstances Common Stock and other amounts payable with respect to an
award under this Plan shall be deferred
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either automatically or at the election of the participant (including providing
for and determining the amount, if any, of any deemed earnings on any deferred
amount during any deferral period);
(ix) to reduce the exercise price of any Option to
the then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option shall have declined since the date the Option was
granted; provided, however, that the Administrator must seek the prior consent
of the Board of Directors and stockholders of the Company to effect such action;
and
(x) to determine the terms and restrictions
applicable to Stock Purchase Rights and the Restricted Stock purchased by
exercising such Stock Purchase Rights.
(c) EFFECT OF COMMITTEE'S DECISION. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options.
5. ELIGIBILITY. Nonstatutory Stock Options and Stock Purchase Rights
may be granted to Employees and Consultants. Incentive Stock Options may be
granted only to Employees. An Employee or Consultant who has been granted an
Option or Stock Purchase Right may, if he is otherwise eligible, be granted
additional Options or Stock Purchase Rights.
6. LIMITATIONS.
(a) Each Option shall be designated in the written option
agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designation, to the extent that the aggregate Fair
Market Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted. If
an Option is granted hereunder that is part Incentive Stock Option and part
Nonstatutory Stock Option due to becoming first exercisable in any calendar year
in excess of $100,000, the Incentive Stock Option portion of such Option shall
become exercisable first in such calendar year, and the Nonstatutory Stock
Option portion shall commence becoming exercisable once the $100,000 limit has
been reached.
(b) Neither the Plan nor any Option or Stock Purchase Right
shall confer upon an Optionee any right with respect to continuing the
Optionee's employment or consulting relationship with the Company, nor shall
they interfere in any way with the Optionee's right or the Company's right to
terminate such employment or consulting relationship at any time, with or
without cause.
(c) The following limitations shall apply to grants of Options
and Stock Purchase Rights to Employees:
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(i) No Employee shall be granted, in any fiscal year
of the Company, Options to purchase more than 200,000 Shares.
(ii) In connection with his or her initial
employment, an Employee may be granted Options to purchase up to an additional
100,000 Shares which shall not count against the limit set forth in subsection
(i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 14.
(iv) If an Option or Stock Purchase Right is
cancelled in the same fiscal year of the Company in which it was granted (other
than in connection with a transaction described in Section 14), the cancelled
Option or Stock Purchase Right will be counted against the limits set forth in
subsections (i) and (ii) above. For this purpose, if the exercise price of an
Option or Stock Purchase Right is reduced, the transaction will be treated as a
cancellation of the Option or Stock Purchase Right and the grant of a new Option
or Stock Purchase Right.
7. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company as described in Section 20 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 16 of the Plan.
8. TERM OF OPTION. The term of each Option shall be the term stated in
the Option Agreement; provided, however, that in the case of an Incentive Stock
Option, the term shall be no more than ten (10) years from the date of grant
thereof or such shorter term as may be provided in the Option Agreement.
However, in the case of an Option granted to an Optionee who, at the time the
Option is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the term of the Option shall be five (5) years from the date of grant thereof or
such shorter term as may be provided in the Option Agreement.
9. OPTION EXERCISE PRICE AND CONSIDERATION.
(A) The per share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Administrator, but shall be subject to the following:
(i) In the case of an INCENTIVE STOCK OPTION
(A) granted to an Employee who, at the time
of the grant of such Incentive Stock Option, owns stock representing more than
ten percent (10%) of the voting power of all classes of stock of the Company or
any Parent or Subsidiary, the per Share exercise price shall be no less than
110% of the Fair Market Value per Share on the date of grant.
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(B) granted to any other Employee, the per
Share exercise price shall be no less than 100% of the Fair Market Value per
Share on the date of grant.
(ii) In the case of a NONSTATUTORY STOCK OPTION, the
per Share exercise price shall be determined by the Administrator.
(b) FORM OF CONSIDERATION. The Administrator shall determine
the acceptable form of consideration for exercising an Option, including the
method of payment. In the case of an Incentive Stock Option, the Administrator
shall determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares
acquired upon exercise of
an option, have been owned by the Optionee for more than six months on the date
of surrender, and (B) have a Fair Market Value on the date of surrender equal to
the aggregate exercise price of the Shares as to which said Option shall be
exercised;
(v) delivery of a properly executed exercise notice together
with such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the exercise price;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any
Option granted hereunder shall be exercisable at such times and under such
conditions as determined by the Administrator, including performance criteria
with respect to the Company and/or the Optionee, and as shall be permissible
under the terms of the Plan.
An Option may not be exercised for a fraction of a
Share.
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An Option shall be deemed to be exercised when
written notice of such exercise has been given to the Company in accordance with
the terms of the Option by the person entitled to exercise the Option, and full
payment for the Shares with respect to which the Option is exercised has been
received by the Company. Full payment may, as authorized by the Administrator,
consist of any consideration and method of payment allowable under Section 9(b)
of the Plan. Until the issuance (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the Company) of
the stock certificate evidencing such Shares, no right to vote or receive
dividends or any other rights as a stockholder shall exist with respect to the
Optioned Stock, notwithstanding the exercise of the Option. The Company shall
issue (or cause to be issued) such stock certificate promptly upon exercise of
the Option. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the stock certificate is issued, except as
provided in Section 14 of the Plan.
Exercise of an Option in any manner shall result in a
decrease in the number of Shares which thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of Shares as
to which the Option is exercised.
(b) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. Upon
termination of an Optionee's Continuous Status as an Employee, other than upon
the Optionee's death or Disability, the Optionee may exercise his or her Option
within such period of time as is specified in the option agreement to the extent
that he or she is entitled to exercise it on the date of termination (but in no
event later than the expiration of the term of such Option). In the absence of a
specified time in the option agreement, the Option shall remain exercisable for
three (3) months following the Optionee's termination. In the case of an
Incentive Stock Option, such period of time for exercise shall not exceed three
(3) months from the date of termination. If, on 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 the Plan. If,
after termination, the Optionee does not exercise his or her Option within the
time specified by the Administrator, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
Notwithstanding the above, in the event of an Optionee's
change in status from Consultant to Employee or Employee to Consultant, the
Optionee's Continuous Status as an Employee or Consultant shall not
automatically terminate solely as a result of such change in status. In such
event, an Incentive Stock Option held by the Optionee shall cease to be treated
as an Incentive Stock Option and shall be treated for tax purposes as a
Nonstatutory Stock Option beginning three months and one day following such
change of status.
(c) DISABILITY OF OPTIONEE. Upon termination of an Optionee's
Continuous Status as an Employee or Consultant as a result of the Optionee's
total and permanent disability (as defined in Section 22(e)(3) of the Code), the
Optionee may exercise his or her Option at any time within twelve (12) months
from the date of termination, but only to the extent that the Optionee is
entitled to exercise it on the date of termination (and in no event later than
the expiration of the term of the Option). If, on 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 the Plan. If,
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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 the Plan.
(d) DEATH OF OPTIONEE. Upon the death of an Optionee, the
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration of the term of such Option),
by the Optionee's estate or by a person who acquires the right to exercise the
Option by bequest or inheritance, but only to the extent that the Optionee would
have been entitled to exercise the Option on the date of death. If, at the time
of death, the Optionee is not entitled to exercise his or her entire Option, the
Shares covered by the unexercisable portion of the Option shall immediately
revert to the Plan. If the Optionee's estate or the person who acquires the
right to exercise the Option by bequest or inheritance does not exercise the
Option within the time specified herein, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(e) RULE 16B-3. Options granted to persons subject to Section
16 of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
(f) BUYOUT PROVISIONS. The Administrator may at any time offer
to buy out for a payment in cash or Shares, an Option previously granted, based
on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
11. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing of the terms, conditions and restrictions related
to the offer, including the number of Shares that such person shall be entitled
to purchase, the price to be paid (which price shall not be less than 50% of the
Fair Market Value of the Shares as of the date of the offer), and the time
within which such person must accept such offer, which shall in no event exceed
thirty (30) days from the date upon which the Administrator made the
determination to grant the Stock Purchase Right. The offer shall be accepted by
execution of a Restricted Stock purchase agreement in the form determined by the
Administrator. Shares purchased pursuant to the grant of a Stock Purchase Right
shall be referred to herein as "Restricted Stock."
(b) REPURCHASE OPTION. Unless the Administrator determines
otherwise, the Restricted Stock purchase agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's employment with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at such rate as the Committee
may determine.
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<PAGE> 62
(c) RULE 16B-3. Stock Purchase Rights granted to persons
subject to Section 16 of the Exchange Act, and Shares purchased by such persons
in connection with Stock Purchase Rights, shall be subject to any restrictions
applicable thereto in compliance with Rule 16b-3. Such persons may only purchase
Shares pursuant to the grant of a Stock Purchase Right, and may only sell Shares
purchased pursuant to the grant of a Stock Purchase Right, during such time or
times as are permitted by Rule 16b-3.
(d) OTHER PROVISIONS. The Restricted Stock purchase agreement
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock purchase agreements need not be the
same with respect to each purchaser.
(e) RIGHTS AS A STOCKHOLDER. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
stockholder, and shall be a stockholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 14
of the Plan.
12. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. An Option
or Stock Purchase Right may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
13. STOCK WITHHOLDING TO SATISFY WITHHOLDING TAX OBLIGATIONS. At the
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option or Stock Purchase Right, which tax liability is
subject to tax withholding under applicable tax laws, and the Optionee is
obligated to pay the Company an amount required to be withheld under applicable
tax laws, the Optionee may satisfy the withholding tax obligation by electing to
have the Company withhold from the Shares to be issued upon exercise of the
Option, or the Shares to be issued in connection with the Stock Purchase Right,
if any, that number of Shares having a Fair Market Value equal to the amount
required to be withheld. The Fair Market Value of the Shares to be withheld
shall be determined on the date that the amount of tax to be withheld is to be
determined (the "Tax Date").
All elections by an Optionee to have Shares withheld for this purpose
shall be made in writing in a form acceptable to the Administrator and shall be
subject to the following restrictions:
(a) the election must be made on or prior to the applicable
Tax Date;
(b) once made, the election shall be irrevocable as to the
particular Shares of the Option or Right as to which the election is made;
(c) all elections shall be subject to the consent or
disapproval of the Administrator;
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(d) if the Optionee is subject to Section 16 of the Exchange
Act, the election must comply with the applicable provisions of Rule 16b-3 and
shall be subject to such additional conditions or restrictions as may be
required thereunder to qualify for the maximum exemption from Section 16 of the
Exchange Act with respect to Plan transactions.
In the event the election to have Shares withheld is made by an
Optionee and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Optionee shall receive
the full number of Shares with respect to which the Option or Stock Purchase
Right is exercised, but such Optionee shall be unconditionally obligated to
tender back to the Company the proper number of Shares on the Tax Date.
14. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION,
MERGER OR ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action
by the stockholders of the Company, the number of shares of Common Stock covered
by each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent it has not been previously exercised, an
Option will terminate immediately prior to the consummation of such proposed
action.
(c) MERGER OR ASSET SALE. In the event of a merger of the
Company with or into another corporation, or the sale of substantially all of
the assets of the Company, each outstanding
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Option and Stock Purchase Right shall be assumed or an equivalent option or
right substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation. In the event that the successor corporation refuses to
assume or substitute for the Option or Stock Purchase Right, the Optionee shall
have the right to exercise the Option or Stock Purchase Right as to all of the
Optioned Stock, including Shares as to which it would not otherwise be
exercisable. If an Option or Stock Purchase Right is exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee that the Option or Stock Purchase Right
shall be fully exercisable for a period of fifteen (15) days from the date of
such notice, and the Option or Stock Purchase Right shall terminate upon the
expiration of such period. For the purposes of this paragraph, the Option or
Stock Purchase Right shall be considered assumed if, following the merger or
sale of assets, the option or right confers the right to purchase or receive,
for each Share of Optioned Stock subject to the Option or Stock Purchase Right
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective date of
the transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale of
assets was not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option or Stock
Purchase Right, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right, to be solely common stock of the successor corporation or its
Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
15. TIME OF GRANTING OPTIONS. The date of grant of an Option or Stock
Purchase Right shall, for all purposes, be the date on which the Administrator
makes the determination granting such Option or Stock Purchase Right, or such
other date as is determined by the Board. Notice of the determination shall be
given to each Employee or Consultant to whom an Option or Stock Purchase Right
is so granted within a reasonable time after the date of such grant.
16. AMENDMENT AND TERMINATION OF THE PLAN. The Board may at any time
amend, alter, suspend or discontinue the Plan, but no amendment, alteration,
suspension or discontinuation shall be made which would impair the rights of any
Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with Rule 16b-3 under
the Exchange Act or with Section 422 of the Code (or any other applicable law or
regulation, including the requirements of the NASD of an established stock
exchange), the Company shall obtain stockholder approval of any Plan amendment
in such a manner and to such a degree as required.
17. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
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then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
18. RESERVATION OF SHARES. The Company, during the term of this Plan,
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
19. AGREEMENTS. Options and Stock Purchase Rights shall be evidenced by
written agreements in such form as the Board shall approve from time to time.
20. STOCKHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such stockholder approval shall be obtained
in the degree and manner required under applicable state and federal law. In
addition, should the Administrator determine that it is appropriate to reduce
the exercise price of any Option pursuant to Section 4(b)(ix) of the Plan, the
Administrator shall seek the prior consent of the stockholders to effect such
action.
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<PAGE> 66
CARDIAC PATHWAYS CORPORATION
1998 ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 30, 1998
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 October 28, 1998, 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 1998 Annual Meeting of Stockholders of CARDIAC
PATHWAYS CORPORATION to be held on November 30, 1998 at 12:00 p.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 [ ] FOR all nominees listed below (except as
indicated) [ ] WITHHOLD
If you wish to withhold authority to vote for any individual nominee,
strike a line through that nominee's name in the list below:
Louis G. Lange, M.D., William N. Starling
2. TO APPROVE (I) THE ADOPTION OF THE 1998 EMPLOYEE STOCK PURCHASE PLAN,
(II) THE RESERVATION OF 100,000 SHARES OF COMMON STOCK FOR SALE
THEREUNDER AND (III) AN ANNUAL INCREASE IN THE NUMBER OF SHARES OF
COMMON STOCK FOR SALE THEREUNDER, BEGINNING ON JULY 1, 1999, BY THE
LESSER OF (A) 200,000 SHARES, (B) 1.5% OF THE COMMON STOCK
(OUTSTANDING AS OF THE LAST DAY OF THE PRIOR FISCAL YEAR) OR (C) SUCH
AMOUNT AS MAY BE DETERMINED BY THE COMPANY'S BOARD OF DIRECTORS.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. AMENDMENT OF 1996 DIRECTOR OPTION PLAN TO INCREASE THE NUMBER OF
SHARES OF THE COMPANY'S COMMON STOCK AVAILABLE FOR ISSUANCE
THEREUNDER BY 20,000 SHARES.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. AMENDMENT OF 1991 STOCK PLAN TO INCREASE THE NUMBER OF SHARES OF THE
COMPANY'S COMMON STOCK AVAILABLE FOR ISSUANCE THEREUNDER BY 300,000
SHARES.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS THE
INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL YEAR ENDING JUNE
30, 1999.
[ ] 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. (Continued and to be executed on reverse side)
P
R
O
X
Y
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<PAGE> 67
(Continued from other side)
THIS PROXY WILL BE VOTED AS DIRECTED. IN THE ABSENCE OF DIRECTION, THIS
PROXY WILL BE VOTED FOR THE TWO NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
AND FOR PROPOSALS 2 THROUGH 5. In their discretion, the proxy holders are
authorized to vote upon such other business as may properly come before the
meeting or any adjournment thereof to the extent authorized by Rule 14a-4(c)
promulgated by the Securities and Exchange Commission. THIS PROXY IS SOLICITED
ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO
SIGN AND PROMPTLY MAIL THIS PROXY IN THE ENCLOSED RETURN ENVELOPE SO THAT YOUR
SHARES MAY BE REPRESENTED AT THE MEETING.
The undersigned hereby acknowledges receipt of (a) the Notice of 1998 Annual
Meeting of Stockholders of the Company; (b) the accompanying Proxy Statement;
and (c) the Annual Report on Form 10-K for the fiscal year ended June 30, 1998.
Please sign exactly as your name(s)
appears on your stock
certificate(s). If shares are held
in the names of two or more persons
(including husband and wife, as
joint tenants or otherwise) all
persons must sign. If shares are
held by a corporation, the proxy
should be signed by the president or
vice president and the secretary or
assistant secretary. Fiduciaries who
execute the proxy should give their
full title.
------------------------------------
Signature
------------------------------------
Signature
Dated:
