SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 240.14a-11(c) or Rule 240.14a-12
EP MedSystems, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
[LOGO]
EP MedSystems, Inc.
100 Stierli Court - Suite 107
Mount Arlington, NJ 07856
October 14, 1999
Dear Shareholder,
You are cordially invited to join us for our Annual Meeting of Shareholders
to be held this year on Friday, November 5, 1999, at 10:00 a.m., local time, at
the Four Points Hotel by Sheraton, 15 Howard Boulevard, Mount Arlington, 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>
EP MEDSYSTEMS, INC.
100 Stierli Court - Suite 107
Mount Arlington, NJ 07856
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FRIDAY, NOVEMBER 5, 1999
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
Four Points Hotel by Sheraton, 15 Howard Boulevard, Mount Arlington, New Jersey,
at 10:00 a.m., local time, on Friday, November 5, 1999, for the following
purposes:
(1) To elect (i) one (1) Class I director to the Board of Directors to
serve a three (3) year term and until such director's successor shall
be duly elected and qualified and (ii) one (1) Class II director to
the Board of Directors to serve a one (1) year term and until such
director's successor shall be 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 pursuant to options
thereunder from 700,000 to 1,000,000;
(3) To ratify the appointment of PricewaterhouseCoopers LLP, independent
public accountants, as auditors for the Company for the fiscal year
ending December 31, 1999; 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 October 5, 1999
as the record date for the determination of shareholders entitled to notice of
and to vote at the Annual Meeting or any adjournment thereof.
Your attention is directed to the attached Proxy Statement for further
information regarding each proposal to be made. 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/ Joseph M. Turner
------------------------------------------------
Joseph M. Turner
Chief Financial Officer, Treasurer and Secretary
October 14, 1999
IT IS IMPORTANT THAT THE ENCLOSED PROXY CARD
BE COMPLETED AND RETURNED PROMPTLY.
<PAGE>
EP MEDSYSTEMS, INC.
100 Stierli Court - Suite 107
Mount Arlington, NJ 07856
PROXY STATEMENT FOR
THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON
NOVEMBER 5, 1999
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 Four Points Hotel by Sheraton, 15 Howard Boulevard, Mount
Arlington, New Jersey, at 10:00 a.m., local time, on Friday, November 5, 1999,
for the purposes set forth in the accompanying Notice of Annual Meeting of
Shareholders. The principal executive offices of the Company are located at 100
Stierli Court - Suite 107, Mount Arlington, New Jersey 07856. This Proxy
Statement and accompanying form of proxy and Annual Report to Shareholders are
being mailed to shareholders on or about October 14, 1999.
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 October 5,
1999 (the "Record Date") are entitled to notice of and to vote at the Annual
Meeting. On the Record Date there were 11,010,417 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
shareholder 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 shareholder 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 shareholder's proxy unless
such shareholder 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 entitled to vote and present in person or by proxy at
<PAGE>
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 CLASS I AND CLASS II DIRECTORS
General
The Company's By-Laws provide that the number of directors, as determined
from time to time by the Board of Directors, shall not be less than three (3)
nor more than eleven (11). Pursuant to the By-Laws, the Board of Directors has
set the number of directors at four (4). The Company's Amended and Restated
Certificate of Incorporation provides that the directors shall be divided into
three (3) classes as nearly equal in number as possible. The initial term of
Class I directors expires at the 1999 Annual Meeting, the initial term of Class
II directors expires at the 2000 Annual Meeting and the initial term of the
Class III directors expires at the 2001 Annual Meeting. Thereafter, the
successors to each class of directors whose terms expire at succeeding annual
meetings, will be elected to hold office for a term expiring at the Annual
Meeting of Shareholders held in the third year following the year of their
election.
The Class I director whose term expires at the 1999 Annual Meeting of
Shareholders is John E. Underwood who has been nominated by the Board to stand
for reelection as a Class I director at the Annual Meeting, to hold office for a
three (3) year term and until his successor is duly elected and qualified. The
Board of Directors has no reason to believe that Mr. Underwood will be unable or
unwilling to serve as a director. If, however, Mr. Underwood becomes
unavailable, the proxies will have discretionary authority to vote for a
substitute Class I nominee.
In April, 1999, Anthony J. Varrichio, a Class II director, resigned his
position as a director of the Company due to business and personal reasons, but
not due to any disagreement with the Board of Directors. Pursuant to the
Company's By-Laws, the Board of Directors is permitted to elect a person to fill
such vacancy; provided, however, that the interim term of such new director is
permitted to extend only until the next annual meeting of shareholders at which
point, if such person is nominated, the shareholders shall vote on the continued
service of such person as a Class II director. In September, 1999, the Board of
Directors elected Darryl D. Fry to fill the Class II director vacancy left as a
result of Mr. Varrichio's departure. The Board of Directors has nominated Mr.
Fry to stand for election as a continuing Class II director at the Annual
Meeting, to hold office until the 2000 Annual Meeting and until his successor is
duly elected and qualified. The Board of Directors has no reason to believe that
Mr. Fry will be unable or unwilling to serve as a director. If, however, Mr. Fry
becomes unavailable, the proxies will have discretionary authority to vote for a
substitute Class II nominee.
In the absence of instructions to the contrary, a properly signed and dated
proxy will vote the shares represented by that proxy "FOR" the election of Mr.
Underwood as a Class I director and Mr. Fry as a Class II director. 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 Class I
and Class II directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF JOHN E.
UNDERWOOD AS A CLASS I DIRECTOR AND DARRYL D. FRY AS A CLASS II DIRECTOR.
2
<PAGE>
Information Regarding Nominee and Continuing Directors
The following information with respect to the principal occupation or
employment, other affiliations and business experience during the past five (5)
years of the Class I and Class II nominees and each continuing director has been
furnished to the Company by each director.
Nominee for a three-year term expiring in 2002 (Class I Director):
JOHN E. UNDERWOOD (age 57) has served as a director of the Company
since June 1998. Since 1985, Mr. Underwood has served as the founder and
President of Proteus International, a privately-held venture banking and
venture consulting concern with offices in Mahwah, New Jersey. Prior to
founding Proteus, Mr. Underwood held senior management positions with
Pfizer, General Electric and Becton Dickinson.
Nominee for continued service as a director whose term expires in 2000
(Class II Director):
DARRYL D. FRY (age 60) has served as a director of the Company since
September 1999, when he was elected by the Board of Directors to fill a
vacancy. From December 1993 until his retirement in January 1999, Mr. Fry
served as Chairman (until his retirement), President (until January 1997)
and Chief Executive Officer (until May 1998) of Cytec Industries, Inc., a
New York Stock Exchange listed company. Mr. Fry continues to serve as a
director of Cytec and also serves as a director of North American Van
Lines, Inc. and Fortis Inc.
Directors not standing for election this year whose terms expire in 2001 (Class
III Directors):
DAVID A. JENKINS (age 41) is a co-founder, the 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 since 1993 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 58) 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 Instrument, 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.
Compensation of Directors
Mr. Underwood was granted an option to purchase 60,000 shares of
Common Stock at $3.00 per share upon his appointment to serve on the Board
of Directors in June 1998. These options vest at a rate of 1,000 shares per
month of service on the Board. During 1998, no other directors of the
Company received cash or other compensation for services on the Board of
Directors or any committee thereof. Upon his appointment to the Board of
Directors in September 1999, Mr. Fry was granted an option to purchase
60,000 shares of Common Stock at $3.00 per share. These options vest at a
rate of 1,000 shares per month of service on the Board. In the past, the
Company has issued independent directors options to purchase shares of the
Company's Common Stock under the 1995 Director Option Plan upon their
election or appointment to the Board. These options vest at a rate of 1,000
shares per month of service on the Board. The directors are reimbursed for
their reasonable travel expenses incurred in performance of their duties as
directors.
3
<PAGE>
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 October 5,
1999, there were 180,000 director options and 108,000 advisor options
outstanding at exercise prices ranging from $2.00 to $3.00 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 October 5,
1999, 61,000 director options and 108,000 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. During the year ended December 31, 1998, there were three
(3) meetings of the Board of Directors at which all then current directors were
present. There was one (1) meeting of each of the Audit Committee, Compensation
Committee and Plan Committee during 1998 at which all members were present.
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 and Underwood are members of the Audit Committee.
COMPENSATION COMMITTEE. The Company has a Compensation Committee of the
Board of Directors consisting of two (2) 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 Underwood are members of the
Compensation Committee.
PLAN COMMITTEE. Historically, the Company has had a Plan Committee of the
Board of Directors consisting of two (2) or more directors to administer the
Company's Director Plan, none of whom were eligible to participate in such Plan.
Currently, Mr. Jenkins is the sole member of the Plan Committee.
[The remainder of this page is intentionally blank.]
4
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Executive Officers
The following table sets forth certain information regarding the current
executive officers and certain key employees of the Company:
<TABLE>
<CAPTION>
OFFICER
NAME AGE POSITION SINCE
- ------------------------- --------- ------------------------------------------ ----------
<S> <C> <C> <C>
David A. Jenkins 41 Chairman of the Board, President and Chief 1993
Executive Officer
J. Randall Rolston 52 Vice President, Sales 1998
Joseph M. Turner 37 Chief Financial Officer, Treasurer and 1999
Secretary
C. Bryan Byrd 38 Vice President, Engineering 1993
Joseph C. Griffin, III 39 Vice President, Regulatory Affairs 1993
</TABLE>
DAVID A. JENKINS is a co-founder and the 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
since 1993 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.
J. RANDALL ROLSTON is the Vice President, Sales of the Company. Mr. Rolston
joined the Company in September 1996 as National Sales Manager and was named
Vice President, Sales in April, 1998. Prior to joining the Company, Mr. Rolston
was employed in various sales management positions at Cordis-Webster, an
electrophysiology catheter company owned by Johnson & Johnson. Prior to
Cordis-Webster, Mr. Rolston held various sales management positions, including
15 years at American Edwards prior to its merger with Baxter Healthcare
Corporation.
JOSEPH M. TURNER joined the Company as Chief Financial Officer, Treasurer
and Secretary of the Company effective February 1, 1999. Prior to joining the
Company, Mr. Turner served as Chief Financial Officer and Treasurer of Tri-Seal
International, a thermoplastic extrusion company from 1994 to 1999. Prior to
joining Tri- Seal International, Mr. Turner was employed at
PricewaterhouseCoopers LLP from 1985 to 1994. Mr. Turner 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, Mr. Byrd 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. While at BioPhysical InterFace
Corp., Mr. Byrd was a software engineer consultant for Medtronic, Inc. where he
developed the ValveBase, PaceBase and TeleTrace software modules, and before
that he worked with Mt. Sinai Medical Center in Miami Beach, Florida. Mr. Byrd
has developed databases for all aspects of cardiac surgery.
JOSEPH C. GRIFFIN, III is the Vice President, Regulatory Affairs of the
Company and has been the President of ProCath Corporation, a 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. Before that, Mr. Griffin was Manager of Research and Development at Oscor
Medical Corporation, a manufacturer of implantable pacing leads, and Director,
Research and Development and Technical Services at Nova Medical Specialties,
Inc., a division of B. Braun of America. Mr. Griffin has more than 18 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, the Electrode Catheter Task Force and the
Society of Manufacturing Engineers.
5
<PAGE>
Executive Compensation
The following summary compensation table sets forth certain information
concerning compensation paid or accrued to the Chief Executive Officer, the Vice
President of Sales and the Vice President of Regulatory Affairs of the Company
(the "Named Executive Officers") for services rendered in all capacities for the
years ended December 31, 1998, 1997 and 1996. No other executive officer of the
Company was paid a salary and bonus aggregating greater than $100,000 during
such time periods.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long Term Compensation
------------------------------ ----------------------------
Securities
Name and Principal Salary Bonus Underlying
Position Year ($) ($) Options
- -------------------------------- --------- ------------ ---------- ---------------------
<S> <C> <C> <C> <C>
David A. Jenkins 1998 $150,833 $0 0
Chairman, President and 1997 $145,000 $0 0
Chief Executive Officer 1996 $127,500 $250 0
J. Randall Rolston (1) 1998 $156,077 $2,500 67,771 (4)
Vice President, Sales 1997 $140,500 $0 28,000 (3)
1996 $31,250 $0 12,000 (2)
Joseph C. Griffin 1998 $103,835 $0 0
Vice President, Regulatory 1997 $99,170 $0 0
Affairs 1996 $95,919 $0 0
- --------------------------------
</TABLE>
(1) Mr. Rolston served as National Sales Manager of the Company from September
1996 through April 1998. In April 1998, Mr. Rolston was named Vice
President, Sales.
(2) On October 3, 1996, the Company granted Mr. Rolston an incentive stock
option to purchase 12,000 shares of Common Stock pursuant to the 1995 Long
Term Incentive Plan at an exercise price of $4.75 per share. Options to
purchase 2,400 of such shares became exercisable on the grant date and
options to purchase an additional 200 shares become exercisable each month
thereafter. The term of such option is five years. These options were
canceled in 1998 and reissued at $3.00 per share with a new vesting period.
See (4) below.
(3) On September 30, 1997, the Company granted Mr. Rolston an incentive stock
option to purchase 28,000 shares of Common Stock pursuant to the 1995 Long
Term Incentive Plan at an exercise price of $3.00 per share. Options to
purchase 5,600 of such shares became exercisable on the grant date and
options to purchase an additional 5,600 of such shares become exercisable
each year thereafter. The term of such option is five years.
(4) On April 30, 1998, the Company cancelled an incentive stock option to
purchase 12,000 shares of Common Stock issued in 1996 and granted Mr.
Rolston a new incentive stock option to purchase 12,000 shares of Common
Stock pursuant to the 1995 Long Term Incentive Plan at an exercise price of
$3.00 per share. Options to purchase 2,400 shares became exercisable on the
grant date and options to purchase an additional 2,400 shares become
exercisable each year thereafter. The term of such option is five years. On
June 30, 1998, the Company granted Mr. Rolston an incentive stock option to
purchase 969 shares of Common Stock pursuant to the 1995 Long Term
Incentive Plan at an exercise price of $2.50 per share. Options to purchase
all 969 of such shares became exercisable on the grant date. The term of
such option is five years. On July 23, 1998, the Company granted Mr.
Rolston an incentive stock option to purchase 15,000 shares of Common Stock
pursuant to the 1995 Long Term Incentive Plan at an exercise price of $3.00
per share. Options to purchase 3,000 shares became exercisable on the grant
date and options to purchase an additional 3,000 shares became exercisable
6
<PAGE>
each year thereafter. The term of such option is five years. On July 23,
1998, the Company granted Mr. Rolston an incentive stock option to purchase
25,000 shares of Common Stock pursuant to the 1995 Long Term Incentive Plan
at an exercise price of $3.00 per share. Options to purchase 12,500 of such
shares become exercisable upon meeting or exceeding certain performance
objectives for the year ended December 31, 1999. Options to purchase the
remaining 12,500 of such shares become exercisable upon meeting or
exceeding certain performance objectives for the year ended December 31,
2000. The term of such option is five years. On December 31, 1998, the
Company granted Mr. Rolston an incentive stock option to purchase 14,802
shares of Common Stock pursuant to the 1995 Long Term Incentive Plan at an
exercise price of $2.875 per share. Options to purchase 2,960 shares became
exercisable on the grant date and options to purchase an additional 2,960
shares become exercisable each year thereafter. The term of such option is
five years.
_________________________________________
Stock Options
The following table sets forth certain information concerning grants of
stock options to the Named Executive Officers during the fiscal year ended
December 31, 1998.
<TABLE>
<CAPTION>
Option Grants in Fiscal Year 1998
Percent of Total
Number of Shares Options Granted Exercise
Underlying Options to Employees Price per Expiration
Granted in Fiscal Year Share Date
----------------------- -------------------- ----------------- -------------------------------
<S> <C> <C> <C> <C>
J. Randall Rolston 67,771 14.5% $2.50 - $3.00 July 2003 - December 2003
Vice President, Sales
</TABLE>
Option Exercises and Holdings
The following table provides certain information with respect to the Named
Executive Officers concerning the exercise of stock options during the fiscal
year ended December 31, 1998 and the value of unexercised stock options held as
of December 31, 1998.
7
<PAGE>
<TABLE>
<CAPTION>
Aggregated Option Exercises in 1998 and Year End Option Values
Number of Shares
Underlying Unexercised Value of Unexercised
Options at In the Money Options at
December 31, 1998 December 31, 1998 ($) (1)
---------------------------------- ----------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ----------------------------- ---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
David A. Jenkins (2) 139,000 27,000 $249,625 $50,625
Chairman, President
and Chief Executive
Officer
J. Randall Rolston 20,530 75,271 $18,803 $65,000
Vice President, Sales
Joseph C. Griffin - - - -
Vice President, Regulatory
Affairs
- -----------------------------
</TABLE>
No options were exercised by the Named Executive Officers during the fiscal year
ended December 31, 1998.
(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 $3.875 per share on December 31,
1998
(2) 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 (the "Jenkins NQSO"). Options to purchase 30,000 of the
Jenkins NQSO shares became exercisable on the grant date and options to
purchase 1,000 shares become exercisable each month thereafter. The term of
the Jenkins NQSO 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 (the "Jenkins ISO"). Options to purchase 45,000 of the
Jenkins ISO shares became exercisable upon completion of the Company's
initial public offering and options to purchase the remaining 25,000
Jenkins ISO shares became exercisable on the first anniversary of the
granting of the Jenkins ISO. The term of such option is ten years.
_______________________________________________
Option Repricing
In April 1998, the Company canceled options to acquire 139,000 shares of
Common Stock of the Company which had been granted to employees in 1996 and
1997, with exercise prices of $4.75 and $5.50. The shares were reissued at an
exercise price of $3.00. The vesting periods were reset for each employee. The
options were issued at the fair market value on the date of re-issuance. Thus,
the Company did not record compensation expense related to these options.
8
<PAGE>
Employment Agreements
On August 31, 1995, the Company entered into an Employment Agreement
Addendum with David A. Jenkins, which extended the term of his employment
through March 1, 1999 and has been further extended through December 31, 2000.
The addendum provides for base compensation of $145,000, plus five percent of
the Company's consolidated income before taxes. During 1998, the Board of
Directors increased Mr. Jenkins' salary to $180,000 per year. Mr. Jenkins'
Employment Agreement may be terminated at any time for cause. The Employment
Agreement 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.
Section 16(a) Beneficial Ownership Reporting Requirements
Section 16(a) of the Exchange Act requires the Company's executive
officers, directors and holders of more than ten percent (10%) of the Company's
Common Stock, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission. Such persons are required 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 oral or written
representations from certain reporting persons that no Forms 5 were required for
those persons, the Company believes that, with respect to the year ended
December 31, 1998, its executive officers, directors and greater than 10%
beneficial owners complied with all such filing requirements, with two
exceptions. J. Randall Rolston and C. Bryan Byrd, officers of the Company did
not file timely Forms 5 with regard to one reportable transaction for each
individual.
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 October 5, 1999 by (i) each of
the Company's directors, (ii) the Named Executive Officers, (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.
9
<PAGE>
Name and Address of Number of Shares Percentage of Class
Beneficial Owner Beneficially Owned Beneficially Owned (1)
- --------------------------- ------------------ ----------------------
Darryl D. Fry (2) 117,000 1%
100 Stierli Court - Suite 107
Mount Arlington, NJ 07856
Joseph C. Griffin (3) 126,736 1.2%
100 Stierli Court - Suite 107
Mount Arlington, NJ 07856
David A. Jenkins (4) 1,054,000 9.4%
100 Stierli Court - Suite 107
Mount Arlington, NJ 07856
David W. Mortara, Ph.D. (5) 173,000 1%
7865 North 86th Street
Milwaukee, WI 53224
J. Randall Rolston (6) 65,254 1%
100 Stierli Court - Suite 107
Mount Arlington, NJ 07856
John E. Underwood (7) 17,000 *
c/o Proteus International
Crossroads Plaza
Mahwah, NJ 07430
EGS Private Healthcare Partnership, LP 1,312,500 11.5%
(8)(10)
350 Park Avenue
New York, NY 10022
EGS Private Healthcare Counterpart, LP 187,500 1.7%
(9)(10)
350 Park Avenue
New York, NY 10022
H&Q Life Sciences Investors (11) 430,000 3.9%
50 Rowes Wharf
Boston, MA 02110-6679
H&Q Life Healthcare Investors (11) 645,000 5.9%
50 Rowes Wharf
Boston, MA 02110-6679
Medtronic, Inc. 458,000 4.2%
7000 Central Avenue NE
Minneapolis, MN 55432
Oppenheimer Funds, Inc. 600,000 5.4%
Two World Trade Center
New York, NY 10048
All Named Executive Officers and 1,552,990 13.7%
directors as a group (6 persons)(12)
- ---------------------------------------------------
* Represents beneficial ownership of less than one percent of the Common Stock.
10
<PAGE>
(1) Applicable percentage ownership as of October 5, 1999 is based upon
11,010,417 shares of Common Stock outstanding together with the applicable
options and/or warrants for such shareholder. Beneficial ownership is
determined in accordance with Rule 13d-3 of the Securities Exchange Act of
1934, as amended. Under Rule 13d-3, 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 2,000 shares issuable upon exercise of options and 25,000 shares
issuable upon exercise of warrants.
(3) Includes 5,000 shares issuable upon exercise of options.
(4) Includes 149,000 shares issuable upon exercise of options. Also includes
160,000 shares held by Mr. Jenkins as trustee for the Dalin Class Trust,
45,000 shares held by Mr. Jenkins' wife and 20,000 shares held by Mr.
Jenkins' wife as custodian for his children. Mr. Jenkins disclaims
beneficial ownership of 45,000 shares held by his wife and 20,000 shares
held by his wife as custodian for his children.
(5) Includes 48,000 shares issuable upon exercise of options and 25,000 shares
issuable upon exercise of warrants.
(6) Includes 29,254 shares issuable upon exercise of options.
(7) Includes 17,000 shares issuable upon exercise of options.
(8) Includes 437,500 shares issuable upon exercise of warrants.
(9) Includes 62,500 shares issuable upon exercise of warrants.
(10) EGS Private Healthcare Partnership, LP and EGS Private Healthcare
Counterpart, LP share certain common management and ownership.
(11) H&Q Life Sciences Investors and H&Q Healthcare Investors share certain
common management and ownership.
(12) Includes 250,254 shares issuable upon exercise of options and 50,000 shares
issuable upon exercise of warrants.
______________________________________________
11
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mortara Instrument, Inc.
The Company purchases certain components for the EP WorkMate [REGISTERED
TRADEMARK] and ALERT [REGISTERED TRADEMARK] Companion from Mortara Instrument,
Inc. ("Mortara Instrument"). Dr. David W. Mortara, a director of the Company, is
also a director and shareholder of Mortara Instrument. The approximate value of
products purchased from Mortara Instrument was $546,000 and $573,000 in 1998 and
1997, respectively. The Company believes that each of the transactions with
Mortara Instrument were entered into on terms and at prices no less favorable
than the Company could have received from an unaffiliated party.
PROPOSAL # 2. APPROVAL OF THE AMENDMENT TO THE 1995
LONG TERSM INCENTIVE PLAN
General
Shareholders are asked to approve an amendment to the 1995 Long Term
Incentive Plan (the "1995 LTIP") to increase the number of shares of Common
Stock to be granted under the Plan by 300,000 from 700,000 to 1,000,000 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 LTIP.
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
contributedsubstantially 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 (2) years. The full text of the amended 1995
LTIP is annexed to this Proxy Statement as Exhibit A.
Description of the 1995 LTIP
Only eligible employees of the Company may be granted options under the
1995 LTIP. The selection of employees of the Company who will hereafter receive
grants under the 1995 LTIP 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 Officers and each of the
Company's directors.
12
<PAGE>
The 1995 LTIP was adopted by the Board of Directors and shareholders in
November 1995 and was subsequently amended in October 1997. A total of 700,000
shares of Common Stock are currently authorized for issuance under the 1995 LTIP
and options to purchase 669,888 shares were outstanding as of October 5, 1999.
Such options were held by 33 employees of the Company and were exercisable at
exercise prices ranging from $1.75 to $3.00 with an average exercise price of
$2.89 per share. The 1995 LTIP provides for grants of "incentive" ("ISO") and
"non-qualified" ("NQSO") stock options to employees of the Company. The 1995
LTIP 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
LTIP will terminate on November 30, 2005, unless earlier terminated by the Board
of Directors.
The exercise price of an ISO granted under the 1995 LTIP must be equal to
at least the fair market value of the Common Stock on the date of grant, and the
term of such option 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 Relating to the 1995 LTIP
The following discussion summarizes the material federal income tax
consequences of participation in the 1995 LTIP. 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 (2) years after the grant of the ISO or one (1) year after exercise of
the ISO, the gain (i.e., the excess of the proceeds received over the option
exercise price), if any, will be long-term capital gain eligible for favorable
tax rates under the Internal Revenue Code of 1986, as amended (the "Code"). If
the optionee disposes of the shares within two (2) years of the date of grant of
the ISO or within one (1) 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 (1) year after the ISO
was exercised.
13
<PAGE>
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 (which limits the
Company's deduction in any one (1) year for enumeration paid to certain
executives in excess of $1 million) or is otherwise limited under the Code.
A recipient of an 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 Code (which limits the Company's deduction in any one (1)
year for remuneration paid to certain executives in excess of $1 million) or is
otherwise limited under the Code.
As of October 5, 1999, the last reported sales price per share of the
Common Stock on the Nasdaq National Market was $3.00.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
APPROVAL OF THE AMENDMENT OF THE 1995 LTIP.
PROPOSAL # 3. RATIFICATION OF APPOINTMENT OF INDEPENDENT
PUBLIC ACCOUNTANTS
Upon recommendation of the Audit Committee, the Board of Directors has
selected PricewaterhouseCoopers LLP, independent public accountants, to act as
independent auditors of the Company for the fiscal year ending December 31,
1999, subject to ratification of such appointment by the shareholders at the
Annual Meeting.
Arthur Andersen LLP were the auditors of the Company from inception through
the fiscal year ended December 31, 1997. During August, 1998, upon a
recommendation issued by the Audit Committee and approved by the Board of
Directors and shareholders, the Company changed certifying accountants from
Arthur Andersen LLP to PricewaterhouseCoopers LLP. During the 1997 fiscal year
and subsequent interim period in 1998 preceding the change in accountants, there
were no disagreements with Arthur Andersen LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of Arthur
Andersen LLP, would have caused it to make a reference to the subject matter of
the disagreements in connection with its report. In addition, the report issued
by Arthur Andersen LLP on the Company's financial statements for the 1997 fiscal
year did not contain any adverse opinion or disclaimer of opinion, and was not
modified as to uncertainty, audit scope or accounting principles.
During the 1997 fiscal year and the subsequent interim period in 1998 prior
to engaging them as independent public accountants, PricewaterhouseCoopers LLP
were not consulted by the Company regarding (i) application of accounting
principles to specific transactions, (ii) the type of audit opinion to be
rendered in regard to the Company's financial statements or (iii) any
disagreements or reportable events.
14
<PAGE>
A representative of PricewaterhouseCoopers 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 THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP
AS THE COMPANY'S 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 2000 Annual Meeting of Shareholders must be received by the Company no
later than July 1, 2000. Such proposals should be directed to EP MedSystems,
Inc., 100 Stierli Court - Suite 107, Mount Arlington, New Jersey 07856,
Attention: Corporate Secretary.
ANNUAL REPORT
A copy of the Company's Annual Report to Shareholders for 1998, 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, 1998, 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/Joseph M. Turner
------------------------------------------------
Joseph M. Turner
Chief Financial Officer, Treasurer and Secretary
October 14, 1999
15
<PAGE>
APPENDIX A
PROPOSED AMENDMENTS TO
1995 LONG TERM INCENTIVE PLAN
SECOND 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 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 1,000,000
shares of which shares issued and sold pursuant to the Incentive Stock
Options under the Plan shall not exceed 900,000."
2. Ratification. Except as expressly set forth in this Second Amendment
to the Plan, the Plan is hereby ratified and confirmed without
modification.
3. Effective Date. The effective date of this amendment to the Plan shall
be November 5, 1999.
EP MEDSYSTEMS, INC.
1995 LONG TERM INCENTIVE PLAN
AS AMENDED BY SECOND 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
<PAGE>
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 corporations 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.
1.10 "Plan" - The Company's 1995 Long Term Incentive Plan, the terms
of which are set forth herein.
1.11 "Stock" - The common stock of the Company.
1.12 "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 shareholders 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.
<PAGE>
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 1,000,000 shares of
which shares issued and sold pursuant to Incentive Stock Options under the Plan
shall not exceed 900,000.
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
(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 Shareholder. An Optionee shall have no rights as a
shareholder 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.
<PAGE>
(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 shareholders.
(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 shareholders.
(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 shareholders.
<PAGE>
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.
[The remainder of this page is intentionally blank.]
<PAGE>
REVOCABLE PROXY
EP MEDSYSTEMS, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON NOVEMBER 5, 1999.
The undersigned hereby appoint(s) David A. Jenkins and C. Bryan Byrd, and each
of them, as proxies, each 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 October 5, 1999, at the Annual Meeting of Shareholders of
the Company to be held at The Four Points Hotel by Sheraton, 15 Howard
Boulevard, Mount Arlington, New Jersey, at 10:00 a.m., local time, on Friday,
November 5, 1999 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.
<TABLE>
<CAPTION>
FOR WITHHOLD AUTHORITY
the Nominee to vote for the Nominee
--------------- --------------------------------
<S> <C> <C> <C> <C> <C>
1. ELECTION OF DIRECTORS
Class I Nominee: John E. Underwood [ ] [ ]
Class II Nominee: Darryl D. Fry [ ] [ ]
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 PRICEWATERHOUSE-
COOPERS LLP AS INDEPENDENT AUDITORS
FOR THE FISCAL YEAR ENDING
DECEMBER 31, 1999 [ ] [ ] [ ]
</TABLE>
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 [ ] [ ]
