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.
--------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11. (1) Title of each class of securities to which transaction
applies:
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computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
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|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date
of its filing.
(1) Amount Previously Paid:
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1
<PAGE>
EP MedSystems, Inc.
100 Stierli Court - Suite 107
Mount Arlington, NJ 07856
June 23, 2000
Dear Shareholder,
You are cordially invited to join us for our Annual Meeting of
Shareholders to be held this year on Tuesday, July 18, 2000, 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 TUESDAY, JULY 18, 2000
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 Tuesday, July 18, 2000 for the following purposes:
(1) To elect (i) one (1) Class II 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.
(2) To approve an amendment to and restatement of the 1995 Long Term
Incentive Plan;
(3) To approve an amendment to and restatement of the 1995 Director
Plan;
(4) To ratify the appointment of PricewaterhouseCoopers LLP, independent
public accountants, as auditors for the Company for the fiscal year
ending December 31, 2000; and
(5) 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 June 13, 2000 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
June 23, 2000
IT IS IMPORTANT THAT THE ENCLOSED PROXY CARD
BE COMPLETED AND RETURNED PROMPTLY.
<PAGE>
EP MEDSYSTEMS, INC.
100 Stierli Court - Suite 107
Mount Arlington, New Jersey 07856
PROXY STATEMENT FOR
THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON
JULY 18, 2000
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 Tuesday July 18, 2000 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 June 26, 2000.
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 June
13, 2000 (the "Record Date") are entitled to notice of and to vote at the Annual
Meeting. On the Record Date there were 11,738,167 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
<PAGE>
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 CLASS II DIRECTOR
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 current term of
Class I directors expires at the 2002 Annual Meeting, the initial term of Class
II directors to be elected at this meeting expires at the 2003 Annual Meeting
and the current 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 II director whose term expires at the 2000 Annual Meeting of
Shareholders is Darryl D. Fry who has been nominated by the Board to stand for
reelection as a Class II 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. 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. 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 II director.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DARRYL D.
FRY AS A CLASS II DIRECTOR.
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 II nominee and each continuing director has been furnished to
the Company by each director.
2
<PAGE>
Nominee for continued service as a director whose term expires in 2003 (Class II
Director):
Darryl D. Fry (age 61) 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 Fortis Inc. Mr. Fry also served as a director of
North American Van Lines, Inc. until this year.
Director not standing for election this year whose term expire in 2002 (Class I
Director):
John E. Underwood (age 58) 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.
Directors not standing for election this year whose terms expire in 2001 (Class
III Directors):
David A. Jenkins (age 42) 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 59) 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
Darryl D. Fry 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. These
options were issued under the 1995 Director Option Plan upon his 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. During 1999, no other
directors of the Company received cash or other compensation for services on the
Board of Directors or any committee thereof.
3
<PAGE>
1995 Director Option Plan
The Company's 1995 Director Option Plan was adopted by the Board of Directors
and the shareholders in November 1995. The 1995 Director Option Plan is proposed
to be amended and restated at the July 18, 2000 Annual Meeting. (See Proposal
#3). A total of 360,000 shares of Common Stock of the Company are available for
issuance under the 1995 Director Option Plan and options to purchase 180,000
shares were outstanding as of December 31, 1999. The 1995 Director Option 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. 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. The 1995 Director Option Plan is administered by the Plan Committee
of the Company, which determines the optionees and the terms of the options
granted, including the exercise price and the number of shares subject to the
options. The 1995 Director Option 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, 1999, there were four
(4) meetings of the Board of Directors at which all then current directors were
present except for one meeting which one director did not attend. There was one
(1) meeting of each of the Audit Committee, Compensation Committee and Plan
Committee during 1999 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, avpprove 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. By written action
effective as of May 31, 2000 the Audit Committee adopted a formal written Audit
Committee charter in compliance with the recent Nasdaq Market Place Rules.
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 42 Chairman of the Board, President and Chief 1993
Executive Officer
Joseph M. Turner 37 Chief Financial Officer, Treasurer and 1999
Secretary
J. Randall Rolston 53 Vice President, Sales and Marketing 1998
C. Bryan Byrd 39 Vice President, Engineering and Operations 1993
Joseph C. Griffin, III 40 Vice President, Regulatory Affairs 1993 (1)
</TABLE>
David A. Jenkins is a founder and currently Chairman of the Board of
Directors, President and Chief Executive Officer of the Company. Mr. Jenkins
served as the President of the Company since its inception in 1993. 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. He also serves as a
director of Transneuronix, Inc., a privately held company.
Joseph M. Turner joined the Company as Chief Financial Officer, Treasurer
and Secretary of the Company effective February 1, 1999. 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, he
was employed at PricewaterhouseCoopers, LLP from 1985-1994. Mr. Turner is a
certified public accountant.
J. Randall Rolston is the Vice President, Sales and Marketing 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.
C. Bryan Byrd is the Vice President, Engineering and Operations 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. Before that, he
was a software engineer working on products for Medtronic, where he developed
the ValveBase, PaceBase(TM) and TeleTrace(R)software modules and before that
with Mt. Sinai Medical Center in Miami Beach, Florida.
5
<PAGE>
Joseph C. Griffin, III was the Vice President, Regulatory Affairs of the
Company. Mr. Griffin founded Professional Catheter Corporation, the predecessor
to ProCath, 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.
--------------------------------------------------------------------------------
(1) Mr. Griffin retired from the Company effective June 1, 2000.
Executive Compensation
The following summary compensation table sets forth certain information
concerning compensation paid or accrued to the Company's five most highly paid
executive officers (the "Named Executive Officers") for services rendered in all
capacities for the years ended December 31, 1999, 1998 and 1997. 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
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
-------------------------- ----------------------
Name and Principal Salary Bonus Securities Underlying
Position Year $ $ Options
------------------------------------ ------ --------- ------ ---------------------
<S> <C> <C> <C> <C>
David A. Jenkins 1999 $203,750 $0 0
Chairman, President and 1998 $150,833 $0 0
Chief Executive Officer 1997 $145,000 $0 0
J. Randall Rolston (1) 1999 $158,851 $0 15,922 (5)
Vice President, Sales and Marketing 1998 $156,077 $2,500 55,271 (4)
1997 $150,000 $0 28,000 (3)
Joseph C. Griffin (2) 1999 $129,212 $0 25,000 (6)
Vice President,Regulatory 1998 $103,835 $0 0
Affairs 1997 $ 99,170 $0 0
C. Bryan Byrd 1999 $112,083 $0 0
Vice President, Engineering 1998 $102,083 $0 18,000 (7)
and Operations 1997 $ 92,083 $0 0
Joseph M. Turner 1999 $110,000 $0 50,000 (8)
Chief Financial Officer 1998 $ -0- $0 0
1997 $ -0- $0 0
</TABLE>
1) Mr. Rolston served as National Sales Manager of the Company until April
1998 when he was named Vice President, Sales and Marketing.
2) Mr. Griffin served as President of ProCath until February 1999 when he was
named Vice President Regulatory Affairs. Mr. Griffin retired as of June 1,
2000.
3) On September 30, 1997, the Company granted Mr. Rolston a 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 vest on the grant date and options to
purchase an additional 5,600 of such shares vest each year thereafter. The
term of such option is five years.
6
<PAGE>
4) On April 30, 1998, the Company canceled 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 vested on the grant
date and options to purchase an additional 2,400 shares vest 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 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 vested 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 vested on the grant date and options to purchase an
additional 3,000 shares vest each year thereafter. The term of such option
is five years. On December 7, 1998, the Company granted Mr. Rolston an
incentive stock option to purchase 12,500 shares of common stock pursuant
to the 1995 Long Term Incentive Plan at an exercise price of $3.00 per
share. Options to purchase 2,500 shares vested on the grant date and
options to purchase an additional 2,500 shares vest each year thereafter.
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 $2.88 per share. Options to purchase 2,960 shares vest 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.
5) On January 1, 1999, the Company granted Mr. Rolston an incentive stock
option to purchase 12,500 shares of common stock pursuant to the 1995 Long
Term Incentive Plan at an exercise price of $3.00 per share. Options to
purchase 2,500 shares vested on the grant date and options to purchase an
additional 2,500 shares vest each year thereafter. The term of such option
is five years. On June 30, 1999 the Company granted Mr. Rolston an
incentive stock option to purchase 3,422 shares of common stock pursuant
to the 1995 Long term Incentive Plan at an exercise price of $3.00 per
share. Options to purchase 685 shares vested on the grant date and options
to purchase an additional 684 vest each year thereafter. The term of such
options is five years.
6) On February 5, 1999, the Company granted Mr. Griffin 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 5,000 shares vested on the grant date and options to purchase an
additional 5,000 such shares vest each year thereafter. The term of such
option was five years, but due to Mr. Griffin's retirement, the 10,000
shares vested as of June 1, 2000 will expire July 1, 2000.
7) On July 23, 1998, the Company granted Mr. Byrd an incentive stock option
to purchase 18,000 shares of common stock pursuant to the 1995 Long Term
Incentive Plan at an exercise price of $3.00 per share. Options to
purchase 3,600 shares vested on grant date and options to purchase an
additional 3,600 such shares vest each year thereafter. The term of such
option is five years.
8) On February 5, 1999, the Company granted Mr. Turner an incentive stock
option to purchase 50,000 shares of common stock pursuant to the 1995 Long
Term Incentive Plan at an exercise price of $3.00 per share. Options to
purchase 10,000 shares vested on grant date and options to purchase an
additional 10,000 such shares vest 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, 1999.
Option Grants in Fiscal Year 1999
<TABLE>
<CAPTION>
Number of Shares Percent of Total Exercise
Underlying Options Options Granted to Price Per
Granted Employees in 1999 Share Expiration Date
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
J. Randall Rolston 15,922 11.1% $3.00 January - June
Vice President, Sales and Marketing
Joseph Griffin 25,000 17.5% $3.00 July 1, 2000 (1)
Vice President,
Regulatory Affairs
Joseph M. Turner 50,000 35.0% $3.00 February 2004
Chief Financial Officer
</TABLE>
-------------------------------------------------------------------------------
(1) Mr. Griffin retired from the Company effective June 1, 2000
7
<PAGE>
Option Exercises and Holdings
The following table provides certain information with respect to the Named
Executive Officers concerning the exercise of stock options during the fiscal
year ended December 31, 1999 and the value of unexercised stock options held as
of December 31, 1999
Aggregated Option Exercises in 1999 and Year End Option Values
<TABLE>
<CAPTION>
Number of Shares
Underlying
Unexercised Value of Unexercised
Options at In the Money Options at
December 31, 1999 December 31, 1999 ($) (1)
----------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
------------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
David A. Jenkins (2) 150,000 16,000 $398,500 $44,000
Chairman, President
and Chief Executive
Officer
J. Randall Rolston (3) 42,676 56,517 $75,878 $99,971
Vice President, Sales
and Marketing
Joseph C. Griffin (3) 5,000 20,000 $8,750 $35,000
VicePresident,
Regulatory Affairs
Joseph M. Turner (3) 10,000 40,000 $17,500 $70,000
Chief Financial Officer
C. Bryan Byrd (3) 57,200 10,800 $150,100 $18,900
Vice President,
Engineering and
Manufacturing
</TABLE>
No options were exercised by the Named Executive Officers during the fiscal year
ended December 31, 1999.
(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 $4.75 per share on December 31,
1999.
(2) 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.
(3) See footnotes to prior table concerning compensation.
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, 1999, its executive officers, directors and greater than 10%
beneficial owners complied with all such filing requirements.
Security Ownership of Certain Beneficial Owners and Management
Based upon information available to the Company, the following table sets forth
certain information regarding beneficial ownership of Common Stock of the
Company as of June 13, 2000, 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. Pusuant to filings made by respective
holders with the Securities and Exchange Commission. 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.
<TABLE>
<CAPTION>
Name and Address Number of Percentage of
of Beneficial Owner Shares Class Beneficially
Beneficially Owned (1)
Owned
----------------------------------------------- -------------- -------------------
<S> <C> <C>
EGS Private Healthcare Partnership, LP (2) (3) 1,312,500 11.2%
350 Park Avenue
New York, NY 10022
EGS Private Healthcare Counterpart, LP (6) (3) 187,500 1.6%
350 Park Avenue
New York, NY 10022
David A. Jenkins (4) 1,055,000 9.0%
100 Stierli Court - Suite 107
Mount Arlington, NJ 07856
H & Q Healthcare Investors (5) 645,000 5.5%
50 Rowes Wharf
Boston, MA 02110-6679
9
<PAGE>
H & Q Life Sciences Investors (5) 430,000 3.7%
50 Rowes Wharf
Boston, MA 02110-6679
Oppenheimer Funds, Inc. 600,000 5.1%
Two World Trade Center
New York, NY 10048
Medtronic, Inc. 458,000 3.9%
7000 Central Avenue NE
Minneapolis, MN 55432
David W. Mortara, Ph.D. (7) 179,000 1.5%
7865 North 86th Street
Milwaukee, WI 53224
Joseph C. Griffin (8) 55,836 0.5%
100 Stierli Court - Suite 107
Mount Arlington, NJ 07856
Darryl D. Fry (9) 123,000 1.1%
100 Stierli Court - Suite 107
Mount Arlington, NJ 07856
J. Randall Rolston (10) 95,588 1.0%
100 Stierli Court - Suite 107
Mount Arlington, NJ 07856
John E. Underwood (11) 23,000 *
c/o Proteus International
Crossroads Plaza
Mahwah, NJ 07430
All Named Executive Officers and
directors as a group 1,531,424 13.1%
(6 persons) (12)
</TABLE>
* Represents beneficial ownership of less than one percent of the Common Stock.
(1) Applicable percentage ownership as of June 13, 2000 is based upon
11,738,167 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 306,250 shares issuable upon exercise of warrants.
(3) EGS Private Healthcare Partnership, LP and EGS Private Healthcare
Counterpart, LP share certain common management and ownership.
10
<PAGE>
(4) Includes 150,000 shares issuable upon exercise of fully vested options.
Also includes 160,000 shares held by Mr. Jenkins as trustee for the Dalin
Class Trust, 42,500 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 42,500 shares held by his wife and
20,000 shares held by his wife as custodian for his children.
(5) H & Q Life Sciences Investors and H & Q Healthcare Investors share certain
common management and ownership.
(6) Includes 43,750 shares issuable upon exercise of warrants.
(7) Includes 51,000 shares issuable upon exercise of fully vested options.
(8) Includes 10,000 shares issuable upon exercise of fully vested options.
(9) Includes 5,000 shares issuable upon exercise of fully vested options.
(10) Includes 35,176 shares issuable upon exercise of fully vested options.
(11) Includes 20,000 shares issuable upon exercise of fully vested options.
(12) Includes 271,000 shares issuable upon exercise of fully vested options.
Certain Relationships and Related Transactions
Mortara Instrument, Inc. and Affiliates
The Company purchases certain components for the EP WorkMate(R) and ALERT(R)
Companion from 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 $971,000 and
$546,000 in 1999 and 1998, respectively. Mr. Mortara is also a shareholder in an
overseas distributor which is expected to commence selling Company products in
calendar year 2000. The Company believes that each of the transactions with Mr.
Mortara's affiliates 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 AND RESTATEMENT OF THE 1995 LONG TERM
INCENTIVE PLAN
General
Shareholders are being asked to approve an amendment to and restatement of
the 1995 Long Term Incentive Plan (the "1995 LTIP") to broaden the powers of the
Compensation Committee in their administration of the 1995 LTIP specifically
including but not limited to broadening the definition of Eligible Employees to
expressly include agents or consultants and providing the Compensation Committee
the power to increase benefits accruing to Eligible Employees without the
approval of the Company's shareholders.
The Board of Directors believes that providing broader powers to the
Compensation Committee without the Compensation Committee having to obtain prior
shareholder approval 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, agents and
consultants. The Board and Compensation Committee would continue to be required
to obtain shareholder approval to increase the total number of shares of Stock
subject to the Plan. A summary of the proposed amendments to the 1999 LTIP is
set forth in Appendix A and the full text of the amended and restated 1995 LTIP
is annexed to this Proxy Statement as Exhibit A.
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 to and restatement of the 1995 LTIP.
Description of the 1995 LTIP
Only eligible employees, agents or consultants of the Company may be
granted options under the 1995 LTIP. The selection of employees, agents or
consultants 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
11
<PAGE>
Statement is information relating to outstanding options previously granted to
the Named Executive Officers and each of the Company's directors.
The 1995 LTIP was adopted by the Board of Directors and shareholders in
November 1995 and was subsequently amended in October 1997 and November 1999 to
increase the authorized quantity of shares available for issuance. A total of
1,000,000 shares of Common Stock are currently authorized for issuance under the
1995 LTIP and options to purchase 847,060 shares were outstanding as of June 13,
2000. Such options were held by 44 employees of the Company and were exercisable
at exercise prices ranging from $1.75 to $4.25 with an average exercise price of
$3.09 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.
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 renumeration 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
12
<PAGE>
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 June 15, 2000, the last reported sales price per share of the Common
Stock on the Nasdaq National Market was $5.0625.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
APPROVAL OF THE AMENDMENT TO AND RESTATEMENT OF THE 1995 LTIP.
PROPOSAL # 3. APPROVAL OF THE AMENDMENT TO AND RESTATEMENT OF THE 1995
DIRECTOR OPTION PLAN
General
Shareholders are being asked to approve an amendment to and restatement of
the 1995 Director Option Plan (the "1995 Director Option Plan") to broaden the
powers of the Plan Committee in their administration of the 1995 Director Option
Plan specifically including but not limited to broadening the definition of
Eligible Director to expressly include newly elected members of the Board of
Directors or members of the Board of Scientific Advisors of the Company;
providing for outstanding but unvested options to vest upon a Change of Control
(as defined); and providing the Plan Committee the power to modify the
requirements for eligibility for participation and increase benefits accruing to
Eligible Directors without the approval of the Company's shareholders. These
1995 Director Stock Option Plan amendments are not taken in response to or as a
consequence of any inquiry from any third party but are designed to make the
role of outside director more attractive by lessening the uncertainty of
whether or when the options would be available for exercise. The Plan Committee
considered whether the proposed Change of Control provision might deter an
acquisition proposal or tender offer for the Company's common stock that might
otherwise be forthcoming and believed that it would not.
The Board of Directors believes that providing broader powers to the Plan
Committee without the Plan Committee having to obtain prior shareholder approval
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 outside directors and scientific advisors. The Board and Plan
Committee would continue to be required to obtain shareholder approval to
increase the total number of shares of Stock subject to the 1995 Director Option
Plan. A summary of the proposed amendments to the 1995 Director Option Plan is
set forth in Appendix B and the full text of the amended and restated 1995
Director Option Plan is annexed to this Proxy Statement as Exhibit B.
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 to and restatement of the 1995 Director Option Plan.
Description of the 1995 Director Option Plan
Only newly elected members of the Board of Directors of the Company or the
Board of Scientific Advisors who are not employees of the Company may be granted
options under the 1995 Director Option Plan. The selection of outside directors
or scientific advisors who will hereafter receive grants under the 1995 Director
Stock Option Plan is to be determined by theBoard of Directors and the Company
shareholders in their respective discretion. Each Eligible Director newly
elected to serve on the Board of Directors is automatically granted an option to
purchase 60,000 shares of Common Stock at an exercise price equal to the Fair
Market Value of the Stock on the date the Option is granted Each Eligible
Director newly elected to serve on the Board of Scientific Advisors of the
Company is automatically granted an option to purchase 36,000 shares of Common
Stock at an exercise price equal to the Fair Market Value of the Stock on the
date the Option is granted. Set forth elsewhere in this Proxy Statement is
information relating to outstanding options previously granted to each of the
Company's outside directors who are members of the Company's Board of
Directors.
The 1995 Director Option Plan was adopted by the Board of Directors and
shareholders in November 1995. A total of 360,000 shares of Common Stock are
currently authorized for issuance under the 1995 Director Option Plan and
options to purchase 180,000 shares were outstanding as of the date of this Proxy
Statement and were exercisable at exercise prices ranging from $2.00 to $3.00
with an average exercise price of $2.67 per share. The options become
13
<PAGE>
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.
The 1995 Director Option Plan is proposed to be amended to provide that
upon a Change of Control, any unvested option immediately become vested and
exercisable. A Change of Control is defined to have taken place when (i) any
person acquires directly or indirectly more than 40% of the Company's voting
securities; (ii) the Company's original and subsequent Board of Directors
elected by at least 2/3rds of the then current Board no longer constitute a
majority of the members of the Company's Board; (iii) the Company enters into a
transaction which results in the Company shareholders prior to the transaction
holding less than 75% of the voting power after the transaction; or the Company
shareholders approve a plan of complete liquidation of the sale or disposition
of 50% or more in value of the total assets of the Company. (See Exhibit B)
The 1995 Director Option Plan is administered by the Plan Committee, none
of whom shall be eligible to participate in the 1995 Director Option Plan which
has complete authority to interpret the 1995 Director Option Plan. The 1995
Director Option Plan will terminate on November 30, 2005, unless earlier
terminated by the Board of Directors or extended with the approval of the
Company's shareholders.
Federal Income Tax Consequences Relating to the 1995 Director Option Plan
The following discussion summarizes the material federal income tax
consequences of participation in the 1995 Director Option 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.
A recipient of an 1995 Director option Plan option will not have any
income at the time the option is granted, nor will the Company be entitled to a
deduction at that time. When an option 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
option 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 June 15, 2000, the last reported sales price per share of the Common
Stock on the Nasdaq National Market was $5.0625.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE
AMENDMENT TO AND RESTATEMENT OF THE 1995 DIRECTOR OPTION PLAN.
PROPOSAL # 4. 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,
2000, 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
14
<PAGE>
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.
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 2001 Annual Meeting of Shareholders must be received by the
Company no later than February 28, 2001. 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 1999, including
financial statements, accompanies this Proxy Statement.
15
<PAGE>
FORM 10-KSB
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED
DECEMBER 31, 1999, 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
June 23, 2000
16
<PAGE>
APPENDIX A
PROPOSED AMENDMENTS TO
1995 LONG TERM INCENTIVE PLAN
The EP MedSystems, Inc. 1995 Long Term Incentive Plan (the "Plan") is hereby
amended as follows:
1. The definition of "Eligible Employees" is hereby amended and restated
in entirety as follows:
"Eligible Employee" - Any person who is an employee, agent or consultant
of the Company as determined by the Committee".
2. Section 7 of the Plan is hereby amended and restated in its entirety as
follows:
"7. TERMINATION, AMENDMENT AND MODIFICATION OF PLAN
7.1 The Board may, upon recommendation of the Committee, (i) 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; (ii) increase the benefits accruing to Eligible Employees
with respect to Options granted, or Awards of Restricted Stock made, under the
Plan or (iii) 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 o1f 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 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."
3. The Plan is hereby amended to reflect conforming ministerial changes.
4. Ratification. The Amended and Restated Plan set forth in Exhibit A
hereto is hereby ratified and confirmed..
5. Effective Date. The effective date of this amendment to and restatement
of the Plan shall be July 18, 2000.
[The remainder of this page is intentionally blank.]
<PAGE>
APPENDIX B
PROPOSED AMENDMENT AND RESTATEMENT\OF
1995 DIRECTOR OPTION PLAN
The EP MedSystems, Inc. 1995 Director Option Plan (the "Plan") is hereby amended
and restated as follows:
1. The definition of "Eligible Director " set forth in Section 1
Definitions is amended and restated to read in its entirety as follows:
"Eligible Director" - Any person who is newly elected as a member of the
Board or the Advisory Board and who is not an employee of the Company.
2. A new Definition 1.3 "Change In Control" is added to Section 1
Definitions as follows:
"Change of Control" - A change of control shall be deemed to have
occurred if:
(i) Any person, firm or corporation acquires directly or
indirectly the Beneficial Ownership (as defined in Section 13(d) of the
Securities Exchange Act of 1934, as amended) of any voting security of the
Company and immediately after such acquisition, the acquirer has Beneficial
Ownership of voting securities representing 40% or more of the total voting
power of all the then-outstanding voting securities of the Company; or
(ii) the individuals (A) who, as of the date hereof constitute
the Board of Directors of the Company (the "Original Directors") or (B) who
thereafter are elected to the Board of Directors of the Company (the "Company
Board") and whose election, or nomination for election, to the Company Board was
approved by a vote of at least 2/3 of the Original Directors then still in
office (such Directors being called "Additional Original Directors") or (C) who
are elected to the Company Board and whose election or nomination for election
to the Company Board was approved by a vote of at least 2/3 of the Original
Directors and Additional Original Directors then still in office, cease for any
reason to constitute a majority of the members of the Company Board; or
(iii) The shareholders of the Company shall approve a merger,
consolidation, recapitalization or reorganization of the Company or consummation
of any such transaction if shareholder approval is not sought or obtained, other
than any such transaction which would result in at least 75% of the total voting
power represented by the voting securities of the surviving entity outstanding
immediately after such transaction being Beneficially Owned by holders of
outstanding voting securities of the Company immediately prior to the
transaction, with the voting power of each such continuing holder relative to
such other continuing holders being not altered substantially in the
transaction; or
(iv) The shareholders of the Company shall approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or a substantial portion of the Company's assets (i.e.,
50% or more in value of the total assets of the Company)."
3. Sections 5.1 and 5.2 are hereby amended and restated to read in their
entirely as follows:
"5.1 Grant of Options. Options shall be granted only to Eligible
Directors.
(a) Each Eligible Director newly elected to serve on the Board shall
be granted an option to purchase 60,000 shares of Stock on the terms set forth
in this Section 5.
(b) Each Eligible Director newly elected to serve on the Advisory
Board is granted an option to
<PAGE>
purchase 36,000 share of Stock on the terms set forth in this Section 5.
(c) Each Option granted under the Plan shall be evidenced by a
writing dated as of the date the Option is granted. The writing shall contain
such terms and conditions as shall be determined by the Committee, consistent
with the Plan.
5.2 Vesting. Each Option shall be exercisable at the rate of 1,000 shares
per month commencing with the first month following the date of grant, provided
however, that upon a Change of Control, all Options shall immediately become
vested and exercisable."
4. Section 7 of the Plan is hereby amended and restated in its entirety as
follows:
7. TERMINATION, AMENDMENT AND MODIFICATION OF PLAN
7.1 The Board may, upon recommendation of the Committee, (i) modify the
requirements for eligibility for participation, or change the class of Eligible
Directors to whom Options may be granted under the Plan; (ii) materially
increase or decrease the benefits accruing to Eligible Directors with respect to
Options granted under the Plan; or (iii) 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 Terms of Outstanding Options. Modify the requirements for
eligibility for participation, or 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.
(c) Continue Plan. Continue the Plan in effect beyond November 30,
2005, without the approval of the Company shareholders.
5. The Plan is hereby amended to reflect conforming ministerial changes.
6. Ratification. The Amended and Restated plan set forth in Exhibit B is
hereby ratified and confirmed.
7. Effective Date. The effective date of this amendment to and restatement
of the Plan shall be July 18, 2000.
[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 JULY 18, 2000.
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 June 13, 2000, 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 Tuesday
July 18, 2000 with authority to vote upon the matters listed on
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 IN THE BOX BELOW.
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 2,3 and 4.
FOR WITHHOLD AUTHORITY
the Nominee to vote for the Nominee
----------- -----------------------
1. ELECTION OF DIRECTORS
Class II Nominee: Darryl D. Fry |_| |_|
VOTE WITHHELD from all nominees listed above |_|
VOTE VOTE
FOR AGAINST ABSTAIN
---- ------- -------
2. APPROVAL OF AMENDMENT TO AND
RESTATEMENT OF 1995 LONG
TERM INCENTIVE PLAN |_| |_| |_|
VOTE VOTE
FOR AGAINST ABSTAIN
---- ------- -------
3. APPROVAL OF AMENDMENT TO AND
RESTATEMENT OF 1995 DIRECTOR
OPTION PLAN |_| |_| |_|
VOTE VOTE
FOR AGAINST ABSTAIN
---- ------- -------
4. RATIFICATION OF PRICEWATERHOUSE-
COOPERS LLP AS INDEPENDENT AUDITORS
FOR THE FISCAL YEAR ENDING
DECEMBER 31, 2000 |_| |_| |_|
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, 3 AND 4.
<PAGE>
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.
AMENDED AND RESTATED
1995 LONG TERM INCENTIVE PLAN
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 Code.
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, agent or
consultant of the Company as determined by the Committee.
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.
<PAGE>
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 Amended and Restated 1995 Long Term Incentive
Plan, the terms of which are amended and restated as 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.
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
<PAGE>
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
<PAGE>
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 or engagement as an
agent or consultant 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 or engagement as
an agent or consultant 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 optioned. 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
<PAGE>
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, (i) 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; (ii) increase the benefits accruing to Eligible Employees
with respect to Options granted, or Awards of Restricted Stock made, under the
Plan or (iii) 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 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.
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.
<PAGE>
Exhibit B
EP MEDSYSTEMS, INC.
AMENDED AND RESTATED
1995 DIRECTOR OPTION PLAN
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 "Advisory Board" - The Board of Scientific Advisors of the Company.
1.2 "Board" - The Board of Directors of the Company.
1.3 "Change of Control" - A change of control shall be deemed to have
occurred if:
(i) Any person, firm or corporation acquires directly or indirectly
the Beneficial Ownership (as defined in Section 13(d) of the Securities Exchange
Act of 1934, as amended) of any voting security of the Company and immediately
after such acquisition, the acquirer has Beneficial Ownership of voting
securities representing 40% or more of the total voting power of all the
then-outstanding voting securities of the Company; or
(ii) the individuals (A) who, as of the date hereof constitute the
Board of Directors of the Company (the "Original Directors") or (B) who
thereafter are elected to the Board of Directors of the Company (the "Company
Board") and whose election, or nomination for election, to the Company Board was
approved by a vote of at least 2/3 of the Original Directors then still in
office (such Directors being called "Additional Original Directors") or (C) who
are elected to the Company Board and whose election or nomination for election
to the Company Board was approved by a vote of at least 2/3 of the Original
Directors and Additional Original Directors then still in office, cease for any
reason to constitute a majority of the members of the Company Board; or
(iii) The shareholders of the Company shall approve a merger,
consolidation, recapitalization or reorganization of the Company or consummation
of any such transaction if shareholder approval is not sought or obtained, other
than any such transaction which would result in at least 75% of the total voting
power represented by the voting securities of the surviving entity outstanding
immediately after such transaction being Beneficially Owned by holders of
outstanding voting securities of the Company immediately prior to the
transaction, with the voting power of each such continuing holder relative to
such other continuing holders being not altered substantially in the
transaction; or
(iv) The shareholders of the Company shall approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or a substantial portion of the Company's assets (i.e.,
50% or more in value of the total assets of the Company).
1.4 "Committee" - The Plan Committee, being comprised of two or more
members of the Board appointed by the Board to administer the Plan, none of whom
shall be eligible to participate in this Plan.
1.5 "Company" - EP MedSystems, Inc., a New Jersey corporation.
1.6 "Code" - The United States Internal Revenue Code of 1986, as from time
to time amended.
1.7 "Eligible Director" - Any person who is newly elected as a member of
the Board or the Advisory Board and who is not an employee of the Company.
<PAGE>
1.8 "Fair Market Value" - The per share fair market value of the Stock of
the Company as determined by the Committee taking into consideration industry
standards.
1.9 "Option" - An option to purchase Stock of the Company granted pursuant
to the provisions of the Plan. All Options shall be non-statutory stock options
within the meaning of the Code.
1.10 "Optionee" - The person to whom an Option has been granted pursuant
to the provisions of the Plan.
1.11 "Option Price" - The per share exercise price of the Stock with
respect to which an Option has been granted under the Plan.
1.12 "Plan" - The Company's Amended and Restated 1995 Director Option
Plan, the terms of which are set forth herein.
1.13 "Stock" - The common stock of the Company.
2 ESTABLISHMENT AND PURPOSE OF PLAN
2.1 Establishment and Purpose of Plan. The Company hereby establishes the
Plan for the purpose of encouraging equity ownership in the Company by outside
directors of the Company whose continued services are considered essential to
the Company's sustained progress, and thus to provide them with a further
incentive to continue as directors of the Company.
2.2 Effective Date of Plan. The effective date of the Plan is December 1,
1995.
2.3 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 under the Plan shall not exceed 360,000 shares.
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 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.
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.
<PAGE>
4.2 Powers and Duties. Grants of Options under the Plan and the Option
Price shall be automatic as described in Section 5 below. The Committee shall
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 Directors.
(a) Each Eligible Director newly elected to serve on the Board shall
be granted an option to purchase 60,000 shares of Stock on the terms set forth
in this Section 5.
(b) Each Eligible Director newly elected to serve on the Advisory
Board is granted an option to purchase 36,000 share of Stock on the terms set
forth in this Section 5.
(c) Each Option granted under the Plan shall be evidenced by a
writing dated as of the date the Option is granted. The writing shall contain
such terms and conditions as shall be determined by the Committee, consistent
with the Plan.
5.2 Vesting. Each Option shall be exercisable at the rate of 1,000 shares
per month commencing with the first month following the date of grant, provided
however, that upon a Change of Control, all Options shall immediately become
vested and exercisable.
5.3 Option Price. The Option Price of the Stock subject to each Option
shall be 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 commence on the date of vesting under
Section 5.2 and end on the close of business on the tenth anniversary of the day
proceeding the date of grant, except as otherwise provided in Section 5.6 of the
Plan.
5.5 Option Exercise. An Option granted pursuant to the Plan may be
exercised at any time or times, 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) Termination of Service. 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 Option Exercise Period provided in Section
5.4 hereof, (ii) an event of default or breach by an Optionee of the terms and
conditions of such Optionee's Option, or (iii) termination of an Optionee's
service on the Board or the Advisory Board. If an Optionee's service on the
Board or the Advisory Board is terminated other than for cause, death (as
provided in subsection (b) below), or retirement or disability (both as provided
in subsection (c) below),
<PAGE>
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 and the option.
(b) Death of Optionee. If an Optionee dies prior to the exercise of
his or her 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 service on
the Board, or within three months following the termination of such service 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 service on the Board
is terminated prior to the exercise of his or her Option in full, by reason of
the Optionee's retirement after reaching the age of 65 years or by reason of the
Optionee's retirements after becoming permanently disabled, the Optionee shall
have the right, during the period ending three months after the date of his or
her termination of service on the Board, to exercise his or her 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 or her purchase of such shares of Stock by exercise of such
Option as provided in the Plan.
5.9 Right as a Director. Neither the Plan, nor the granting of an Option
hereunder, nor any other action taken pursuant to the Plan, shall constitute or
be evidence of any agreement or undertaking, express or implied, that the
Company will retain any director for any period of time, or at any particular
rate of compensation, or with any other benefits whatsoever.
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 requirements.
(c) Approval or Clearance. The obtaining of any approval or
clearance from any federal or state
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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, (i) modify the
requirements for eligibility for participation, or change the class of Eligible
Directors to whom Options may be granted under the Plan; (ii) materially
increase or decrease the benefits accruing to Eligible Directors with respect to
Options granted under the Plan; or (iii) 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 Terms of Outstanding Options. Modify the requirements for
eligibility for participation, or 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.
(c) Continue Plan. Continue the Plan in effect beyond November 30,
2005, without the approval of the Company shareholders.
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 under this Plan, the Company may require the
Optionee to remit an amount sufficient to satisfy federal, state and local
withholding taxes prior to the delivery of any certificate for such shares.
