EP MEDSYSTEMS, INC.
58 Route 46 West
Budd Lake, NJ 07828
September 29, 1997
Dear Shareholder,
You are cordially invited to join us for our Annual
Meeting of Shareholders to be held this year on Thursday
October 30, 1997, at 10:00 a.m. (EST) at the Wyndham
Garden Hotel, 1000 International Drive, Mount Olive, New
Jersey.
The Notice of Annual Meeting of Shareholders and the
Proxy Statement that follow describe the business to be
conducted at the meeting. We will also report on
matters of current interest to our shareholders.
Whether you own a few or many shares of stock, it
is important that your shares be represented. If you
cannot personally attend the meeting, we encourage you
to make certain that you are represented by signing the
accompanying proxy card and promptly returning it in
the enclosed envelope.
Sincerely,
/s/ DAVID A. JENKINS
David A. Jenkins
Chairman of the Board,
President and Chief Executive Officer
<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
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Check the appropriate box:
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[ ] 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 240.14a-
11(c) or Rule 240.14a-12
EP MedSystems, Inc.
--------------------
(Name of Registrant as Specified In Its Charter)
- ----------------------------------------------------------
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the Registrant)
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<PAGE>
EP MEDSYSTEMS, INC.
58 Route 46 West
Budd Lake, NJ 07828
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD THURSDAY, OCTOBER 30, 1997
NOTICE IS HEREBY GIVEN that the Annual Meeting of
Shareholders of EP MedSystems, Inc., a New Jersey
corporation (the "Company"), will be held at the Wyndham
Garden Hotel, 1000 International Drive, Mount Olive, NJ, at
10:00 a.m., eastern standard time, on Thursday, October 30,
1997, for the following purposes:
(1) To elect five directors of the Company
to serve until the next Annual Meeting of
Shareholders or until their respective
successors shall have been duly elected and
qualified;
(2) To approve an amendment to the 1995 Long
Term Incentive Plan to increase the number of
shares which may be issued thereunder by
300,000 from 400,000 to 700,000;
(3) To ratify the selection of Arthur
Andersen LLP, independent public accountants,
as auditors for the Company for the fiscal
year ending December 31, 1997; and
(4) To transact such other business as may
properly come before the Annual Meeting or
any adjournment or postponement thereof.
The Board of Directors has fixed the close of business
on September 18, 1997 as the record date for the
determination of shareholders entitled to notice of and
to vote at the Annual Meeting.
All shareholders are cordially invited to attend the
Annual Meeting in person. Whether or not you expect to
attend the Annual Meeting, your proxy vote is important.
To ensure representation at the Annual Meeting,
shareholders are urged to mark, sign, date and return
the enclosed Proxy as promptly as possible, even if
they plan to attend the Annual Meeting. A return envelope,
which requires no postage if mailed in the United
States, is enclosed for this purpose. Any shareholder
attending the Annual Meeting may vote in person even if
such shareholder has returned a Proxy if the Proxy is
revoked in the manner set forth in the accompanying Proxy
Statement.
By order of the Board of Directors,
/s/ JAMES J. CARUSO
James J. Caruso
Vice President, Finance, Chief
Financial Officer and Secretary
September 29, 1997
IT IS IMPORTANT THAT THE ENCLOSED PROXY CARD
BE COMPLETED AND RETURNED PROMPTLY
<PAGE>
EP MEDSYSTEMS, INC.58 Route 46 West
Budd Lake, NJ 07828
PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON
OCTOBER 30, 1997
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of EP MedSystems, Inc.(the "Company" or "EP
MedSystems") of proxies for use at the Annual Meeting of Shareholders
(the "Annual Meeting") to be held at the Wyndham Garden Hotel, 1000
International Drive, Mount Olive, New Jersey, at 10:00 a.m.,
eastern standard time, on Thursday, October 30, 1997, for the
purposes set forth in the accompanying Notice of Annual Meeting of
Shareholders. The principal executive offices of the Company are
located at 58 Route 46 West, Budd Lake, NJ 07828. This Proxy
Statement and accompanying form of proxy will be mailed to
shareholders on or about September 29, 1997.
RECORD DATE AND OUTSTANDING SHARES
Holders of record of the Company's common stock, no par value,
$.001 stated value per share (the "Common Stock"), at the close of
business on September 18, 1997 ( "Record Date") are entitled to notice
of and to vote at the Annual Meeting. On the Record Date there were
7,599,917 shares of Common Stock outstanding.
REVOCABILITY OF PROXIES
Shares represented at the Annual Meeting by properly executed
proxies in the accompanying form will be voted at the Annual Meeting
and, where the stockholder giving the proxy specifies a choice,
the proxy will be voted in accordance with the specification so
made. A proxy given for use at the Annual Meeting may be
revoked by the stockholder giving the proxy at any time prior
to the exercise of the powers conferred thereby. A proxy may be
revoked either by (i) filing with the Secretary of the Company
prior to the Annual Meeting, at the Company's principal executive
offices, either a written revocation or a duly executed proxy bearing
a later date or (ii) attending the Annual Meeting and voting in
person, regardless of whether a proxy has previously been given.
Presence at the Annual Meeting will not revoke the stockholder's
proxy unless such stockholder votes in person.
QUORUM AND VOTING
Holders of Common Stock will be entitled to one vote per share. Action
may be taken on a matter submitted to shareholders at the Annual
Meeting only if a quorum exists. A majority of the outstanding shares
of Common Stock entitled to vote, present in person or represented by
proxy, constitutes a quorum at a meeting of the shareholders.
Directors will be elected by a plurality of the votes cast by the
holders of the shares of Common Stock voting in person or by proxy at
the Annual Meeting. Holders of Common Stock are not entitled to
cumulative voting rights in the election of directors. Approval of any
other matters to come before the Annual Meeting will require the
affirmative vote of the holders of a majority of the shares of Common
Stock present in person or by proxy at the Annual Meeting. Abstentions
or broker non-votes are not counted as votes cast on any matter to
which they relate and, therefore, will not be included in vote totals
and will have no effect on the outcome of any matters to be voted upon
at the Annual Meeting. Abstentions and broker non-votes will be
treated as shares that are present, in person or by proxy, and entitled
to vote for purposes of determining the presence of a quorum.
SOLICITATION OF PROXIES
The expense of soliciting proxies for the Annual Meeting, including
the cost of preparing, assembling and mailing the notice, proxy and
Proxy Statement will be paid by the Company. The solicitation will be
made by use of the mails, through brokers and banking institutions,
and by officers and other employees of the Company. Proxies may be
solicited by personal interview, mail, telephone or facsimile
transmission.
PROPOSAL # 1. ELECTION OF DIRECTORS
GENERAL
At the Annual Meeting, five directors are to be elected to hold office
until the next Annual Meeting or until their successors are duly
elected and qualified. The Board of Directors has no reason to believe
that any of the nominees listed below will be unable to serve as a
director. If, however, a nominee becomes unavailable, the proxies will
have discretionary authority to vote for a substitute nominee.
Unless authority to do so is withheld, the persons named as proxies in
the accompanying proxy will vote FOR the election of the nominees
listed below.
The Board of Directors currently has five members, all of whom are
nominees for re-election. The affirmative vote of a plurality of the
Company's outstanding Common Stock represented and voting at the Annual
Meeting is required to elect the Directors.
INFORMATION REGARDING NOMINEES FOR ELECTION AS DIRECTORS The following
information with respect to the principal occupation or employment,
other affiliations and business experience of each of the five nominees
during the past five years has been furnished to the Company by such
nominee.
David A. Jenkins (Age 39) is the co-founder and Chairman of the Board
of Directors, President and Chief Executive Officer of the Company.
Mr. Jenkins has served as the President, Chief Executive Officer and a
Director of the Company from 1993 to the present and as Chairman since
1995. From 1988 to 1993, Mr. Jenkins served as the Chief Executive
Officer and then Chairman of the Board of Directors of Arrhythmia
Research Technology, Inc., a publicly held company involved in the
sale and distribution of electrophysiology products.
David W. Mortara, Ph.D. (Age 56) has served as a Director of the
Company since November, 1995. Dr. Mortara founded and has served as
the Chairman and Chief Executive Officer of Mortara Instruments,
Inc.("MII"),a privately-held manufacturer and supplier of
electrocardiography equipment, since 1982. Prior to founding MII,
Dr. Mortara was Vice President, Engineering at Marquette Electronics,
Inc. He has authored numerous scientific publications on signal
processing for electrocardiography and currently serves as co-chair
of AAMI's ECG Standards Committee.
Lestor J. Swenson (Age 57) has served as a Director of the Company
since November, 1995. Since 1985, Mr. Swenson has served as a Vice
President, Finance of the pacing division of Medtronic, Inc.
("Medtronic"), a leading manufacturer and supplier of arrhythmia
control products including pacemakers, implantable defibrillators
and catheter ablation systems. Mr. Swenson previously held a variety
of positions including Assistant Corporate Controller, European
Controller and International Controller at Medtronic. He is currently
a Director of Nguyen Electronics, Inc.
Jon A. Tietbohl (Age 38) has served as a Director of the Company
since November, 1995. Since 1990, Mr. Tietbohl has served as
Managing Director and co-head of Mergers and Acquisitions at Tucker
Anthony Incorporated, a Boston-based investment banking firm. During
his ten year tenure at Tucker Anthony, Mr. Tietbohl has represented
both public and private companies in a range of corporate merger
and acquisition transactions, along with related experience in
acquisition finance.
Anthony J. Varrichio (Age 50) has served as a Director of the
Company since inception and served as the Chairman of the Board and
Treasurer of the Company from 1993 to 1995. Since 1987, Mr. Varrichio
has served as the President and a director of HiTronics Designs, Inc.
("HDI"), an engineering consulting and medical device corporation.
Prior to co-founding HDI, Mr. Varrichio served as Vice President of
Electro-Biology, Inc., a manufacturer of electronic bone growth
stimulator devices. Prior thereto, Mr. Varrichio worked in the
Advanced Technology Laboratory division of Intermedics, Inc., where
he served as Director of Engineering. Mr. Varrichio is currently the
Chairman of the Board of Neomedics, Inc.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE
NOMINEES.
COMPENSATION OF DIRECTORS
During 1996, no directors of the Company received cash or other
compensation for services on the Board of Directors or any committee
thereof. The directors were reimbursed for their reasonable travel
expenses incurred in performance of their duties as directors.
1995 DIRECTOR OPTION PLAN
The Company's 1995 Director Option Plan (the "Director Plan")was
adopted by the Board of Directors and the shareholders in November,
1995. A total of 360,000 shares of Common Stock of the Company are
available for issuance under the Director Plan. The Director Plan
provides for grants of "director options" to eligible directors of
the Company and for grants of "advisor options" to eligible
members of the Scientific Advisory Board of the Company. At December
31, 1996, there were 180,000 director options and 108,000 advisor
options outstanding at an exercise price of $2.00 per share. Director
options and advisor options become exercisable at the rate of 1,000
shares per month, commencing with the first month following the date
of grant for so long as the optionee remains a director or advisor, as
the case may be. At September 18, 1997, 66,000 director options and
66,000 advisor options were vested. The Director Plan is
administered by the Plan Committee of the Company. The Director Plan
will terminate on November 30, 2005, unless earlier terminated by the
Board of Directors.
INFORMATION REGARDING COMMITTEES OF THE BOARD OF DIRECTORS AND
MEETINGS
The Company's Board of Directors has established an Audit Committee, a
Compensation Committee and a Plan Committee. The Company does not have
a Nominating Committee.
AUDIT COMMITTEE
The Company has an Audit Committee of the Board of Directors at least a
majority of whom must be "independent directors" (as defined in the
rules of the National Association of Securities Dealers, Inc.), to
make recommendations concerning the engagement of independent public
accountants, review with the independent public accountants the plans
and results of the audit engagement, approve professional services
provided by the independent public accountants, review the independence
of the independent public accountants, consider the range of
audit and non-audit fees and review the adequacy of the Company's
internal accounting controls. Currently, Messrs. Mortara, Swenson and
Tietbohl are members of the Audit Committee.
COMPENSATION COMMITTEE
The Company has a Compensation Committee of the Board of Directors
consisting of two or more non-employee directors, who may not
receive options under the 1995 Long Term Incentive Plan (the
"1995 Plan"), to determine compensation
for the Company's executive officers and to administer the 1995
Plan. Currently, Messrs. Mortara and Tietbohl are members of the
Compensation Committee.
PLAN COMMITTEE
The Company has a Plan Committee of the Board of Directors consisting
of two or more directors to administer the Company's Director
Plan, none of whom are eligible to participate in such Plan.
Currently, Messrs. Jenkins and Varrichio are members of the Plan
Committee.
ATTENDANCE AT BOARD AND COMMITTEE MEETINGS
In 1996, there were two meetings of the Board of Directors and all
members of the Board of Directors attended 100% of the meetings of
the Board. There was one meeting of the Audit Committees during
1996.
PROPOSAL # 2. APPROVAL OF THE AMENDMENT TO THE 1995 LONG TERM
INCENTIVE PLAN
Shareholders are asked to approve the amendment to the 1995 Plan to
increase the number of shares of Common Stock to be granted under the
Plan by 300,000 from 400,000 to 700,000 shares. Unless instructed
otherwise, it is the intention of the persons named in the accompanying
proxy to vote shares represented by properly executed proxies FOR
amendment of the 1995 Plan.
The Board of Directors believes that the additional options would,
among other things, promote the interests of the Company and its
shareholders by assisting the Company in attracting, retaining and
maximizing the performance of officers and key employees. The Board
believes that the existing options have contributed substantially to
the successful achievement of these objectives. The Board believes
that the 300,000 additional shares of Common Stock available for
issuance as a result of the amendment should be sufficient to meet
the Company's requirements for approximately two to three years.
Other non-material changes have been made to the 1995 Plan by the
Board to reflect changes in the beneficial ownership rules of Section
16 of the Securities Exchange Act of 1934. The full text of the
amended 1995 Long Term Incentive Plan is annexed to this Proxy
Statement as Exhibit A.
DESCRIPTION OF THE 1995 LONG TERM INCENTIVE PLAN
Only eligible employees of the Company may be granted options under
the Plan. The selection of employees of the Company who will
hereafter receive grants under the 1995 Plan is to be determined by
the Compensation Committee in its discretion. It is therefore not
possible to predict the amounts that will be received by or allocated
to particular individuals or groups of employees. Set forth elsewhere
in this Proxy Statement is information relating to outstanding options
previously granted to the Named Executive Officer and each of the
Company's directors.
The 1995 Plan was adopted by the Board of Directors and
shareholders in November, 1995. A total of 400,000 shares of Common
Stock are currently authorized for issuance under the 1995 Plan and
options to purchase 381,500 shares were outstanding as of September
18, 1997. Such options were held by 15 employees of the Company and
were exercisable at exercise prices ranging from $2.00 to $5.50 with
an average exercise price of $3.81 per share. The 1995 Plan
provides for grants of "incentive" ("ISO") and "non-qualified"
("NQSO") stock options to employees of the Company. The 1995 Plan
is administered by the Compensation Committee, which determines the
optionees and the terms of the options granted, including the exercise
price, number of shares subject to the options and the exercisability
thereof. The 1995 Plan will terminate on November 30, 2005,
unless earlier terminated by the Board of Directors.
The exercise price of an ISO granted under the 1995 Plan must be
equal to at least the fair market value of the Common Stock on the
date of grant, and the term of such options may not exceed ten
years. With respect to any optionee who owns stock representing more
than 10% of the voting power of all classes of the Company's
outstanding capital stock, the exercise price of any ISO must be
equal to at least 110% of the fair market value of the Common Stock
on the date of grant, and the term of the option may not exceed five
years. The aggregate fair market value of Common Stock (determined as
of the date of the option grant) for which an ISO may for the first
time become exercisable in any calendar year may not exceed $100,000.
The exercise price for any NQSO will be established by the
Compensation Committee, and may be more or less than the fair
market value of the Common Stock on the date of grant.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
consequences of participation in the 1995 Plan. The discussion is
general in nature and does not address issues related to the tax
circumstances of any particular optionee. The discussion is based on
federal income tax laws in effect on the date hereof and is,
therefore, subject to possible future changes in law. The
discussion does not address state, local or foreign consequences.
An optionee will not have any income at the time an ISO is granted.
Furthermore, an optionee will not have regular taxable income at
the time the ISO is exercised. However, the excess of the fair
market value of the shares at the time of exercise over the option
exercise price of the shares will be a preference item that
could create an alternative minimum tax liability. If an optionee
disposes of the shares acquired on exercise of an ISO after the later
of two years after the grant of the ISO and one year after exercise
of the ISO, the gain (i.e., the excess of the proceeds received
over the option price), if any, will be long-term capital gain
eligible for favorable tax rates under the Code. If the optionee
disposes of the shares within two years of the date of grant of the
ISO or within one year of exercise of the ISO, the disposition is
normally a "disqualifying disposition," and the optionee will
recognize ordinary income in the year of the disqualifying disposition
equal to the excess of the amount received for the shares (or, if
less, the fair market value of the shares at the time the ISO is
exercised) over the option exercise price of the shares. The balance
of the gain, if any, will be long-term or short-term capital gain
depending on whether the shares were sold more than one year after the
ISO was exercised.
The Company is not entitled to a deduction as the result of the grant
or exercise of an ISO. If the optionee has ordinary income
taxable as compensation as a result of a disqualifying disposition,
the Company will be entitled to a deduction at the same time and in
the same amount as the optionee, assuming that the deduction is not
disallowed by Section 162(m) of the Code.
A recipient of a NQSO will not have any income at the time the NQSO
is granted, nor will the Company be entitled to a deduction at that
time. When an NQSO is exercised, the optionee will recognize
ordinary income in an amount equal to the excess of the fair market
value of the shares to which the option pertains over the option
exercise price of the shares. The Company will be entitled to a tax
deduction with respect to an NQSO at the same time and in the same
amount as the recipient, assuming that the deduction is not disallowed
by Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code") (which limits the Company's deduction in any one year
for remuneration paid to certain executives in excess of $1 million)
or otherwise limited under the Code.
As of September 18, 1997, the last reported sales price per share of
Common Stock on the Nasdaq National Market was $2.75.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE
AMENDMENT OF THE 1995 LONG TERM INCENTIVE PLAN
EXECUTIVE COMPENSATION AND OTHER INFORMATION
EXECUTIVE OFFICERS
The following table sets forth certain information regarding the
executive officers and certain key employees of the Company as of
September 18, 1997:
OFFICER
NAME AGE POSITION SINCE
- ---------------- --- --------------------- ------
David A. Jenkins 39 Chairman of the Board, 1993
President and Chief
Executive Officer
James J. Caruso 37 Chief Financial Officer, 1996
Treasurer and Secretary
C. Bryan Byrd 36 Vice President, Engineering 1993
Joseph Griffin III 38 President, ProCath Corporation 1993
DAVID A. JENKINS is the co-founder and Chairman of the
Board of Directors, President and Chief Executive Officer
of the Company. Mr. Jenkins has served as the President,
Chief Executive Officer and a Director of the Company from
1993 to the present and as Chairman since 1995. From 1988
to 1993, Mr. Jenkins served as the Chief Executive
Officer and then Chairman of the Board of Directors of
Arrhythmia Research Technology, Inc., a publicly held
company involved in the sale and distribution of
electrophysiology products.
JAMES J. CARUSO is the Chief Financial Officer, Treasurer
and Secretary of the Company. Mr. Caruso served from
1989 to 1995 as Vice President and Chief Financial
Officer of Micron Medical Products, Inc., a wholly-owned
subsidiary of Arrhythmia Research Technology, Inc. and a
manufacturer of components for ECG electrodes. Mr.
Caruso is a Certified Public Accountant.
C. BRYAN BYRD is the Vice President of Engineering of
the Company. Mr. Byrd joined the Company in April
1993 to oversee software development for new products.
From 1989 to 1993, he co-founded and served as the
Director of Engineering for BioPhysical Interface Corp.
where he was responsible for developing automated
computerized monitoring equipment for pacemaker and open
heart operating rooms and follow-up clinics. Prior to
that, he was a software engineer for Medtronic, Inc.
("Medtronic"), where he developed the ValveBase,
PaceBase and TeleTrace software modules, and also worked
with Mt. Sinai Medical Center in Miami Beach, Florida. He
has developed databases for all aspects of cardiac
surgery.
JOSEPH C. GRIFFIN, III has been the President of ProCath
Corporation, the wholly-owned subsidiary of the Company,
since its inception in 1993. Mr. Griffin founded
Professional Catheter Corporation, the predecessor to
ProCath Corporation, in 1990 and served as its President
until the Company acquired its business in 1993. Mr.
Griffin has more than 17 years experience in the design,
development, regulation and manufacture of cardiac
catheters and has served as a member of the Health
Industry Manufacturers Association Pacemaker Task Force
and Electrode Catheter Task Force.
EXECUTIVE COMPENSATION
The following summary compensation table sets forth
certain information concerning compensation paid or
accrued to the Chief Executive Officer of the Company
(the "Named Executive Officer") for services rendered in
all capacities for the years ended December 31, 1996,
1995 and 1994. No other executive officer of the
Company was paid a salary and bonus aggregating greater
than $100,000 during such time periods.
SUMMARY COMPENSATION TABLE
Annual Long Term
Compensation Compensation
--------------- ------------
Securities
Name and Principal Salary Bonus Underlying
Position Year ($) ($) Options
- ----------------- ---- -------- ------ ------------
David A. Jenkins 1996 $127,500 $250 0
Chairman, President 1995 $110,000 $5,250 166,000(1)
& Chief Executive 1994 $108,542 $ 0 0
Officer
STOCK OPTIONS
The following table sets forth certain information
concerning grants of stock options to the Named Executive
Officer during the fiscal year ended December 31, 1996.
OPTION GRANTS IN FISCAL YEAR 1996
INDIVIDUAL GRANTS
-----------------
Percent of Total
Number of Shares Options Granted Exercise
Underlying Options to Employees Price per Expiration
Granted in Fiscal Year Share Date
------------------ -------------- --------- ----------
David A.Jenkins - - - -
Chairman, President
and Chief Executive
Officer
1) On August 31, 1995, the Company granted Mr. Jenkins a non-
qualified stock option to purchase 96,000 shares of Common
Stock at an exercise price of $2.20 per share. Options to
purchase 30,000 shares became exercisable on the grant date
and options to purchase 1,000 shares become exercisable each
month thereafter. The term of such option is five years. On
November 29, 1995, the Company granted Mr. Jenkins an
incentive stock option to purchase 70,000 shares of Common
Stock pursuant to the Company's 1995 Plan at an exercise
price of $2.20 per share. Options to purchase 45,000 shares
became exercisable upon completion of the Company's initial
public offering and options to purchase 25,000 shares became
exercisable on the first anniversary of such date. The term
of such option is ten years.
OPTION EXERCISES AND HOLDINGS
The following table provides certain information with respect to the
Named Executive Officer concerning the exercise of stock options during
the fiscal year ended December 31, 1996 and the value of unexercised
stock options held as of December 31, 1996.
AGGREGATED OPTION EXERCISES IN 1996
AND YEAR END OPTION VALUES
Number of Shares Value of Unexercised
Shares Underlying Unexercised In the Money
Acquired Value Options at Options at December 31,
on Realized December 31, 1996 ($) (1)
Name (#) ($) ------------------------- -----------------------
- ---- ---------- -------- Exercisable Unexercisable Exercised Unexercised
----------- ------------- --------- -----------
David A. Jenkins
- - 90,000 76,000 $218,250 $184,300
Chairman, President
and Chief Executive
Officer
(1) Amounts calculated by subtracting the exercise price of
the options from the market value of the underlying Common
Stock using the closing sale price on the Nasdaq National
Market of $4.625 per share on December 31, 1996.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States,
the Company's directors, executive officers and any
persons beneficially owning more than ten percent of the
Company's Common Stock are required to report their
ownership of the Company's Common Stock and any changes
in that ownership to the Securities and Exchange
Commission and the Nasdaq National Market Surveillance
Department. Based solely on its review of the forms
received by it from such persons for their 1996
transactions, the Company believes that all filing
requirements applicable to such officers, directors and
greater than ten percent beneficial owners were complied
with in a timely manner.
COMPENSATION OF SCIENTIFIC ADVISORY BOARD MEMBERS
During 1996, no members of the Scientific Advisory
Board received cash or other compensation for services
to the Company. During 1995, three members received
options to purchase 36,000 shares of the Company's
Common Stock under the 1995 Director Option Plan, which
vest at the rate of 1,000 shares per month. Scientific
Advisory Board members are reimbursed for their
reasonable expenses incurred in the performance of their
duties as Scientific Advisory Board members.
EMPLOYMENT AGREEMENTS
On March 1, 1993, the Company entered into an Employment
Agreement with David A. Jenkins as President for an
initial term of three years. The agreement provides
for base compensation and bonuses and other additional
compensation as may be determined by the Board of
Directors in its sole discretion. On August 31, 1995,
the Company entered into an Employment Agreement Addendum
with Mr. Jenkins which extended the term of employment
through March 1, 1999. The addendum provides for base
compensation of $145,000, plus five percent of the
Company's consolidated income before taxes. Mr. Jenkins'
Employment Agreement may be terminated at any time for
cause. It contains a non-competition provision
extending for two years after termination of employment
for cause and, in the Company's discretion, one year
after termination of employment for any other reason,
provided that if Mr. Jenkins is terminated without cause,
the Company is obligated to continue to pay him
compensation during such discretionary period.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information
regarding beneficial ownership of Common Stock of the
Company as of September 18, 1997 by (i) each of the
Company's directors, (ii) the Named Executive Officer,
(iii) all directors and executive officers as a group and
(iv) each person known to the Company to beneficially
own more than five percent of the Company's Common
Stock. Except as otherwise indicated, the persons named
in the table have sole voting and investment power
with respect to all shares beneficially owned, subject
to community property laws, where applicable.
Number of Shares Percentage of
Class Name and Address Beneficially Beneficially
of Beneficial Owner Owned Owned (1)
- ---------------------- ---------------- --------------
David A. Jenkins (2) 936,000 12.1%
EP MedSystems, Inc.
58 Route 46 West
Budd Lake, NJ 07828
Medtronic, Inc. 548,000 7.2%
7000 Central Avenue
Minneapolis, MN 55432
Anthony J. Varrichio (3) 527,000 6.9%
1 Hemlock Lane
Flanders, NJ 07836
Edwin K. Hunter (4) 504,500 6.6%
1807 Lake Street
Lake Charles, LA 70602
Oppenheimer Funds, Inc. 500,000 6.6%
Two World Trade Center
New York, NY 10048
AWM Investment Co., Inc. 436,500 5.7%
153 East 53 Street
New York, NY 10022
David W. Mortara(5) 74,000 *
7865 North 86th Street
Milwaukee, WI 53224
Jon A. Tietbohl (5) 47,000 *
200 Liberty Street -
Third Floor
New York, NY 10281
Lester J. Swenson (5) 24,000 *
c/o Medtronic, Inc.
7000 Central Avenue NE
Minneapolis, MN 55432
All executive officers
and directors as a
group (eight persons) 1,799,702 22.8%
- --------------
* Represents beneficial ownership of less than one percent of the Common
Stock.
(1) Applicable percentage ownership as of
September 18, 1997 is based upon 7,599,917 shares
of Common Stock outstanding together with the
applicable options for such stockholder.
Beneficial ownership is determined in accordance
with Rule 13d-3(d) of the Securities Exchange Act of
1934, as amended. Under Rule 13d-3(d), shares
issuable within 60 days upon exercise of outstanding
options, warrants, rights or conversion privileges
("Purchase Rights") are deemed outstanding for the
purpose of calculating the number and percentage
owned by the holder of such Purchase Rights, but not
deemed outstanding for the purpose of calculating
the percentage owned by any other person. "Beneficial
ownership" under Rule 13d-3 includes all shares
over which a person has sole or shared dispositive
or voting power.
(2) Includes 126,000 shares issuable upon exercise
of options. Also includes 160,000 shares held by
Mr. Jenkins as trustee for the Dalin Class Trust.
Excludes 45,000 shares held by Mr. Jenkins' wife,
and 20,000 shares held by Mr. Jenkins' wife as
custodian for his children.
(3) Includes 56,000 shares issuable upon exercise
of options.
(4) Includes 140,000 shares held by a trust of which
Mr. Hunter is the trustee, 150,000 shares held by a
private foundation over whose assets Mr. Hunter has
voting and investment power and 12,500 shares held
by two trusts of which Mr. Hunter is the trustee.
(5) Includes 24,000 shares issuable upon exercise
of options.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
HI-TRONICS DESIGNS, INC.
HDI was one of the Company's two founding
shareholders. HDI's shareholders are Anthony J.
Varrichio, William Winstrom and Medtronic, Inc.
("Medtronic"). Mr. Varrichio is the President, a
director and the largest shareholder of HDI, and Mr.
Winstrom is an officer and director of HDI.
Mr. Varrichio has been a director of the Company since
the Company's inception and was Chairman of the
Board of Directors and Treasurer of the Company until
November, 1995. Mr. Winstrom was a director of the
Company until November, 1995. Lester Swenson, an
officer of Medtronic, has been a director of the
Company since November, 1995. Mr. Varrichio, Mr.
Winstrom and Medtronic acquired shares of the Company's
Common Stock from HDI. As of September 18, 1997, Mr.
Varrichio owned beneficially 6.9% of the Company's
Common Stock, Mr. Winstrom owned beneficially 4.9%
and Medtronic owned 7.2%.
During May, 1993, the Company entered into a
manufacturing agreement with HDI (the "Stimulator
Manufacturing Agreement"), pursuant to which HDI was
engaged as the exclusive manufacturer of the EP-2
and EP-3 Clinical Stimulators (collectively the "EP
Stimulators").
The Company purchased products from HDI aggregating
$392,000 and $424,000 during the twelve months ended
December 31, 1996 and 1995, respectively, including
amounts under the Stimulator Manufacturing Agreement.
During April, 1996, the Company entered into a
Master Manufacturing Agreement with HDI (the "Master
Manufacturing Agreement") which provides that HDI will
manufacture the EP WorkMate, the EP-3, the TeleTrace
III Receiver, and all subsequent versions of such
products for the Company on an exclusive basis in
accordance with GMP regulations and all other applicable
laws and regulations. The Master Manufacturing
Agreement has a term of five years commencing on March
31, 1996 and, unless terminated by either party upon at
least 90 days written notice, will automatically renew
for successive terms of one year.
The Company uses HDI to manufacture and assemble the
EP WorkMate. The Company paid $209,185 and $54,570 to HDI
for such manufacturing and assembly during the years
ended December 31, 1996 and 1995, respectively.
The Company determined that continued sale and service
of arrhythmia monitors did not represent a good strategic
fit with the Company's existing products and planned
product line, including the ALERT System. The
Company also determined that the gross margins generated
by the sale of arrhythmia monitors were not sufficient
to justify the expense and efforts by its direct sales
force to generate sales of the product. Therefore, the
Company discontinued sale of the MemoryTrace line of
arrhythmia monitors. In 1997, the Company sold its
rights, title and interest in (i) the 4221, 4222 and
4222 ATM arrhythmia monitors, including manufacturing
drawings and regulatory approvals and (ii) the 4400 ATM
arrhythmia monitor currently under development by HDI,
to HDI in return for 60,000 shares of common stock in
Neomedics, Inc., a newly created company involved in the
design and manufacture of implantable medical devices,
which is an affiliate of HDI. Sales of arrhythmia monitors
by the Company were approximately $12,000 and $198,000 in
the years ended December 31, 1996 and 1995, respectively.
HDI completed development of the TeleTrace III-S Receiver
in 1997 for an aggregate consideration of 19,000 shares
of common stock of the Company, issued in 1995, and
$30,000 in cash paid in 1997. HDI is the manufacturer of
the TeleTrace III-S Receiver. During May, 1996, the
Company borrowed $50,000 from HDI. The promissory note
was repaid on June 30, 1996.
The Company believes that each of the preceding
transactions with HDI was entered into on terms and at
prices no less favorable than the Company could have
received from an unaffiliated party.
Mortara Instruments, Inc.
Commencing in 1997, the Company purchased components for
the EP WorkMate and ALERT Companion from Mortara
Instruments, Inc. ("MII"), an original equipment
manufacturer of medical devices for the cardiology
market. David W. Mortara, a Director of the Company,
is the founder, Chairman and Chief Executive Officer of
MII. The Company believes that the transactions with
MII were entered into on terms and at prices no less
favorable than the Company could have received from
an unaffiliated party.
Other Securities Transactions
In September, 1995, the Company issued units comprised
of 1995 Debentures and 1995 Warrants in the amount of
$200,000 to Medtronic and $200,000 to HDI in
consideration for HDI's forgiveness of $400,000 of
accounts payable due HDI from the Company for products and
services provided to the Company by HDI. During 1996,
the holders of the 1995 Debentures elected to exercise
their 1995 Warrants through the forgiveness of amounts
due under the 1995 Debentures.
Acquisition of Note Receivable
In September, 1995, at a time when the Company was
considering establishing a catheter manufacturing facility
based in the United Kingdom, the Company acquired a note
receivable in the amount of $100,000 from FalFab. Edwin
K. Hunter, who beneficially owned in excess of 5% of
Common Stock of the Company as of September 18, 1997, was
also a principal shareholder of FalFab. The note
receivable accrued interest at 8% per annum and was due
and payable on July 15, 1996. The Company loaned an
additional $7,500 to Falfab during the second quarter of
1996. Upon maturity of the note receivable, Falfab was
unable to repay amounts due the Company and was
liquidated by its creditors. Accordingly, the Company
wrote-off the $107,500 note receivable in 1996.
PROPOSAL # 3. RATIFICATION OF APPOINTMENT OF INDEPENDENT
PUBLIC ACCOUNTANTS
Upon recommendation of the Audit Committee, the Board
of Directors has selected Arthur Andersen LLP,
independent public accountants, to act as independent
auditor of the Company for the fiscal year ending
December 31, 1997, subject to ratification of such
appointment by the shareholders at the Annual Meeting.
Arthur Andersen LLP has been auditor of the Company since
the Company's inception.
A representative of Arthur Andersen LLP is expected to
be present at the Annual Meeting, with the opportunity to
make a statement, if the representative so desires,
and is expected to be available to respond to appropriate
questions from shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
OTHER BUSINESS
The Board of Directors does not intend to present
any business at the Annual Meeting other than as set
forth in the accompanying Notice of Annual Meeting of
Shareholders, and has no present knowledge that any
others intend to present business at the Annual Meeting.
If, however, other matters requiring the vote of the
shareholders properly come before the Annual Meeting or
any adjournment or postponement thereof, the persons
named in the accompanying proxy will have discretionary
authority to vote the proxies held by them in
accordance with their judgment as to such matters.
SHAREHOLDER PROPOSALS
Shareholder proposals intended for inclusion in the proxy
materials for the Company's 1998 Annual Meeting of
Shareholders (which may be held in June, 1998) must be
received by the Company no later than February 1, 1998.
Such proposals should be directed to Secretary, EP
MedSystems, Inc. 58 Route 46 West, Budd Lake, New Jersey
07828.
ANNUAL REPORT
A copy of the Company's Annual Report to Shareholders
for 1996, including financial statements, accompanies this
Proxy Statement.
FORM 10-KSB
A copy of the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1996, as filed with the
Securities and Exchange Commission, will be furnished
without charge to beneficial shareholders or shareholders
of record upon written request to Investor Relations at
the Company's principal executive offices.
By order of the Board of Directors,
/s/ JAMES J. CARUSO
James J. Caruso
Vice President, Chief Financial
Officer and Secretary
September 29, 1997
<PAGE>
Exhibit A
PROPOSED AMENDMENTS TO
1995 LONG TERM INCENTIVE PLAN
FIRST AMENDMENT TO EP MEDSYSTEMS, INC.
1995 LONG TERM INCENTIVE PLAN
The EP MedSystems, Inc. 1995 Long Term Incentive Plan
(the "Plan") is hereby amended as follows:
1. The words "disinterested persons" set forth
in Section 1.2 of the Plan shall be changed to
"non-employee directors."
2. The first sentence of Section 3.1 of the Plan
is hereby amended and restated in entirety as
follows:
"Subject to adjustment pursuant to the
provisions of Section 3.2 hereof, the number
of shares of Stock of the Company which may be
issued and sold or awarded under the Plan
shall not exceed 700,000 shares of which
shares issued and sold pursuant to the
Incentive Stock Options under the Plan shall not
exceed 600,000."
3. Ratification. Except as expressly set forth
in this First Amendment to the Plan, the Plan is
hereby ratified and confirmed without
modification.
4. Effective Date. The effective date of
this amendment to the Plan shall be June 23,
1997.
PROXY
EP MEDSYSTEMS, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR
THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON OCTOBER
30, 1997
The undersigned hereby appoint(s) David A. Jenkins and
C. Bryan Byrd and each of them as proxies, with full power
of substitution, to represent and vote as designated all
shares of Common Stock of EP MedSystems, Inc. held of
record by the undersigned on September 18, 1997 at the
Annual Meeting of Shareholders of the Company to be held
at the Wyndham Garden Hotel, 1000 International Drive,
Mount Olive, New Jersey, at 10:00 a.m. on Thursday,
October 30, 1997, with authority to vote upon the matters
listed on the other side of this proxy card and with
discretionary authority as to any other matters that may
properly come before the meeting or any adjournment or
postponement thereof.
IMPORTANT -- PLEASE DATE AND SIGN ON THE OTHER SIDE.
PLEASE MARK YOUR VOTES AS INDICATED IN THIS EXAMPLE. [X]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR THE
NOMINEES" IN ITEM 1 AND "FOR" ITEMS 2 and 3.
FOR WITHHOLD AUTHORITY
the to vote for the
Nominee Nominee
------- ------------------
1. ELECTION OF DIRECTORS
David A. Jenkins [ ] [ ]
David W. Mortara, Ph.D. [ ] [ ]
Lestor J. Swenson [ ] [ ]
Jon A. Tietbohl [ ] [ ]
Anthony J. Varrichio [ ] [ ]
VOTE WITHHELD from all nominees listed above [ ]
VOTE VOTE
FOR AGAINST ABSTAIN
----- ------- -------
2. APPROVAL OF AMENDMENT
TO 1995 LONG TERM
INCENTIVE PLAN [ ] [ ] [ ]
VOTE VOTE
FOR AGAINST ABSTAIN
---- -------- -------
3. RATIFICATION OF ARTHUR
ANDERSEN, LLP AS
INDEPENDENT AUDITORS
FOR THE FISCAL YEAR [ ] [ ] [ ]
ENDED DECEMBER 31, 1997
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED
BY THE SHAREHOLDER IN THE SPACE PROVIDED. IF NO
DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED "FOR THE
NOMINEES" IN ITEM 1 AND "FOR" ITEMS 2 AND 3.
Signature(s):------------------ Date------------
Please sign exactly as your name appears hereon.
Attorneys, trustees, executors and other fiduciaries
acting in a representative capacity should sign their
names and give their titles. An authorized person
should sign on behalf of corporations, partnerships,
associations, etc. and give his or her title. If your
shares are held by two or more persons, each person
must sign. Receipt of the notice of meeting and proxy
statement is hereby acknowledged.
YES NO
I plan to attend the Annual Meeting [ ] [ ]
<PAGE>
EXHIBIT A
EP MEDSYSTEMS, INC.
1995 LONG TERM INCENTIVE PLAN
AS AMENDED BY FIRST AMENDMENT
1. DEFINITIONS
As used herein, the following terms shall have the
meanings hereinafter set forth unless the context clearly
indicates to the contrary:
1.1 "Board" - The Board of Directors of the Company.
1.2 "Committee" - The Compensation Committee of the
Company, being comprised of two or more members of the
Board appointed by the Board to administer the Plan.
The Committee shall consist solely of directors who are
"nonemployee directors" within the meaning of Regulation
16b-3 under Section 16 of the Securities Exchange Act of
1934, as such regulations may be amended from time to
time. To the extent feasible, the members of the
Committee shall also be "outside directors" as that term
is defined in the Treasury Regulations under Section
162(m) of the Internal Revenue Code of 1986, as amended
from time to time.
1.3 "Company" - EP MedSystems, Inc., a New Jersey
corporation, and any Subsidiary thereof.
1.4 "Code" - The United States Internal Revenue Code of
1986, as from time to time amended.
1.5 "Eligible Employee" - Any person who is an employee
of the Company.
1.6 "Fair Market Value" - The per share fair market
value of the Stock of the Company, determined by and in
accordance with such valuation procedures and methods as
are established from time to time by the Committee in
good faith and in accordance with the provisions of the
Code and any regulations promulgated thereunder. In
particular, Treasury Regulation 20.2031-2(c) provides
that fair market value may be determined by taking the
mean between the bona fide bid and ask prices on the
valuation date, or if none, by taking a weighted average
of the means between the bona fide bid and asked prices
on the nearest trading date before and the nearest
trading date after the valuation date, if both such
nearest dates are within a reasonable period; if such bid
and ask prices are unavailable, fair market value is to
be determined by taking into consideration the Company's
net worth, prospective earning power and dividend paying
capacity and other relevant factors such as good will,
economic outlook in the Company's industry, the Company's
position in the industry and its management, the size of
the block of stock to be valued, and the values of stock
of corporation engaged in the same or similar lines of
business.
1.7 "Option" - An option to purchase Stock of the Company
granted pursuant to the provisions of the Plan.
Options may be either (a) Incentive Stock Options as
defined in Section 422 of the Code ("ISOs") or (b) non-
statutory stock options ("NQSOs") or any combination
thereof. The status of each grant as an ISO or NQSO shall
be clearly set forth at the time of the grant of the
Option, provided, however, that in the event the
aggregate fair market value (determined as of the
date(s) of grant) of the shares of stock with respect
to which an ISO become exercisable for the first time
by an Optionee exceeds $100,000 in any calendar year,
the Options with respect to the excess shares will be
NQSOs notwithstanding anything contained in the grant
of the Option to the contrary.
1.8 "Optionee" - The person to whom an Option has been
granted pursuant to the provisions of the Plan.
1.9 "Option Price" - The per share exercise price of the
Stock with respect to which an Option has been
granted under the Plan.
1.11 "Plan" - The Company's 1995 Long Term
Incentive Plan, the terms of which are set forth herein.
1.12 "Stock" - The common stock of the Company.
1.13 "Subsidiary" - Any corporation (other than the
Company) in an unbroken chain of corporations beginning
with the Company if each of the Corporations other than
the last corporation in the unbroken chain owns
securities possessing at least 50% or more of the total
combined voting power of all classes of securities in
one of the other corporations in such chain.
2. ESTABLISHMENT AND PURPOSE OF PLAN
2.1 Establishment of Plan. The Company hereby establishes
the Plan to reward and provide incentives for those
Eligible Employees who are primarily responsible for the
future growth, development and financial success of the
Company or a Subsidiary.
2.2 Purpose of Plan. The purpose of the Plan is to
advance the interests of the Company and its stockholders
by affording to Eligible Employees of the Company
an opportunity to acquire or increase their proprietary
interest in the Company by the grant to such Eligible
Employees of Options to purchase Stock in the Company
pursuant to the terms of the Plan. By encouraging such
Eligible Employees to become owners of shares of Stock
in the Company, the Company seeks to motivate, retain
and attract those highly competent individuals upon
whose judgment, initiative, leadership and continued
efforts the success of the Company in large measure
depends.
2.3 Effective Date of Plan. The effective date of the
Plan is December 1, 1995.
2.4 Expiration of the Plan. The Plan shall terminate
at the close of business on November 30, 2005 or such
earlier date as the Board may determine pursuant to
Section 7 of the Plan, and no Option shall be granted
after that date.
3. STOCK SUBJECT TO PLAN
3.1 Limitations. Subject to adjustment pursuant to the
provisions of Section 3.2 hereof, the number of shares
of Stock of the Company which may be issued and sold or
awarded under the Plan shall not exceed 700,000 shares of
which shares issued and sold pursuant to Incentive
Stock Options under the Plan shall not exceed 600,000.
3.2 Adjustments.
(a) Anti-Dilution. If the outstanding
shares of Stock of the Company are hereafter changed
or converted into or exchanged or exchangeable for a
different number or kind of shares or other securities of
the Company or of another corporation by reason of a
reorganization, merger, consolidation, recapitalization,
reclassification, combination of shares, stock
dividend, stock split or reverse stock split,
appropriate adjustment shall be made in the number of
shares and kind of stock which may be granted as provided
in Section 3.1, and subject to unexercised Options,
to the end that the proportionate interest of
Optionee's shall be maintained as before the occurrence
of such event.
(b) Non-survival of Company. In the event of
a dissolution or liquidation of the Company or any merger
or combination in which the Company is not a
surviving corporation, each outstanding Option granted
hereunder shall terminate, but the Optionee shall
have the right, immediately prior to such
liquidation, dissolution, merger or combination, to
exercise his Option, in whole or in part, to the extent
that such Option is then otherwise exercisable and has
not previously been exercised, provided, however, that
no adjustment shall be made to an incentive stock
option which would constitute a "modification" of
such Option, as such term is defined in Section 424(h)(3)
of the Code.
3.3 Effect of Exercise or Termination of Option. Shares
of Stock with respect to which an Option granted under
the Plan shall have been exercised shall not again be
available for grant under the Plan. If Options
granted under the Plan shall terminate for any reason
without being wholly exercised, new Options may be granted
under the Plan covering that number of shares of Stock
with respect to which such termination relates.
4. ADMINISTRATION OF THE PLAN
4.1 Administration by Committee. Subject to the
provisions of the Plan, the Plan shall be administered
by the Committee.
4.2 Powers and Duties. Subject to the provisions of the
Plan, the Committee shall have sole discretion and
authority to determine the Eligible Employees to whom
Options shall be granted, the number of shares to be
covered by any such Option, and the time or times at
which any Option may be granted or exercised. The
Committee shall also have complete authority to
interpret the Plan, to prescribe, amend and rescind
rules and regulations relating to the Plan, to determine
the details and provisions of each Agreement executed
pursuant to the Plan, and to make all other determinations
necessary or advisable in the administration of the Plan.
4.3 Quorum and Majority Rule. A majority of the then
members of the Committee shall constitute a quorum and
any action taken by a majority present at a meeting at
which a quorum is present or any action taken without a
meeting evidenced by a writing executed by all of the
members of the Committee, as the case may be, shall
constitute the action of the Committee.
4.4 Liability of Committee. No member of the
Committee shall be liable for any action, determination
or interpretation under any provision of the Plan or
otherwise if such action, determination or interpretation
was done or made in good faith by such member of the Board
or Committee.
5. OPTIONS GRANTED UNDER THE PLAN
5.1 Grant of Options. Options shall be granted only to
Eligible Employees. An Eligible Employee may be granted
one or more Options. Each Option granted under the Plan
shall be evidenced by a writing addressed to the Optionee
dated as of the date such Option is granted by the
Committee. The Agreement shall contain such terms and
conditions as shall be determined by the Committee,
consistent with the Plan.
5.2 Participation Limitation. The aggregate Fair Market
Value of the Stock with respect to which Incentive Stock
Options become exercisable for the first time by any
Optionee in any calendar year shall not exceed $100,000.
The aggregate Fair Market Value of the Stock with respect
to which Options are granted shall be determined as of the
date or dates the Options are granted and the foregoing
provisions shall be applied by aggregating all Incentive
Stock Options granted to an Optionee of the Company.
5.3 Option Price. The Option Price of the Stock subject
to each Option shall be determined by the Committee,
provided, however, that in the case of an Incentive
Stock Option the Option Price shall not be less than 100%,
or, in the case of an Incentive Stock Option
granted to an individual who, immediately after the
grant, would own, within the meaning of Section 424(d)
of the Code, more than 10% of the voting stock of the
Company, 110%, of the Fair Market Value of the Stock on
the date the Option is granted.
5.4 Option Exercise Period. The period during which any
Option granted under the Plan may be exercised shall not
be more than ten years or, in the case of an Incentive
Stock Option granted to an individual who,
immediately after the grant, would own more than 10% of
the voting stock of the Company, five years, from the date
of grant of the Option.
5.5 Option Exercise. An Option granted pursuant to the
Plan may be exercised at any time or times, specified by
the Committee, prior to the termination of the said
Option by delivery by the Optionee of written notice to
the Company specifying the number of shares of Stock
to be purchased accompanied by full payment for such
shares of Stock. The right of exercise shall be
cumulative. Full payment shall be in cash, or at the
discretion of the Committee, by the Optionee's note
payable over such period of time, at such rate of
interest and in form and substance satisfactory to the
Committee.
5.6 Termination of Option.
(a) Expiration or Termination of Employment.
Except as specifically provided in Section 3.2(b)
and Sections 5.6(b) and 5.6(c) hereof, the Options
granted hereunder shall terminate as of the close of
business on the earliest to occur of the date of (i)
expiration of the Exercise Period, (ii) an event of
default or breach by an Optionee of the terms and
conditions of the grant of the Option, or (iii)
termination of an Optionee's employment with the Company
for cause. If an Optionee's employment is terminated
other than for cause, death (as provided in
subsection (b) below) or retirement or disability (both
as provided in subsection (c) below), the Optionee
must exercise his Option, if at all and only to the
extent the option is exercisable at termination, within
30 days from the date of such termination, in accordance
with the terms of the Plan.
(b) Death of Optionee. If an Optionee dies
prior to the exercise of his Option in full, his Option
may be exercised by the Optionee's executors,
administrators or heirs within one year after the date
of the Optionee's death, provided such death occurred
during the Optionee's employment with the Company or
within three months following the termination of his
employment with the Company by reason of the Optionee's
retirement after reaching the age of 65 years or the
Optionee's retirement after becoming permanently
disabled. Such Option may be so exercised by the
Optionee's executors, administrators or heirs only with
respect to that number of shares of Stock which the
Optionee had an Option to purchase and which Option was
exercisable (but had not theretofore been exercised) as
of the date of the earlier of the (i) retirement of
the Optionee after reaching the age of 65 years or
after becoming permanently disabled, or (ii) death of
the Optionee. In no event may the Option be exercised
at any time after the expiration of the Option Exercise
Period set forth in Section 5.4 hereof.
(c)Retirement or Disability. If an Optionee's
employment with the Company is terminated prior to the
exercise of his Option in full, by reason of the
Optionee's retirement after reaching the age of 65 years
or by reason of the Optionee's retirement after
becoming permanently disabled, the Optionee shall have
the right, during the period ending three months after
the date of his termination of employment, to exercise his
Option. Such Option may be exercised by the Optionee
only with respect to that number of shares of Stock
which the Optionee had an Option to purchase and which
Option was exercisable (but had not theretofore been
exercised) as of the date of the earlier of (i) the
retirement of the Optionee after reaching the age of 65
years, or (ii) the date the Optionee becomes permanently
disabled. In no event may the Option be exercised
at any time after the expiration of the Option Exercise
Period set forth in Section 5.4 hereof.
5.7 Nontransferability of Options. No Option granted
pursuant to the Plan may be transferred by an optionee.
Subject to the provisions of Section 5.6(b) hereof, the
Option shall be exercisable only by an Optionee during his
lifetime.
5.8 Rights as Stockholder. An Optionee shall have no
rights as a stockholder of the Company with respect to
any shares of Stock subject to an Option prior to his
purchase of such shares of Stock by exercise of such
Option as provided in the Plan.
5.9 Right of Company to Terminate Employment. Nothing
contained in the Plan or any Option granted under the
Plan shall confer on an Optionee any right to continued
employment by the Company or interfere in any way with
the right of the Company or a Subsidiary to
terminate an Optionee's employment with it any time for
any reason or for no reason.
6. DELIVERY OF STOCK CERTIFICATES
6.1 The Company shall not be required to issue or deliver
any certificate for shares of Stock purchased upon the
exercise of all or any portion of any Option granted under
the Plan prior to the fulfillment of any of the
following conditions which may, from time to time, be
applicable to the issuance of the Stock:
(a) Listing of Shares. The admission of
such shares of Stock to listing on (i) all stock
exchanges on which the Stock of the Company is then listed
or (ii) the NASDAQ.
(b) Registration and/or Qualification of
Shares. The completion of any registration or
other qualification of such shares of Stock under any
federal or state securities laws or under the
regulations promulgated by the Securities and Exchange
Commission or any other federal or state governmental
regulatory body, which the Committee shall deem
necessary or advisable. The Company shall in no event
be obligated to register any securities pursuant to the
Securities Act of 1933, as amended, or to take any
other action in order to cause the issuance and delivery
of such certificates to comply with any such law,
regulations or requirement.
(c) Approval or Clearance. The obtaining of
any approval or clearance from any federal or
state governmental agency which the Committee shall
determine to be necessary or advisable.
(d) Reasonable Lapse of Time. The lapse of
such reasonable period of time following the exercise of
the Option as the Committee may establish from time to
time for reasons of administrative convenience.
7. TERMINATION, AMENDMENT AND MODIFICATION OF PLAN
7.1 The Board may, upon recommendation of the Committee,
terminate the Plan at any time or amend or modify the
Plan at any time or from time to time, provided,
however, that no such action of the Board shall do any
of the following:
(a) Increase Number of Shares. Except as
contemplated in Section 3.2 of the Plan, increase the
total number of shares of Stock subject to the Plan
without the approval of stockholders.
(b) Change of Class of Eligible Employees. Modify
the requirements for eligibility for participation or
change the class of Eligible Employees to whom Options
may be granted, or Awards of Restricted Stock may be made,
under the Plan without the approval of stockholders.
(c) Change Terms of Outstanding Options. Change
the Option Price or otherwise alter or impair any
Option previously granted to an Optionee under the
Plan without the consent of the Optionee.
(d) Increase Benefits. Increase the
benefits accruing to Eligible Employees with respect
to Options granted, or Awards of Restricted Stock may be
made, under the Plan without the approval of stockholders.
8. MISCELLANEOUS
8.1 Plan Binding on the Successors. The Plan shall be
binding upon the successors and assigns of the Company.
8.2 Withholding Taxes. Whenever Federal, state and local
tax is due on the exercise of Options granted, or the
expiration of restrictions on Restricted Stock awarded,
under this Plan, the Company may require the Optionee or
Participant to remit an amount sufficient to satisfy
Federal, state and local withholding taxes prior to the
delivery of any certificate for such shares.
