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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
[X] Definitive Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CARDIOGENESIS CORPORATION
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
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<PAGE> 2
CardioGenesis Corporation
540 Oakmead Parkway
Sunnyvale, California 94086
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Our Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
CardioGenesis Corporation (the "Company") will be held at the Stanford Park
Hotel located at 100 El Camino Real, Menlo Park, California, on Wednesday, May
28, 1997, at 9:00 a.m., Pacific Daylight Time, for the following purposes:
1. To elect six directors of the Company, each to serve until the next
Annual Meeting of Stockholders and until his successor has been elected
and qualified or until his earlier resignation or removal. The Company's
Board of Directors intends to present the following nominees for
election as directors:
<TABLE>
<S> <C>
Allen W. Hill David C. Hull, Jr.
Jack M. Gill Thomas D. Kiley
David B. Apfelberg F. Thomas (Jay) Watkins III
</TABLE>
2. To approve an amendment to the Company's 1996 Equity Incentive Plan to
increase the number of shares of Common Stock reserved for issuance
thereunder by 300,000 shares.
3. To ratify the selection of Coopers & Lybrand L.L.P. as the Company's
independent accountants for the fiscal year ending December 31, 1997.
4. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on April 17, 1997 are
entitled to notice of and to vote at the meeting or any adjournment or
postponement thereof.
By Order of the Board of Directors
Richard Powers
Richard P. Powers
Chief Financial Officer, Vice
President of
Finance and Administration, and
Secretary
Sunnyvale, California
April 28, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE SO
THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING.
<PAGE> 3
CARDIOGENESIS CORPORATION
540 OAKMEAD PARKWAY
SUNNYVALE, CALIFORNIA 94086
------------------------
PROXY STATEMENT
------------------------
APRIL 28, 1997
The accompanying proxy is solicited on behalf of the Board of Directors
(the "Board") of CardioGenesis Corporation, a Delaware corporation (the
"Company" or "CardioGenesis"), for use at the Annual Meeting of Stockholders of
the Company to be held at the Stanford Park Hotel located at 100 El Camino Real,
Menlo Park, California, on Wednesday, May 28, 1997, at 9:00 a.m., Pacific
Daylight Time (the "Meeting"). This Proxy Statement and the accompanying form of
proxy were first mailed to stockholders on or about April 28, 1997. An annual
report for the year ended December 31, 1996 is enclosed with this Proxy
Statement.
VOTING RIGHTS AND SOLICITATION OF PROXIES
RECORD DATE; QUORUM
Only holders of record of the Company's Common Stock at the close of
business on April 17, 1997 (the "Record Date") will be entitled to vote at the
Meeting. A majority of the shares outstanding on the Record Date will constitute
a quorum for the transaction of business at the Meeting.
OUTSTANDING SHARES
At the close of business on the Record Date, the Company had 12,004,654
shares of Common Stock outstanding and entitled to vote held of record by
approximately 69 stockholders (although the Company has been informed that there
are approximately 1,200 beneficial owners).
VOTING RIGHTS; REQUIRED VOTE
Holders of the Company's Common Stock are entitled to one vote for each
share held as of the Record Date. Shares of Common Stock may not be voted
cumulatively.
In the event that a broker, bank, custodian, nominee or other record holder
of the Company's Common Stock indicates on a proxy that it does not have
discretionary authority to vote certain shares on a particular matter (a "broker
non-vote"), those shares will not be considered present and entitled to vote
with respect to that matter, although they will be counted in determining the
presence of a quorum.
Directors will be elected by a plurality of the votes of the shares of
Common Stock present in person or represented by proxy at the Meeting and
entitled to vote on the election of directors. Approval of Proposals No. 2 and
3requires the affirmative vote of the majority of shares of Common Stock present
in person or represented by proxy at the Meeting that are voted "for" or
"against" the proposal. Neither an abstention nor a broker non-vote will be
counted as a vote "for" or "against" either Proposal No. 2 or 3. All votes will
be tabulated by the inspector of elections appointed for the Meeting.
VOTING OF PROXIES
The proxy accompanying this Proxy Statement is solicited on behalf of the
Board for use at the Meeting. Stockholders are requested to complete, date and
sign the accompanying proxy card and promptly return it in the enclosed
envelope. All executed, returned proxies that are not revoked will be voted in
accordance with the instructions contained therein; however, returned signed
proxies that give no instructions as to how they should be voted on a particular
proposal will be counted as votes "for" such proposal (or, in the case of the
election of directors, as a vote "for" election to the Board of all the nominees
presented by the Board).
<PAGE> 4
In the event that sufficient votes in favor of the proposals are not
received by the date of the Meeting, the persons named as proxies may propose
one or more adjournments of the Meeting to permit further solicitations of
proxies. Any such adjournment would require the affirmative vote of the majority
of the shares present in person or represented by proxy at the Meeting and
entitled to vote.
The expenses of soliciting proxies to be voted at the Meeting will be paid
by the Company. Following the original mailing of the proxies and other
soliciting materials, the Company will request that brokers, custodians,
nominees and other record holders of the Company's Common Stock forward copies
of the proxy and other soliciting materials to persons for whom they hold shares
of Common Stock and request authority for the exercise of proxies. In such
cases, the Company, upon the request of the record holders, will reimburse such
holders for their reasonable expenses. The original solicitation of proxies by
mail may be supplemented by telephone, telegram or personal solicitation by
directors, officers and regular employees of the Company.
REVOCABILITY OF PROXIES
Any person signing a proxy in the form accompanying this Proxy Statement
has the power to revoke it before the Meeting or at the Meeting before the vote
pursuant to the proxy. A proxy may be revoked by a writing delivered to the
Company stating that the proxy is revoked, by a subsequent proxy that is signed
by the person who signed the earlier proxy and is presented at the Meeting, or
by attendance at the Meeting and voting in person. Please note, however, that if
a stockholder's shares are held of record by a broker, bank or other nominee and
that stockholder wishes to vote at the Meeting, the stockholder must bring to
the Meeting a letter from the broker, bank or other nominee confirming that
stockholder's beneficial ownership of the shares.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
A board of six directors is to be elected at the Meeting. Each director
will be elected to hold office until the next annual meeting of stockholders or
until a successor is duly elected and qualified or until such director's earlier
resignation or removal. Shares represented by the accompanying proxy will be
voted for the election of each of the six nominees named below unless the proxy
is marked in such a manner as to withhold authority so to vote. If any nominee
for any reason is unable to serve or for good cause will not serve, the proxies
may be voted for such substitute nominee as the proxy holder may determine. The
Company is not aware of any nominee who will be unable to or for good cause will
not serve as a director.
NOMINEES
The names of the nominees, each of whom is currently a director of the
Company, and certain information about them are set forth below:
<TABLE>
<CAPTION>
NAME OF DIRECTOR AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
--------------------------------- --- --------------------------------- --------------
<S> <C> <C> <C>
Allen W. Hill.................... 47 President and Chief Executive 1995
Officer of the Company
David B. Apfelberg(1)............ 55 Plastic surgeon 1994
Jack M. Gill(1)(3)............... 61 General Partner, Vanguard Venture 1993
Partners
David C. Hull, Jr.(2)(3)......... 52 General Partner, The Centennial 1994
Funds
Thomas D. Kiley.................. 53 Consultant 1996
F. Thomas (Jay) Watkins III(2)... 44 Vice President, Guidant 1996
Corporation
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Member of the Nominating Committee.
2
<PAGE> 5
Mr. Hill has been President, Chief Executive Officer and a director of the
Company since July 1995. From February 1990 to May 1995, Mr. Hill served as
President, Chief Executive Officer and a director of Cyberonics, Inc., a medical
device company. From 1975 to January 1990, Mr. Hill held various positions at
Baxter International, most recently as Vice President of Operations and Vice
President of Sales and Marketing, for its Edwards Critical Care Division. Mr.
Hill received his B.S. degree in Marketing from Oklahoma State University.
Dr. Apfelberg has served as a director of the Company since February 1994.
Dr. Apfelberg is a plastic surgeon, and, since June 1991, he has been Director
of the Atherton Plastic Surgery Center Professional Corporation. He received his
B.A. degree in History from Cornell University and his M.D. degree from
Northwestern Medical School.
Dr. Gill has served as Chairman of the Board of Directors of the Company
since November 1993. Dr. Gill is a founding general partner of Vanguard Venture
Partners and has served in such capacity since 1981. From 1972 to 1982, Dr. Gill
was Executive Vice President and Group Manager of the Scientific Division of
Spectra Physics. Dr. Gill is a director of a number of privately held medical
device companies. Dr. Gill received his B.S. degree in Engineering from Lamar
University and his Ph.D. in Organic Chemistry from Indiana University.
Mr. Hull has served as a director of the Company since October 1994. Since
August 1993, Mr. Hull has been a general partner of The Centennial Funds. Since
1988, he has also been a general partner of Criterion Venture Partners III,
Limited ("Criterion"), a venture fund. Mr. Hull is an Executive Vice President
of Centennial Holdings, Inc. and Criterion Investments, Inc., the management
companies for each of The Centennial Funds and Criterion, respectively. In
addition, Mr. Hull is a director of Centennial Holdings, Inc. Mr. Hull currently
serves as a director of Myelos Neurosciences Corp., a biotechnology company, and
Castle Tower Holding Corp., an international wireless communications site
services company, and as Chairman of the Board of Centennial Security, Inc., a
commercial and home alarm security system company. Mr. Hull received his B.S.
degree in Chemical Engineering and his M.B.A. degree from the University of
Texas.
Mr. Kiley has served as a director of the Company since February 1996.
Since 1988, he has been self-employed as a consultant on matters of technology
and intellectual property law. Between 1980 and 1988, Mr. Kiley served in
various positions at Genentech, Inc., including as Vice President and General
Counsel, Vice President for Legal Affairs and Vice President for Corporate
Development. Mr. Kiley serves as a director of Athena Neurosciences, Inc.,
Pharmacyclics, Inc., Insite Vision, Inc. and Connective Therapeutics, all of
which are pharmaceutical companies. Mr. Kiley received his B.S. degree in
Chemical Engineering from Pennsylvania State University and his J.D. degree from
George Washington University School of Law.
Mr. Watkins has served as a director of the Company since February 1996.
Since May 1995, he has served as a Vice President of Guidant and President of
its subsidiary, Origin Medsystems, Inc. ("Origin"). Since September 1995, he has
served as President of Guidant's Minimally Invasive Systems Group. From May 1995
to September 1995, he was President of Heart Rhythm Technologies, a subsidiary
of Guidant. From July 1989 to May 1995, Mr. Watkins held various senior
management positions with Origin. Mr. Watkins is a director of Gynecare, Inc., a
medical device company. Mr. Watkins received his undergraduate degree from
Stanford University and his M.B.A from Harvard University.
BOARD OF DIRECTORS' MEETINGS AND COMMITTEES
During 1996, the Board met nine times, including telephone conference
meetings, and acted by written consent twice. No director, other than Mr. Kiley,
attended fewer than 75% of the aggregate of the total number of meetings of the
Board (held during the period for which he was a director) and the total number
of meetings held by all committees of the Board on which such director served
(during the period that such director served).
Standing committees of the Board include an Audit Committee, a Compensation
Committee and a Nominating Committee.
3
<PAGE> 6
The current members of the Audit Committee are Mr. Hull and Mr. Watkins.
The Audit Committee was formed in May 1996 and met once during 1996. The Audit
Committee meets with the Company's independent accountants to review the
adequacy of the Company's internal control systems and financial reporting
procedures; reviews the general scope of the Company's annual audit and the fees
charged by the independent accountants; reviews and monitors the performance of
nonaudit services by the Company's auditors, reviews the fairness of any
proposed transaction between any officer, director or other affiliate of the
Company and the Company, and after such review, makes recommendations to the
full Board; and performs such further functions as may be required by any stock
exchange or over-the-counter market upon which the Company's Common Stock may be
listed.
The current members of the Compensation Committee are Dr. Apfelberg and Dr.
Gill. The Compensation Committee was formed in May 1996 and met seven times
during 1996. The Compensation Committee recommends compensation for officers and
employees of the Company, grants options and stock awards under the Company's
employee benefit plans and reviews and recommends adoption of and amendments to
stock option and employee benefit plans.
The current members of the Nominating Committee are Dr. Gill and Mr. Hull.
The Nominating Committee was formed in May 1996 and did not meet during 1996.
The Nominating Committee was formed to identify candidates for positions on the
Board. The Nominating Committee will consider stockholder recommendations for
director sent to the Nominating Committee, c/o Richard Powers, at the Company's
executive offices.
DIRECTOR COMPENSATION
Directors of the Company do not receive cash compensation for their
services as directors but are reimbursed for their reasonable expenses in
attending Board meetings. Members of the Board who are not employees,
consultants or independent contractors of the Company, or any parent, subsidiary
or affiliate of the Company, are eligible to participate in the Company's 1996
Directors Stock Option Plan. For a discussion of the provisions of the 1996
Directors Stock Option Plan, please refer to "Summary of 1996 Directors Stock
Option Plan and 1996 Employee Stock Purchase Plan -- 1996 Directors Stock Option
Plan" below. On March 1, 1996, the Company granted to Thomas Kiley an option to
purchase 20,500 shares of the Company's Common Stock at an exercise price of
$1.83 per share.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION
OF EACH OF THE NOMINATED DIRECTORS.
------------------------------------
PROPOSAL NO. 2
AMENDMENT OF 1996 EQUITY INCENTIVE PLAN
Stockholders are being asked to approve an amendment to the Company's 1996
Equity Incentive Plan (the "Incentive Plan") to increase the number of shares of
Common Stock reserved for issuance thereunder by 300,000 shares.
The Board believes that the increase in the number of shares reserved for
issuance under the Incentive Plan is in the best interests of the Company
because of the continuing need to provide stock options to attract and retain
quality employees and remain competitive in the industry. The granting of equity
incentives under the Incentive Plan plays an important role in the Company's
efforts to attract and retain employees of outstanding ability. The Board
believes that the additional reserve of shares with respect to which equity
incentives may be granted will provide the Company with adequate flexibility to
ensure that the Company can continue to meet those goals and facilitate the
Company's expansion of its employee base.
The Board approved the proposed amendment on April 16, 1997, to be
effective upon stockholder approval. Below is a summary of the principal
provisions of the Incentive Plan, assuming stockholder approval of the
amendment. The summary is not necessarily complete, and reference is made to the
full text of the Incentive Plan.
4
<PAGE> 7
Incentive Plan History. The Incentive Plan was adopted by the Board in
April 1996 and approved by the stockholders of the Company in May 1996. The
purpose of the Incentive Plan is to offer eligible persons an opportunity to
participate in the Company's future performance through awards of stock options,
restricted stock and stock bonuses.
From inception of the Incentive Plan in February 1996 to December 31, 1996,
options to purchase an aggregate of 395,650 shares of the Company's Common Stock
were granted under the Incentive Plan. Of these, options to purchase a total of
266,550 shares were granted to all employees. In addition, all of the Company's
executive officers as a group received options to purchase an aggregate of
129,100 shares in the following amounts: Edward F. Brennan, Executive Vice
President, 5,000 shares; Vernon H. Merritt, Vice President of Sales and
Marketing, 100,000 shares; Carole E. Marcot, Vice President of Regulatory
Affairs, 10,000 shares; and Donald Johnson, Vice President of Operations, 14,100
shares. No other options were granted during the period under the Incentive Plan
to any other executive officer or director of the Company, or any associate of
any of the foregoing, and no other person received 5% or more of such options.
Shares Subject to the Incentive Plan. The stock subject to issuance under
the Incentive Plan consists of shares of the Company's authorized but unissued
Common Stock. Initially, 820,000 shares of Common Stock (the "Base Shares") were
reserved by the Board for issuance under the Incentive Plan. This Proposal No. 1
seeks to increase the number of Base Shares from 820,000 shares to 1,120,000
shares. Any shares of Common Stock that: (a) are subject to an option granted
pursuant to the Incentive Plan that expires or terminates for any reason without
being exercised; or (b) are subject to an award granted pursuant to the
Incentive Plan that are forfeited or are repurchased by the Company at the
original issue price; or (c) are subject to an award granted pursuant to the
Incentive Plan that otherwise terminates without shares being issued, will again
become available for grant and issuance pursuant to awards under the Incentive
Plan. In addition to the Base Shares, any shares remaining unissued under the
Company's 1993 Equity Incentive Plan (the "Prior Plan") on the effective date of
the Incentive Plan, and any shares that are (a) issuable upon exercise of
options granted pursuant to the Prior Plan that expire or become unexercisable
for any reason without having been exercised in full; (b) are subject to an
award granted pursuant to the Prior Plan but are forfeited or are repurchased by
the Company at the original issue price; or (c) are subject to an award granted
pursuant to the Prior Plan that otherwise terminates without the shares being
issued will no longer be available for grant under the Prior Plan but shall be
available for grant and issuance under the Incentive Plan. This number of shares
is subject to proportional adjustment to reflect stock splits, stock dividends
and other similar events.
Eligibility. Employees, officers, directors, consultants, independent
contractors and advisors of the Company (and of any parent company or
subsidiary) are eligible to receive awards under the Incentive Plan (the
"Participants"). No Participant is eligible to receive more than 410,000 shares
of Common Stock in any calendar year under the Incentive Plan, other than new
employees of the Company (including directors and officers who are also new
employees) who are eligible to receive up to a maximum of 656,000 shares of
Common Stock in the calendar year in which they commence their employment with
the Company. As of December 31, 1996, no shares had been issued upon exercise of
options granted under the Incentive Plan, 340,983 shares were subject to
outstanding options and no shares had been issued pursuant to restricted stock
or stock bonus awards. As of that date, 553,287 shares were available for future
grant, after taking into account any shares issuable upon exercise of options
granted pursuant to the Prior Plan that have expired or become unexercisable
without having been exercised in full and that have become available for
distribution under the Incentive Plan. The closing price of the Company's Common
Stock on the Nasdaq National Market was $12.375 per share as of April 16, 1997,
the last trading day before the Record Date.
Administration. The Incentive Plan is administered by the Compensation
Committee (the "Committee"), the members of which are appointed by the Board.
The Committee currently consists of Dr. Jack M. Gill and Dr. David B. Apfelberg,
both of whom are "non-employee directors," as defined in Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
"outside directors", as defined pursuant to Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code").
5
<PAGE> 8
Subject to the terms of the Incentive Plan, the Committee determines the
persons who are to receive awards, the number of shares subject to each such
award, and the terms and conditions of such awards. The Committee also has the
authority to construe and interpret any of the provisions of the Incentive Plan
or any awards granted thereunder.
Stock Options. The Incentive Plan permits the granting of options that are
either Incentive Stock Options ("ISOs") or Nonqualified Stock Options ("NQSOs").
ISOs may be granted only to employees (including officers and directors who are
also employees) of the Company or any parent or subsidiary of the Company. The
option exercise price for each ISO share must be no less than 100% of the "fair
market value" (as defined in the Incentive Plan) of a share of Common Stock at
the time the ISO is granted. In the case of an ISO granted to a 10% stockholder,
the exercise price for each such ISO share must be no less than 110% of the fair
market value of a share of Common Stock at the time the ISO is granted. The
option exercise price for each NQSO share must be no less than 85% of the fair
market value of a share of Common Stock at the time of grant. To date, the
Company has not granted options under the Incentive Plan at less than fair
market value.
The exercise price of options granted under the Incentive Plan may be paid
as approved by the Committee at the time of grant: (1) in cash (by check); (2)
by cancellation of indebtedness of the Company to the Participant; (3) by
surrender of shares of the Company's Common Stock owned by the Participant for
at least six months, or acquired by the Participant in the public market, and
having a fair market value on the date of surrender equal to the aggregate
exercise price of the option; (4) by tender of a full recourse promissory note;
(5) by waiver of compensation due to or accrued by the Participant for services
rendered; (6) by a "same-day sale" commitment from the Participant and a
National Association of Securities Dealers, Inc. ("NASD") broker; (7) by a
"margin" commitment from the Participant and a NASD broker; or (8) by any
combination of the foregoing.
Restricted Stock Awards. The Committee may grant Participants restricted
stock awards to purchase stock either in addition to, or in tandem with, other
awards under the Incentive Plan, under such terms, conditions and restrictions
as the Committee may determine. The purchase price for such awards must be no
less than 85% of the fair market value of the Company's Common Stock on the date
of the award (and in the case of an award granted to a 10% stockholder, the
purchase price shall be 100% of fair market value) and can be paid for in any of
the forms of consideration listed in items (1) through (5) in "Stock Options"
above, as are approved by the Committee at the time of grant. To date, the
Company has not granted any restricted stock awards.
Stock Bonus Awards. The Committee may grant Participants stock bonus awards
for services rendered to the Company either in addition to, or in tandem with,
other awards under the Incentive Plan, under such terms, conditions and
restrictions as the Committee may determine. To date, no shares have been issued
pursuant to stock bonus awards.
Mergers, Consolidations, Change of Control. In the event of a merger,
consolidation, dissolution or liquidation of the Company, the sale of
substantially all of the assets of the Company or any other similar corporate
transaction, the successor corporation, if any, may assume, convert, replace or
substitute equivalent awards in exchange for those granted under the Incentive
Plan or provide substantially similar consideration, shares or other property as
was provided to stockholders of the Company (after taking into account
provisions of the awards). In the event that the successor corporation does not
assume or substitute options, such options will accelerate at the time and upon
the conditions as the Board determines. With certain exceptions, if a
Participant's employment is terminated within one year after a change of
corporate control has occurred, then all options held by the Participant shall
become fully vested upon the date of termination.
Amendment of the Incentive Plan. The Board may at any time terminate or
amend the Incentive Plan, including amending any form of award agreement or
instrument to be executed pursuant to the Incentive Plan. However, the Board may
not amend, without stockholder approval, the Incentive Plan in any manner that
requires stockholder approval pursuant to the Code or the regulations
promulgated thereunder, or pursuant to the Exchange Act or Rule 16b-3 (or its
successor) promulgated thereunder.
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<PAGE> 9
Term of the Incentive Plan. Unless terminated earlier as provided in the
Incentive Plan, the Incentive Plan will expire in April 2006, ten years from the
date the Incentive Plan was adopted by the Board.
FEDERAL INCOME TAX INFORMATION
THE FOLLOWING IS A GENERAL SUMMARY AS OF THE DATE OF THIS PROXY STATEMENT
OF THE FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY AND PARTICIPANTS UNDER THE
INCENTIVE PLAN. FEDERAL TAX LAWS MAY CHANGE AND THE FEDERAL, STATE AND LOCAL TAX
CONSEQUENCES FOR ANY PARTICIPANT WILL DEPEND UPON HIS OR HER INDIVIDUAL
CIRCUMSTANCES. EACH PARTICIPANT HAS BEEN AND IS ENCOURAGED TO SEEK THE ADVICE OF
A QUALIFIED TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF PARTICIPATION IN THE
INCENTIVE PLAN.
Incentive Stock Options. A Participant will recognize no income upon grant
of an ISO and incur no tax on its exercise (unless the Participant is subject to
the alternative minimum tax ("AMT")). If the Participant holds shares acquired
upon exercise of an ISO (the "ISO Shares") for more than one year after the date
the option was exercised and for more than two years after the date the option
was granted, the Participant generally will realize long-term capital gain or
loss (rather than ordinary income or loss) upon disposition of the ISO Shares.
This gain or loss will be equal to the difference between the amount realized
upon such disposition and the amount paid for the ISO Shares.
If the Participant disposes of ISO Shares prior to the expiration of either
required holding period (a "disqualifying disposition"), the gain realized upon
such disposition, up to the difference between the fair market value of the ISO
Shares on the date of exercise (or, if less, the amount realized on a sale of
such shares) and the option exercise price, will be treated as ordinary income.
Any additional gain will be long-term or short-term capital gain, depending upon
the amount of time the ISO Shares were held by the Participant.
Alternative Minimum Tax. The difference between the fair market value of
the ISO Shares on the date of exercise and the exercise price is an adjustment
to income for purposes of AMT. The AMT (imposed to the extent it exceeds the
taxpayer's regular tax) is 26% of an individual taxpayer's alternative minimum
taxable income (28% in the case of alternative minimum taxable income in excess
of $175,000). Alternative minimum taxable income is determined by adjusting
regular taxable income for certain items, increasing that income by certain tax
preference items (including the difference between the fair market value of the
ISO Shares on the date of exercise and the exercise price), and reducing this
amount by the applicable exemption amount ($45,000 in case of a joint return,
subject to reduction under certain circumstances). If a disqualifying
disposition of the ISO Shares occurs in the same calendar year as exercise of
the ISO, there is no AMT adjustment with respect to those ISO Shares. Also, upon
a sale of ISO Shares that is not a disqualifying disposition, alternative
minimum taxable income is reduced in the year of sale by the excess of the fair
market value of the ISO Shares at exercise over the amount paid for the ISO
Shares.
Nonqualified Stock Options. A Participant will not recognize any taxable
income at the time an NQSO is granted. However, upon exercise of an NQSO, the
Participant must include in income as compensation an amount equal to the
difference between the fair market value of the shares on the date of exercise
and the Participant's exercise price. The included amount must be treated as
ordinary income by the Participant and may be subject to withholding by the
Company (either by payment in cash or withholding out of the Participant's
salary). Upon resale of the shares by the Participant, any subsequent
appreciation or depreciation in the value of the shares will be treated as
capital gain or loss.
Restricted Stock and Stock Bonus Awards. Restricted stock and stock bonus
awards will generally be subject to tax at the time of receipt, unless there are
restrictions that enable the Participant to defer tax. At the time the tax is
incurred, the tax treatment will be similar to that discussed above for NQSOs.
Omnibus Budget Reconciliation Act of 1993. The Omnibus Budget
Reconciliation Act of 1993 provides that the maximum tax rate applicable to
ordinary income is 39.6%. Long-term capital gain will be taxed at a maximum of
28%. For this purpose, in order to receive long-term capital gain treatment, the
shares must be
7
<PAGE> 10
held for more than one year. Capital gains may be offset by capital losses and
up to $3,000 of capital losses may be offset annually against ordinary income.
Tax Treatment of the Company. The Company generally will be entitled to a
deduction in connection with the exercise of an NQSO by a Participant or the
receipt of restricted stock or stock bonuses by a Participant to the extent that
the Participant recognizes ordinary income and the Company withholds tax. The
Company will be entitled to a deduction in connection with the disposition of
ISO Shares only to the extent that the Participant recognizes ordinary income on
a disqualifying disposition of the ISO Shares.
ERISA. The Incentive Plan is not subject to any of the provisions of the
Employee Retirement Income Security Act of 1974 ("ERISA") and is not qualified
under Section 401(a) of the Code.
New Plan Benefits. The amounts of future option grants under the Incentive
Plan are not determinable because, under the terms of the Incentive Plan, such
grants are made in the discretion of the Committee. Future option exercise
prices are not determinable because they are based upon fair market value of the
Company's Common Stock on the date of grant. Similarly, the amounts of future
stock purchases under the Stock Purchase Plan are not determinable because,
under the terms of the Stock Purchase Plan, purchases are based upon elections
made by Participating Employees. Future purchase prices are not determinable
because they are based upon fair market value of the Company's Common Stock.
THE BOARD RECOMMENDS A VOTE FOR THE AMENDMENT OF
THE 1996 EQUITY INCENTIVE PLAN
------------------------------------
PROPOSAL NO. 3
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The Company has selected Coopers & Lybrand L.L.P. as its independent
accountants to perform the audit of the Company's financial statements for the
fiscal year ending December 31, 1997, and the stockholders are being asked to
ratify such selection. Representatives of Coopers & Lybrand L.L.P. will be
present at the Meeting, will have the opportunity to make a statement at the
Meeting if they desire to do so, and will be available to respond to appropriate
questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION
OF THE SELECTION OF COOPERS & LYBRAND L.L.P.
8
<PAGE> 11
SUMMARY OF 1996 DIRECTORS STOCK OPTION PLAN
AND 1996 EMPLOYEE STOCK PURCHASE PLAN
Below is a summary of the principal provisions of the Company's 1996
Directors Stock Option Plan and 1996 Employee Stock Purchase Plan. There is no
need for stockholder approval of these plans at the Meeting, and stockholder
approval is not being sought. These summaries are provided to inform the
stockholders of the Company of terms and conditions of such plans and are
qualified in their entirety by reference to the full text of such plans.
1996 DIRECTORS STOCK OPTION PLAN
Directors Plan History. The Company's 1996 Directors Stock Option Plan (the
"Directors Plan") was adopted by the Board in April 1996 and approved by the
stockholders of the Company in May 1996. The purpose of the Directors Plan is to
enhance the Company's ability through the use of equity incentives to attract
and retain highly qualified outside directors.
Stock Subject to Options. The stock subject to options under the Directors
Plan consists of shares of the Company's authorized but unissued Common Stock.
The aggregate number of shares that may be issued pursuant to the Directors Plan
is 98,400 shares of Common Stock, subject to proportional adjustment to reflect
stock splits, stock dividends and other similar events. In the event that any
outstanding option under the Directors Plan expires or is terminated for any
reason, the shares of Common Stock allocable to the unexercised portion of such
option may again be available for the grant of options under the Directors Plan.
Administration. The Directors Plan is administered by the Board. The
interpretation by the Board of any of the provisions of the Directors Plan or
any option granted under the Directors Plan will be final and conclusive.
Eligibility. Under the Directors Plan, the Company automatically grants
options to each director of the Company who is not an employee of the Company
(or of any parent, subsidiary or affiliate of the Company) (the "Outside
Directors") in accordance with the formula specified in the next paragraph. As
of December 31, 1996, five persons were in the class of persons eligible to
receive options pursuant to the Directors Plan, and no options had been granted
under the Directors Plan. As of April 16, 1997 (the last trading day prior to
the Record Date), the closing price of the Company's Common Stock on the Nasdaq
National Market was $12.375 per share.
Formula for Option Grants. Each Outside Director who first becomes a member
of the Board on or after the effective date of the Directors Plan, will
automatically be granted an option to purchase 8,200 shares of Common Stock on
the date the Outside Director first becomes a member of the Board (an "Initial
Grant"). At each annual meeting of stockholders thereafter, each Outside
Director who was a member of the Board on the effective date of the Directors
Plan or who was granted an Initial Grant, will be automatically granted an
option to purchase 6,150 shares of Common Stock, so long as he or she
continuously remains a director of the Company (a "Succeeding Grant").
Terms of Option Grants. Options granted pursuant to the Directors Plan are
intended to be NQSOs. Each Initial Grant and Succeeding Grant will have a term
of ten years and be exercisable in full immediately upon grant, subject to
repurchase of unvested shares. The shares vest at the rate of 2.08% of the
shares subject to such option per month, so long as the Outside Director
continuously remains a director or consultant of the Company. The option
exercise price will be the "fair market value" (as defined in the Directors
Plan) of the Common Stock of the Company as of the date of the grant of the
option. The option exercise price will be payable in cash (by check) and in a
number of other forms of consideration, including fully paid shares of Common
Stock owned by the Outside Director for more than six months, by waiver of
compensation due or accrued to the Outside Director for services rendered,
through a "same day sale," through a "margin commitment," or through any
combination of the foregoing.
Mergers, Consolidations, Change of Control. In the event of a merger,
consolidation, dissolution or liquidation of the Company, the sale of
substantially all of the assets of the Company or any other similar corporate
transaction, the successor corporation may assume, replace or substitute
equivalent options in
9
<PAGE> 12
exchange for those granted under the Directors Plan or provide substantially
similar consideration, shares or other property as was provided to stockholders
of the Company (after taking into account provisions of the options). In the
event that the successor corporation does not assume or substitute the options,
such options will accelerate at such time and upon such conditions as the Board
or a designated committee of the Board determines.
Amendment of the Directors Plan. The Board, to the extent permitted by law,
and with respect to any shares at the time not subject to options, may terminate
or amend the Directors Plan; provided, however, that the Board may not, without
stockholder approval, increase the total number of shares of Common Stock
available for issuance under the Directors Plan or change the class of persons
eligible to receive options; and provided further that amendments may not be
made to the formula for and terms of option grants more than once in any
six-month period, other than to comport with changes in the Code, ERISA or the
rules thereunder. In any case, no amendment of the Directors Plan may adversely
affect any then outstanding options or any unexercised portions thereof without
the written consent of the Outside Director.
Term of the Directors Plan. Unless terminated earlier as provided in the
Directors Plan, options may be granted pursuant to the Directors Plan from time
to time up until April 2006, ten years after the date the Directors Plan was
adopted by the Board.
Federal Income Tax Information. For the federal tax implications to the
Outside Directors and the Company for options granted under the Directors Plan,
please refer to the discussion of the tax implications of NQSOs in "Proposal No.
2 -- Amendment of 1996 Equity Incentive Plan -- Federal Income Tax Information"
above.
ERISA. The Directors Plan is not subject to any of the provisions of ERISA
nor is it qualified under Section 401(a) of the Code.
1996 EMPLOYEE STOCK PURCHASE PLAN
Stock Purchase Plan History. The Board adopted the Stock Purchase Plan in
April 1996 and it was approved by the stockholders of the Company in May 1996.
The purpose of the Stock Purchase Plan is to provide employees of the Company
and its subsidiaries and affiliates designated by the Board as eligible to
participate in the Stock Purchase Plan ("Participating Employees") with a
convenient means to acquire an equity interest in the Company through payroll
deductions and to provide an incentive for continued employment. The Company
intends that the Stock Purchase Plan will qualify as an "employee stock purchase
plan" under Section 423 of the Code.
Shares Subject to the Stock Purchase Plan. The stock subject to issuance
under the Stock Purchase Plan consists of shares of the Company's authorized but
unissued Common Stock. An aggregate of 123,000 shares of Common Stock has been
reserved by the Board for issuance under the Stock Purchase Plan. This number of
shares is subject to proportional adjustment to reflect stock splits, stock
dividends and other similar events.
Administration. The Stock Purchase Plan is administered by the Committee.
The interpretation or construction by the Committee of any provisions of the
Stock Purchase Plan will be final and binding on all Participating Employees.
Eligibility. All employees of the Company, or any parent or subsidiary, are
eligible to participate in an Offering Period (as defined below) under the Stock
Purchase Plan, except the following:
(a) employees who are not employed by the Company 15 days before the
beginning of such Offering Period;
(b) employees who are customarily employed for less than 20 hours per
week;
(c) employees who are customarily employed for less than five months
in a calendar year; and
(d) employees who own stock or hold options to purchase stock or who,
as a result of participation in the Stock Purchase Plan, would own stock or
hold options to purchase stock, possessing 5% or more of the total combined
voting power or value of all classes of stock of the Company.
10
<PAGE> 13
As of December 31, 1996, no shares had been issued pursuant to the Stock
Purchase Plan and 123,000 shares were available for future issuance under the
Stock Purchase Plan.
Participating Employees will participate in the Stock Purchase Plan through
payroll deductions. A Participating Employee sets the rate of such payroll
deductions, which may not be less than 2% nor more than 10% of the Participating
Employee's W-2 compensation, including, but not limited to, base salary, wages,
commissions, overtime, shift premiums, bonuses and draws against commissions,
unreduced by the amount by which the Participating Employee's salary is reduced
pursuant to Sections 125 or 401(k) of the Code. No Participating Employee is
permitted to purchase shares under the Stock Purchase Plan at a rate which, when
aggregated with such employee's rights to purchase stock under all similar
purchase plans of the Company, exceeds $25,000 in fair market value determined
as of the Offering Date for each calendar year.
Offering Periods. Each offering of Common Stock under the Stock Purchase
Plan is for a period of 24 months (the "Offering Period"). Offering Periods are
planned to commence on February 1 and August 1 of each year and end on January
31 and July 31 of each year, respectively; provided, however, that the initial
Offering Period commenced on May 21, 1996 and will expire on July 31, 1998.
Except for the initial Offering Period, each Offering Period shall consist of
four six-month purchase periods (individually, a "Purchase Period") during which
payroll deductions of the Participating Employees are accumulated under the
Stock Purchase Plan. The Board has the power to set the beginning of any
Offering Period and to change dates or the duration of Offering Periods or
Purchase Periods without stockholder approval if such change is announced at
least 15 days before the scheduled beginning of the first Offering Period or
Purchase Period to be affected. The first day of each Offering Period is the
"Offering Date" for such Offering Period and the last business day of each
Purchase Period is the "Purchase Date" for such Purchase Period.
Participating Employees will participate in the Stock Purchase Plan during
each Offering Period through regular payroll deductions as described above.
Participating Employees may elect to participate in any Offering Period by
enrolling as provided under the terms of the Stock Purchase Plan. Once enrolled,
a Participating Employee will automatically participate in each succeeding
Offering Period unless the Participating Employee withdraws from the Offering
Period or the Stock Purchase Plan is terminated. After the rate of payroll
deductions for an Offering Period has been set by a Participating Employee, that
rate will continue to be effective for the remainder of the Offering Period (and
for all subsequent Offering Periods in which the Participating Employee is
automatically enrolled) unless otherwise changed by the Participating Employee.
The Participating Employee may increase or lower the rate of payroll deductions
for any subsequent Offering Period, but may only lower the rate of payroll
deductions for an ongoing Offering Period. No more than one change may be made
during a single Offering Period.
Purchase Price. The purchase price of shares that may be acquired in any
Purchase Period under the Stock Purchase Plan will be 85% of the lesser of: (i)
the fair market value of the shares on the Offering Date; or (ii) the fair
market value of the shares on the Purchase Date. The fair market value of a
share of the Company's Common Stock is deemed to be the closing price of the
Company's Common Stock on the Nasdaq National Market on the last trading date
prior to the date of determination as reported in The Wall Street Journal,
except that the fair market value of a share of the Company's Common Stock on
the Offering Date of the first Offering Period was the price per share at which
shares of the Company's Common Stock were offered for sale to the public in the
Company's initial public offering of shares of its Common Stock pursuant to a
registration statement filed with the SEC under the Securities Act.
Purchase of Stock Under the Stock Purchase Plan. The number of whole shares
a Participating Employee will be able to purchase in any Purchase Period will be
determined by dividing the total payroll amount withheld from the Participating
Employee during the Purchase Period pursuant to the Stock Purchase Plan by the
purchase price for each share determined as described above. The purchase will
take place automatically on the Purchase Date of such Purchase Period.
Withdrawal. A Participating Employee may withdraw from any Offering Period.
Upon withdrawal, the accumulated payroll deductions will be returned to the
withdrawn Participating Employee, without interest. No further payroll
deductions for the purchase of shares will be made for the succeeding Offering
Period
11
<PAGE> 14
unless the Participating Employee enrolls in the new Offering Period in the same
manner as for initial participation in the Stock Purchase Plan.
Amendment of the Stock Purchase Plan. The Board may at any time amend,
terminate or extend the term of the Stock Purchase Plan, except that any such
termination cannot affect the terms of shares previously granted under the Stock
Purchase Plan, nor may any amendment make any change in the terms of shares
previously granted which would adversely affect the right of any participant,
nor may any amendment be made without stockholder approval if such amendment
would: (a) increase the number of shares that may be issued under the Stock
Purchase Plan; (b) change the designation of the employees (or class of
employees) eligible for participation in the Stock Purchase Plan; or (c)
constitute an amendment for which stockholder approval is required in order to
comply with Rule 16b-3 (or any successor rule) of the Exchange Act.
Term of the Stock Purchase Plan. The Stock Purchase Plan will continue
until the earlier to occur of: (i) termination of the Stock Purchase Plan by the
Board; (ii) the issuance of all the shares of Common Stock reserved for issuance
under the Stock Purchase Plan; or (iii) April 2006, ten years after the date the
Stock Purchase Plan was adopted by the Board.
Federal Income Tax Information
THE FOLLOWING IS A GENERAL SUMMARY AS OF THE DATE OF THIS PROXY STATEMENT
OF THE FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY AND EMPLOYEES
PARTICIPATING IN THE STOCK PURCHASE PLAN. FEDERAL TAX LAWS MAY CHANGE AND THE
FEDERAL, STATE AND LOCAL TAX CONSEQUENCES FOR ANY PARTICIPATING EMPLOYEE WILL
DEPEND UPON HIS OR HER INDIVIDUAL CIRCUMSTANCES. EACH PARTICIPATING EMPLOYEE HAS
BEEN AND IS ENCOURAGED TO SEEK THE ADVICE OF A QUALIFIED TAX ADVISER REGARDING
THE TAX CONSEQUENCES OF PARTICIPATION IN THE STOCK PURCHASE PLAN.
The Stock Purchase Plan is intended to qualify as an "employee stock
purchase plan" within the meaning of Section 423 of the Code.
Tax Treatment of the Participating Employee. Participating Employees will
not recognize income for federal income tax purposes either upon enrollment in
the Stock Purchase Plan or upon the purchase of shares. All tax consequences are
deferred until a Participating Employee sells the shares, disposes of the shares
by gift or dies.
If shares are held for more than one year after the date of purchase and
more than two years from the beginning of the applicable Offering Period, or if
the Participating Employee dies while owning the shares, the Participating
Employee realizes ordinary income on a sale (or a disposition by way of gift or
upon death) to the extent of the lesser of: (i) 15% of the fair market value of
the shares at the beginning of the Offering Period; or (ii) the actual gain (the
amount by which the market value of the shares on the date of sale, gift or
death exceeds the purchase price). All additional gain upon the sale of shares
is treated as long-term capital gain. If the shares are sold and the sale price
is less than the purchase price, there is no ordinary income and the
Participating Employee has a long-term capital loss for the difference between
the sale price and the purchase price.
If the shares are sold or are otherwise disposed of including by way of
gift (but not death, bequest or inheritance) (in any case, a "disqualifying
disposition") within either the one-year or the two-year holding periods
described above, the Participating Employee realizes ordinary income at the time
of sale or other disposition, taxable to the extent that the fair market value
of the shares at the date of purchase is greater than the purchase price. This
excess will constitute ordinary income (not currently subject to withholding) in
the year of the sale or other disposition even if no gain is realized on the
sale or if a gratuitous transfer is made. The difference, if any, between the
proceeds of sale and the aggregate fair market value of the shares at the date
of purchase is a capital gain or loss. Capital gains may be offset by capital
losses, and up to $3,000 of capital losses may be used annually against ordinary
income.
12
<PAGE> 15
Tax Treatment of the Company. The Company will be entitled to a deduction
in connection with the disposition of shares acquired under the Stock Purchase
Plan only to the extent that the Participating Employee recognizes ordinary
income on a disqualifying disposition of the shares. The Company will treat any
transfer of record ownership of shares as a disposition, unless it is notified
to the contrary. In order to enable the Company to learn of disqualifying
dispositions and ascertain the amount of the deductions to which it is entitled,
Participating Employees will be required to notify the Company in writing of the
date and terms of any disposition of shares purchased under the Stock Purchase
Plan.
ERISA. The Stock Purchase Plan is not subject to any of the provisions of
ERISA nor is it qualified under Section 401(a) of the Code.
13
<PAGE> 16
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of March 31, 1997,
with respect to the beneficial ownership of the Company's Common Stock by: (i)
each stockholder known by the Company to be the beneficial owner of more than 5%
of the Company's Common Stock; (ii) each director and nominee; (iii) each Named
Executive Officer listed in the Summary Compensation Table below; and (iv) all
directors and executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL PERCENT OF OUTSTANDING
BENEFICIAL OWNER OWNERSHIP (1) COMMON STOCK (1)
- ----------------------------------------------------- ----------------------- ----------------------
<S> <C> <C>
David C. Hull, Jr.(2)................................ 2,253,455 18.8
Centennial Fund IV, L.P.(3).......................... 1,797,800 15.0
F. Thomas (Jay) Watkins III
Guidant Corporation through Advanced Cardiovascular
Systems, Inc.(4)................................... 1,695,760 14.1
Jack M. Gill
Vanguard IV, L.P.(5)............................... 1,472,273 12.3
IAI Investment Funds IV, Inc.
IAI Investment Funds VI, Inc.(6)................... 1,219,586 10.2
Kleiner Perkins Caufield & Byers VII
KPCB Life Sciences Zaibatsu Fund
KPCB VII Founders Fund (7)......................... 1,043,635 8.7
Allen W. Hill (8).................................... 180,620 1.5
Thomas D. Kiley(9)................................... 68,014 *
Edward F. Brennan (10)............................... 56,311 *
David B. Apfelberg (11).............................. 41,821 *
Carole E. Marcot (12)................................ 36,442 *
Richard P. Powers (13)............................... 28,700 *
Kenneth Aron (14).................................... 19,133 *
All executive officers and directors as a group (12
persons)(15)....................................... 5,861,087 47.9%
</TABLE>
- ---------------
* Less than 1%
(1) Unless otherwise indicated below, the persons and entities named in the
table have sole voting and sole investment power with respect to all shares
beneficially owned, subject to community property laws where applicable.
Shares of Common Stock subject to options that are currently exercisable or
exercisable within 60 days of March 31, 1997 are deemed to be outstanding
and to be beneficially owned by the person holding such options for the
purpose of computing the percentage ownership of such person but are not
treated as outstanding for the purpose of computing the percentage
ownership of any other person.
(2) Represents 4,019 shares held directly by Mr. Hull, 1,797,800 shares held of
record by Centennial Fund IV, L.P. and 451,636 shares held of record by
Criterion Venture Partners III, Limited. Mr. Hull, a director of the
Company, is an individual general partner of each of CVP III General
Partner ("Criterion Holdings") and Centennial Holdings IV, L.P.
("Centennial Holdings"), which serve as the sole general partners of
Criterion Venture Partners III, Limited ("Criterion III") and Centennial
Fund IV, L.P. ("Centennial IV"), respectively. As the sole general partner
of Criterion III, Criterion Holdings may be deemed to be the indirect
beneficial owner of Criterion III's shares by virtue of its authority to
make investment decisions regarding the voting and disposition of shares
directly beneficially owned by Criterion III (such decisions are made by
the majority decision of a three member investment committee on which Mr.
Hull serves). As the sole general partner of Centennial IV, Centennial
Holdings may be deemed to be the indirect beneficial owner of Centennial
IV's shares by virtue of its authority to make investment decisions
regarding the voting and disposition of shares directly beneficially owned
by Centennial IV (such decisions are made by the majority decision of a
seven member investment committee on which Mr. Hull serves.) Neither
Criterion Holdings nor
14
<PAGE> 17
Centennial Holdings owns directly any shares of the Company's Common Stock.
Mr. Hull disclaims beneficial ownership of all shares of the Company's
Common Stock (i) directly or indirectly owned by Criterion III or Criterion
Holdings or (ii) directly or indirectly owned by Centennial IV or
Centennial Holdings. In addition, all members of the Criterion Holdings and
Centennial Holdings investment committees disclaim beneficial ownership of
shares directly beneficially owned by Criterion III and Centennial IV,
respectively. The address of Mr. Hull, Centennial Fund IV, L.P. and
Criterion Venture Partners III, Limited is c/o The Centennial Funds, 1330
Post Oak Boulevard, Suite 1525, Houston, Texas 77056.
(3) Excludes shares directly held by Criterion III. Each of Centennial IV and
Centennial Holdings disclaims beneficial ownership of all shares directly
beneficially owned by Criterion III. See footnote (2).
(4) Mr. Watkins, a director of the Company, is a Vice President of Guidant
Corporation, of which Advanced Cardiovascular Systems, Inc. is a
wholly-owned subsidiary. The address of Mr. Watkins and Advanced
Cardiovascular Systems, Inc. is 3200 Lakeside Drive, Santa Clara,
California 95052.
(5) Dr. Gill is the Chairman of the Board of Directors of the Company and is a
general partner of Vanguard Venture Partners, the general partner of
Vanguard IV, L.P. As the sole general partner of Vanguard IV, L.P.,
Vanguard Venture Partners may be deemed to be the indirect beneficial owner
of the shares held by such fund by virtue of its authority to make
investment decisions regarding the voting and disposition of such shares
(such decisions are made by the unanimous consent of Dr. Gill, Clifford H.
Higgerson and Curtis K. Myers, the three general partners of Vanguard
Venture Partners). Dr. Gill, Mr. Higgerson and Mr. Myers disclaim any
beneficial ownership of such shares, except to the extent of any pecuniary
interest therein. The address of Dr. Gill and Vanguard IV, L.P. is 1330
Post Oak Boulevard, Suite 1550, Houston, Texas 77056.
(6) Represents 609,793 shares held of record by IAI Investment Funds VI, Inc.
("IAI VI") and 609,793 shares held of record by IAI Investment Funds IV,
Inc. ("IAI IV"). The address of IAI VI and IAI IV is 601 Second Avenue
South, Minneapolis, Minnesota 55042.
(7) Represents 991,454 shares held of record by Kleiner Perkins Caufield &
Byers VII, L.P. and 52,181 shares held of record by KPCB Life Sciences
Zaibatsu Fund II (together, the "KPCB Funds"). KPCB VII Associates is the
sole general partner of each of the KPCB Funds and as such may be deemed to
be the indirect beneficial owner of the shares held by such funds by virtue
of its authority to make investment decisions regarding the voting and
disposition of such shares (such decisions are made by the majority
decision of the eleven general partners of KPCB VII Associates). The
address of the KPCB Funds and KPCB VII Associates is 2750 Sand Hill Road,
Menlo Park, California 94025.
(8) Includes 125,654 shares subject to options exercisable within 60 days of
March 31, 1997. Mr. Hill is President, Chief Executive Officer and a
director of the Company.
(9) Includes 6,378 shares subject to options exercisable within 60 days of
March 31, 1997. Mr. Kiley is a director of the Company.
(10) Includes 35,737 shares subject to options exercisable within 60 days of
March 31, 1997. Dr. Brennan is Executive Vice President of the Company.
(11) Includes 1,000 shares held by a family member who shared the same household
with Dr. Apfelberg at the time the shares were purchased. Dr. Apfelberg
disclaims beneficial ownership of such shares. Dr. Apfelberg is a director
of the Company.
(12) Includes 18,494 shares subject to options exercisable within 60 days of
March 31, 1997. Ms. Marcot is Vice President of Regulatory Affairs of the
Company.
(13) Represents shares subject to options exercisable within 60 days of March
31, 1997. Mr. Powers is Chief Financial Officer, Vice President of Finance
and Administration and Secretary of the Company.
(14) Represents shares subject to options exercisable within 60 days of March
31, 1997. Dr. Aron is Vice President of Research and Development of the
Company.
(15) Represents the shares referenced in footnotes (2), (4), (5) and (8) through
(14); 8226 additional shares; and 29,032 shares subject to options
exercisable within 60 days of March 31, 1997.
15
<PAGE> 18
EXECUTIVE OFFICERS
The executive officers of the Company, and their ages as of April 17, 1997
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------- ---- ----------------------------------------------------
<S> <C> <C>
Allen W. Hill............... 47 President, Chief Executive Officer and Director
Edward F. Brennan........... 45 Executive Vice President
Richard P. Powers........... 56 Chief Financial Officer, Vice President of Finance
and Administration and Secretary
Kenneth Aron................ 44 Vice President of Research and Development
Donald Johnson.............. 49 Vice President of Operations
Carole E. Marcot............ 50 Vice President of Regulatory Affairs
</TABLE>
For information regarding the positions an offices held by Mr. Hill, please
refer to the discussion regarding nominees for election as directors in
"Nominees" under Proposal No. 1 above.
Dr. Brennan has been Executive Vice President of the Company since July
1995 and from March 1995 to July 1995 he was a consultant to the Company,
serving as its Chief Operating Officer. From November 1992 to February 1995, Dr.
Brennan served as Executive Vice President of Depomed Systems, Inc., a
pharmaceutical company. From January 1992 to November 1992, he served as a
strategic transitional advisor to Medtronic, Inc., a medical device company, in
connection with its acquisition of certain assets of Urosystems, Inc., a company
Dr. Brennan co-founded in December 1987. Dr. Brennan received his B.A. in
Chemistry and Biology and his Ph.D. in Biology from the University of
California, Santa Cruz.
Mr. Powers has been Chief Financial Officer and Vice President of Finance
and Administration of the Company since March 1996 and Secretary since April
1996. From September 1995 to February 1996, Mr. Powers served as a consultant to
and director of Qualtos Computer Inc., a provider of on-line support networks
and software. From 1986 to August 1995, Mr. Powers was Senior Vice President and
Chief Financial Officer of Syntex Corporation, a pharmaceutical company. He
received his B.S. degree in Accounting from Canisius College and his M.B.A. from
the University of Rochester.
Mr. Merritt has been Vice President of Sales and Marketing of the Company
since October 1996. From January 1992 to September 1996, Mr. Merritt was Vice
President of Marketing of Johnson & Johnson. Mr. Merritt received his Bachelor's
degree in Marketing from Georgia State University.
Dr. Aron has been Vice President of Research and Development of the Company
since January 1996. Dr. Aron held various positions with Heraeus Surgical Inc.,
a supplier of minimally invasive surgical systems, from April 1990 to January
1996, most recently as Vice President of Research and Development and
Engineering. Dr. Aron received his Ph.D. in Chemistry from State University of
New York at Stony Brook.
Mr. Johnson has been Vice President of Operations of the Company since
April 1996, was its Director of Operations of the Company from March 1995 to
March 1996 and was its Vice President of Clinical and Regulatory Affairs from
August 1994 to October 1994. From October 1994 to March 1995, he served as Vice
President, Manufacturing of Synvasive, Inc., a manufacturer of orthopedic
products. From May 1992 to July 1994, Mr. Johnson was Vice President of
Regulatory Affairs and Quality Assurance at Unisurge, Inc., a manufacturer of
laparoscopic surgery instruments. Mr. Johnson served as a consultant to medical
device companies from May 1989 to May 1992. Mr. Johnson received his B.A. and
M.S. degrees in Microbiology from the University of Texas.
Ms. Marcot has been Vice President of Regulatory Affairs of the Company
since October 1994. From February 1991 to October 1994, Ms. Marcot was employed
at Baxter Healthcare Corporation, where she served at various times as Vice
President for Regulatory Affairs, Quality Assurance and Clinical Programs. Ms.
Marcot received her B.A. degree in Biology and Chemistry from the College of St.
Elizabeth, her M.B.A. degree from the University of California, Irvine and her
J.D. degree from Western State University College of Law. Ms. Marcot is a member
of the California Bar.
16
<PAGE> 19
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded, earned or paid for
services rendered in all capacities to the Company and its subsidiaries during
each of 1995 and 1996 to (i) the Company's Chief Executive Officer and (ii) the
Company's four other most highly compensated executive officers who were serving
as executive officers at the end of 1996 (the "Named Executive Officers"). This
information includes the dollar values of base salaries, bonus awards, the
number of shares subject to stock options granted and certain other
compensation, if any, whether paid or deferred. The Company does not grant stock
appreciation rights and has no long-term compensation benefits other than the
stock options.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------- ------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS(1) COMPENSATION OPTIONS COMPENSATION
- ---------------------------------- ----------- -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Allen W. Hill..................... 1996 $220,000 $50,000 -- -- --
President and Chief 1995 95,704 25,000 -- 376,946 $ 22,679(2)
Executive Officer
Edward F. Brennan................. 1996 156,000 23,400 -- 17,300 --
Executive Vice President 1995 64,984 21,750 $ 52,288(3) 105,190 --
Richard P. Powers................. 1996 126,667 27,400 -- 98,400 --
Chief Financial Office, Vice 1995 -- -- -- -- --
President of Finance and
Administration and
Secretary
Kenneth Aron...................... 1996 130,000 20,800 -- 57,400 --
Vice President of Research 1995 -- -- -- -- --
and Development
Carole E. Marcot.................. 1996 109,500 17,500 -- 10,000 --
Vice President of Regulatory 1995 105,000 21,000 -- -- --
Affairs
</TABLE>
- ---------------
(1) Bonuses are paid at the discretion of the Compensation Committee based on
the achievement of certain objectives.
(2) Represents relocation expenses.
(3) Represents fees paid to Dr. Brennan for services as a consultant to the
Company prior to the commencement of his employment.
17
<PAGE> 20
The following table sets forth further information regarding option grants
pursuant to the Company's 1993 Equity Incentive Plan or the Incentive Plan
during 1996 to each of the Named Executive Officers. In accordance with the
rules of the Securities and Exchange Commission, the table sets forth the
hypothetical gains or "option spreads" that would exist for the options at the
end of their respective ten-year terms. These gains are based on assumed rates
of annual compound stock price appreciation of 5% and 10% from the date the
option was granted to the end of the option term.
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL
NUMBER OF PERCENTAGE OF RATES OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM(2)
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION --------------------
NAME GRANTED(1) 1996 PER SHARE DATE 5% 10%
- -------------------------- ---------- ------------- -------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Allen W. Hill............. -- -- -- -- --
Edward F. Brennan......... 12,300 1.9% $ 1.8293 03/01/06 $ 14,150 $ 35,860
5,000 0.8% 9.75 09/23/06 30,659 77,695
Richard P. Powers......... 98,400 15.2% 1.8293 03/18/06 113,203 286,879
Kenneth Aron.............. 57,400 8.9% 0.6098 01/22/06 22,013 55,785
Carole E. Marcot.......... 10,000 1.5% 9.75 09/23/06 61,317 115,390
</TABLE>
- ---------------
(1) The options shown in the table were granted at fair market value, are
incentive stock options and will expire ten years from the date of grant,
subject to earlier termination upon termination of the optionee's
employment. The options become exercisable with respect to 12.5% of the
shares on the six month anniversary of the vesting commencement date and
vest as to an additional 2.083% of the shares for each full month thereafter
that the optionee renders services to the Company.
(2) The 5% and 10% assumed annual compound rates of stock price appreciation are
mandated by the rules of the Securities and Exchange Commission and do not
represent the Company's estimate or projection of future Common Stock
prices.
The following table sets forth certain information concerning the exercise
of options by each of the Named Executive Officers during 1996, including the
aggregate amount of gains on the date of exercise. In addition, the table
includes the number of shares covered by both exercisable and unexercisable
stock options as of December 31, 1996. Also reported are values of
"in-the-money" options that represent the positive spread between the respective
exercise prices of outstanding stock options and $11.25 per share, which was the
closing price of the Company's Common Stock as reported on the Nasdaq National
Market on December 31, 1996, the last day of trading for 1996.
AGGREGATED OPTION EXERCISES IN 1996 AND YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUES OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
SHARES YEAR-END(1) FISCAL YEAR-END(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(1) REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Allen W. Hill.......................... 54,966 $ 371,350 86,389 235,591 $ 950,806 $ 2,592,938
Edward F. Brennan...................... 20,573 138,991 23,373 78,544 253,590 801,088
Richard P. Powers...................... -- -- 18,450 79,950 173,812 753,185
Kenneth Aron........................... -- -- 13,154 44,246 139,961 470,786
Carole E. Marcot....................... 17,948 121,257 11,218 34,679 123,466 286,620
</TABLE>
- ---------------
(1) "Value Realized" represents the fair market value of the shares of Common
Stock underlying the option on the date of exercise less the aggregate
exercise price of the option.
18
<PAGE> 21
(2) These values, unlike the amounts set forth in the column entitled "Value
Realized," have not been, and may never be, realized and are based on the
positive spread between the respective exercise prices of outstanding
options and the closing price of the Company's Common Stock on December 31,
1996, which was $11.25 per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Dr. Gill and Dr. Apfelberg. For a
description of transactions between the Company and members of the Compensation
Committee and entities affiliated with such members, see the discussion under
"Certain Relationships and Related Transactions" below.
REPORT ON EXECUTIVE COMPENSATION
Final decisions regarding executive compensation and stock option grants to
executives are made by the Compensation Committee of the Board (the
"Committee"). Prior to the Company's initial public offering in May 1996, the
Board participated in compensation decisions and granted stock options. The
Committee is composed of two independent non-employee directors, neither of whom
have any interlocking relationships as defined by the Securities Exchange
Commission ("SEC").
GENERAL COMPENSATION POLICY
The Committee acts on behalf of the Board to establish the general
compensation policy of the Company for all employees of the Company. The
Committee typically reviews base salary levels and target bonuses for the Chief
Executive Officer ("CEO") and other executive officers and employees of the
Company at or about the beginning of each year. The Committee administers the
Company's incentive and equity plans, including the 1996 Equity Incentive Plan
and the 1996 Employee Stock Purchase Plan. In addition to their base salaries,
the Company's executive officers, including the CEO, are each eligible to
receive a cash bonus and are entitled to participate in the Incentive Plan.
The Committee's philosophy in compensating executive officers, including
the CEO, is to relate compensation directly to corporate performance. Thus, the
Company's compensation policy, which applies to management and other key
employees of the Company, relates a portion of each individual's total
compensation to the Company-wide and individual objectives set forth at the
beginning of the year. Consistent with this policy, a designated portion of the
compensation of the executive officers of the Company is contingent on both
corporate performance and on the individual's performance as measured against
personal objectives, as determined by the Committee in its discretion. Long-term
equity incentives for executive officers are effected through the granting of
stock options under the Incentive Plan. Stock options generally have value for
the executive only if the price of the Company's stock increases above the fair
market value on the grant date and the executive remains in the Company's employ
for the period required for the options to vest.
The base salaries, incentive compensation and stock option grants of the
executive officers are determined in part by the Committee reviewing data on
prevailing compensation practices in companies with whom the Company competes
for executive talent, and by their evaluating such information in connection
with the Company's corporate goals. To this end, the Committee attempted to
compare the compensation of the Company's executive officers with the
compensation practices of comparable companies to determine base salary, target
bonuses and target total cash compensation.
In preparing the performance graph for this Proxy Statement (see "Company
Stock Price Performance"), the Company used the Standard and Poor's Mid-Cap
Healthcare Medical Products Index as its published line of business index.
1996 EXECUTIVE COMPENSATION
Base Compensation. The Committee reviewed the recommendations and
performance and market data outlined above and established a base salary level
to be effective January 1, 1997 for each executive officer, including the CEO.
19
<PAGE> 22
Incentive Compensation. Cash bonuses are awarded based on an executive
officer's performance measured against predetermined individual performance
goals and the performance of the entire Company measured against predetermined
corporate objectives set by the Committee and approved by the Board at the
beginning of each calendar year. The CEO's judgment of executives' performance
(other than his own) is taken into account in determining the extent to which
those goals have been satisfied. For the year ended December 31, 1996, the
primary objectives used by the Company as the basis for incentive compensation
were related to specific milestones for the Company's clinical trials and
product approvals. The target amount of bonus and the actual amount of bonus are
determined by the Committee, in its discretion.
Stock Options. Stock options are an essential element of the Company's
executive compensation package. The Compensation Committee believes that
equity-based compensation in the form of stock options links the interests of
management and stockholders by focusing employees and management on increasing
stockholder value. The actual value of such equity-based compensation depends
entirely on appreciation of the Company's stock. Approximately 100% of the
Company's full-time employees participate in the Incentive Plan.
In 1996, stock options were granted to certain executive officers to aid in
the retention of executive officers and to align their interests with those of
the stockholders. Stock options typically have been granted to executive
officers when the executive first joins the Company, in connection with a
significant change in responsibilities and, occasionally, to achieve equity
within a peer group. The Committee may, however, grant additional stock options
to executives for other reasons. The number of shares subject to each stock
option granted is within the discretion of the Committee and is based on
anticipated future contribution and ability to impact corporate and/or business
unit results, past performance or consistency within the executive's peer group.
In 1996, the Committee considered these factors, as well as the number of
options held by such executive officers as of the date of grant that remained
unvested. In the discretion of the Committee, executive officers may also be
granted stock options to provide greater incentives to continue their employment
with the Company and to strive to increase the value of the Company's Common
Stock. The stock options generally become exercisable over a four-year period
and are granted at a price that is equal to the fair market value of the
Company's Common Stock on the date of grant.
For 1997, the Committee will be considering whether to grant future options
under the Incentive Plan to executive officers based on the factors described
above, with particular attention to the Company-wide management objectives and
the executive officers' success in obtaining specific individual financial and
operational objectives established or to be established for 1997, to the
Company's financial performance and to the number of options currently held by
the executive officers that remain unvested.
Company Performance and CEO Compensation. Mr. Hill was responsible for
managing the Company to achieve the objectives for 1996 as set forth under the
discussion of Incentive Compensation above. In addition, Mr. Hill satisfactorily
managed the Company's initial public offering and significantly strengthened the
Company's market position. Mr. Hill was responsible for carrying out the overall
corporate business plan, such as meeting the Company's financial projections and
the Company's sales targets. The Committee reviewed the compensation practices
of comparable companies using sources such as the J. Robert Scott 1994
Leadership in Biotechnology report of executive compensation and various
compensation surveys compiled by professional venture capital firms as a service
to their portfolio companies. Based upon the criteria set forth under the
discussion of Incentive Compensation above, the Committee awarded Mr. Hill
incentive compensation of $50,000. This figure represents 100% of the target
bonus for Mr. Hill. The Committee reviewed the compensation practices of the
comparable companies in making these awards to Mr. Hill.
20
<PAGE> 23
Compliance with Section 162(m) of the Internal Revenue Code of 1986. The
Company intends to comply with the requirements of Section 162(m) of the
Internal Revenue Code of 1986. The Incentive Plan is already in compliance with
Section 162(m) by limiting stock awards to named executive officers. The Company
does not expect cash compensation for 1997 to any individual executive officer
to be in excess of $1,000,000 or consequently affected by the requirements of
Section 162(m).
COMPENSATION COMMITTEE
David B. Apfelberg
Jack M. Gill
COMPANY STOCK PRICE PERFORMANCE
The stock price performance graph below is required by the SEC and shall
not be deemed to be incorporated by reference by any general statement
incorporating by reference this Proxy Statement into any filing under the
Securities Act of 1933, as amended, or under the Securities Exchange Act of
1934, as amended, except to the extent that the Company specifically
incorporates this information by reference, and shall not otherwise be deemed
soliciting material or filed under such Acts.
The graph below compares the cumulative total stockholder return on the
Common Stock of the Company on May 21, 1996 (the effective date of the Company's
registration statement with respect to the Company's initial public offering) to
December 31, 1996 with the cumulative total return on the Nasdaq Stock Market
(U.S.) Index and the Standard & Poor's Mid-Cap Healthcare Medical Products Index
over the same period (assuming the investment of $100 in the Common Stock of
Company and in each of the other indices on the date of the Company's initial
public offering, and reinvestment of all dividends).
The comparisons in the graph below are based on historical data and are not
intended to forecast the possible future performance of the Company's Common
Stock.
COMPARISON OF CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
S&P MID-CAP
NASDAQ STOCK HEALTHCARE
MEASUREMENT PERIOD CARDIOGENESIS MARKET - U.S. MEDICAL PRODUCTS
(FISCAL YEAR COVERED) CORPORATION INDEX INDEX
<S> <C> <C> <C>
05/21/96 100.00 100.00 100.00
06/30/96 65.10 95.00 93.80
09/30/96 57.80 98.40 112.40
12/31/96 54.20 103.50 115.30
</TABLE>
<TABLE>
<CAPTION>
05/21/96 06/30/96 09/30/96 12/31/96
------- ------- ------- -------
<S> <C> <C> <C> <C>
CardioGenesis Corporation................ $100.00 $65.10 $ 57.80 $ 54.20
Nasdaq Stock Market -- U.S. Index........ 100.00 95.00 98.40 103.50
S&P Mid-Cap Healthcare Medical Products
Index.................................. 100.00 93.80 112.40 115.30
</TABLE>
21
<PAGE> 24
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From January 1, 1996 to the present, there are no currently proposed
transactions in which the amount involved exceeds $60,000 to which the Company
or any of its subsidiaries was (or is to be) a party and in which any executive
officer, director, 5% beneficial owner of the Company's Common Stock or member
of the immediate family of any of the foregoing persons had (or will have) a
direct or indirect material interest, except for: (i) payments set forth under
"Executive Compensation" above; and (ii) indemnification agreements entered into
by the Company with each of its directors and executive officers that provide
the maximum indemnity available to directors and executive officers under
Section 145 of the Delaware General Corporation Law and the Company's Bylaws, as
well as certain additional procedural protections. Such indemnity agreements
provide generally that the Company will advance expenses incurred by directors
and executive officers in any action or proceeding as to which they may be
indemnified, and require the Company to indemnify such individuals to the
fullest extent permitted by law.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the Company's 1998
Annual Meeting of Stockholders must be received by the Company at its principal
executive offices no later than December 29, 1997 in order to be included in the
Company's Proxy Statement and form of proxy relating to that meeting.
SECTION 16(A) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16 of the Exchange Act requires the Company's directors and
officers, and persons who own more than 10% of a registered class of the
Company's equity securities, to file initial reports of ownership and reports of
changes in ownership with the SEC. Such persons are required by SEC regulation
to furnish the Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms furnished to the
Company and written representations from the executive officers and directors of
the Company, the Company believes that all Section 16(a) filing requirements
were met during 1996, except that the Form 3, Initial Statement of Beneficial
Ownership of Securities, for Vernon H. Merritt, the Company's Vice President of
Sales and Marketing, was late.
FORM 10-K
THE COMPANY, UPON WRITTEN REQUEST, WILL PROVIDE WITHOUT CHARGE TO EACH
STOCKHOLDER A COPY OF ITS ANNUAL REPORT ON FORM 10-K FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION FOR THE YEAR ENDED DECEMBER 31, 1996. REQUESTS SHOULD BE
DIRECTED TO:
Richard P. Powers
Chief Financial Officer
CardioGenesis Corporation
540 Oakmead Parkway
Sunnyvale, California 94086
22
<PAGE> 25
OTHER BUSINESS
The Board does not intend to bring any other business before the Meeting,
and, so far as is known to the Board, no matters are to be brought before the
Meeting except as specified in the notice of the Meeting. As to any business
that may properly come before the Meeting, however, it is intended that proxies,
in the form enclosed, will be voted in respect thereof in accordance with the
judgment of the persons voting such proxies.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN
AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE
SO THAT YOUR SHARES WILL BE REPRESENTED AT THE MEETING.
23
<PAGE> 26
CARDIOGENESIS CORPORATION
1996 EQUITY INCENTIVE PLAN
As Adopted April 12, 1996 and Amended Through April 16, 1997
1. PURPOSE. The purpose of this Plan is to provide
incentives to attract, retain and motivate eligible persons whose present and
potential contributions are important to the success of the Company, its Parent
and Subsidiaries, by offering them an opportunity to participate in the
Company's future performance through awards of Options, Restricted Stock and
Stock Bonuses. Capitalized terms not defined in the text are defined in
Section 23.
2. SHARES SUBJECT TO THE PLAN.
2.1 Number of Shares Available. Subject to
Sections 2.2 and 18, the total number of Shares reserved and available for
grant and issuance pursuant to this Plan will be 1,120,000 Shares. Subject to
Sections 2.2 and 18, Shares that: (a) are subject to issuance upon exercise of
an Option but cease to be subject to such Option for any reason other than
exercise of such Option; (b) are subject to an Award granted hereunder but are
forfeited or are repurchased by the Company at the original issue price; or (c)
are subject to an Award that otherwise terminates without Shares being issued
will again be available for grant and issuance in connection with future Awards
under this Plan. Any authorized shares not issued or subject to outstanding
grants under the CardioGenesis Corporation 1993 Equity Incentive Plan (the
"PRIOR PLAN") on the Effective Date (as defined below) and any shares that: (a)
are issuable upon exercise of options granted pursuant to the Prior Plan that
expire or become unexercisable for any reason without having been exercised in
full; (b) are subject to an award granted pursuant to the Prior Plan but are
forfeited or are repurchased by the Company at the original issue price; or (c)
are subject to an award granted pursuant to the Prior Plan that otherwise
terminates without shares being issued will no longer be available for grant
and issuance under the Prior Plan, but will be available for grant and issuance
under this Plan. At all times the Company shall reserve and keep available a
sufficient number of Shares as shall be required to satisfy the requirements of
all outstanding Options granted under this Plan and all other outstanding but
unvested Awards granted under this Plan.
2.2 Adjustment of Shares. In the event that the
number of outstanding Shares is changed by a stock dividend, recapitalization,
stock split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then (a) the number of Shares reserved for issuance under this Plan, (b) the
Exercise Prices of and number of Shares subject to outstanding Options, and (c)
the number of Shares subject to other outstanding Awards will be
proportionately adjusted, subject to any required action by the Board or the
shareholders of the Company and compliance with applicable securities laws;
provided, however, that fractions of a Share will not be issued but will either
be replaced by a cash payment equal to the Fair Market Value of such fraction
of a Share or will be rounded up to the nearest whole Share, as determined by
the Committee.
3. ELIGIBILITY. ISO (as defined in Section 5 below) may
be granted only to employees (including officers and directors who are also
employees) of the Company or of a Parent or Subsidiary of the Company. All
other Awards may be granted to employees, officers, directors, consultants,
independent contractors and advisors of the Company or any Parent or Subsidiary
of the Company; provided such consultants, contractors and advisors render bona
fide services not in connection with the offer and sale of securities in a
capital-raising transaction. No person will be eligible to receive more than
410,000 Shares in any calendar year under this Plan pursuant to the grant of
Awards hereunder, other than new employees of the Company or of a Parent or
Subsidiary of the Company (including new employees who are also officers and
directors of the Company or any Parent or Subsidiary of the Company) who are
eligible to receive up to a maximum of 656,000 Shares in the calendar year in
which they commence their employment. A person may be granted more than one
Award under this Plan.
<PAGE> 27
CardioGenesis Corporation
1996 Equity Incentive Plan
4. ADMINISTRATION.
4.1 Committee Authority. This Plan will be
administered by the Committee or by the Board acting as the Committee. Subject
to the general purposes, terms and conditions of this Plan, and to the
direction of the Board, the Committee will have full power to implement and
carry out this Plan. Without limitation, the Committee will have the authority
to:
(a) construe and interpret this Plan, any Award Agreement
and any other agreement or document executed pursuant
to this Plan;
(b) prescribe, amend and rescind rules and regulations
relating to this Plan;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration
subject to Awards;
(f) determine whether Awards will be granted singly, in
combination with, in tandem with, in replacement of, or
as alternatives to, other Awards under this Plan or any
other incentive or compensation plan of the Company or
any Parent or Subsidiary of the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of
Awards;
(i) correct any defect, supply any omission or reconcile
any inconsistency in this Plan, any Award or any Award
Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable
for the administration of this Plan.
4.2 Committee Discretion. Any determination made
by the Committee with respect to any Award will be made in its sole discretion
at the time of grant of the Award or, unless in contravention of any express
term of this Plan or Award, at any later time, and such determination will be
final and binding on the Company and on all persons having an interest in any
Award under this Plan. The Committee may delegate to one or more officers of
the Company the authority to grant an Award under this Plan to Participants who
are not Insiders of the Company.
4.3 Exchange Act Requirements. If two or more
members of the Board are Outside Directors, the Committee will be comprised of
at least two (2) members of the Board, all of whom are Outside Directors and
Disinterested Persons. During all times that the Company is subject to Section
16 of the Exchange Act, the Company will take appropriate steps to comply with
the disinterested administration requirements of Section 16(b) of the Exchange
Act, which will consist of the appointment by the Board of a Committee
consisting of not less than two (2) members of the Board, each of whom is a
Disinterested Person.
5. OPTIONS. The Committee may grant Options to eligible
persons and will determine whether such Options will be Incentive Stock Options
within the meaning of the Code ("ISO") or Nonqualified Stock Options ("NQSOS"),
the number of Shares subject to the Option, the Exercise Price of the Option,
the period during which the Option may be exercised, and all other terms and
conditions of the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted
under this Plan will be evidenced by an Award Agreement which will expressly
identify the Option as an ISO or an NQSO ("STOCK OPTION AGREEMENT"),
-2-
<PAGE> 28
CardioGenesis Corporation
1996 Equity Incentive Plan
and will be in such form and contain such provisions (which need not be the
same for each Participant) as the Committee may from time to time approve, and
which will comply with and be subject to the terms and conditions of this Plan.
5.2 Date of Grant. The date of grant of an Option
will be the date on which the Committee makes the determination to grant such
Option, unless otherwise specified by the Committee. The Stock Option
Agreement and a copy of this Plan will be delivered to the Participant within a
reasonable time after the granting of the Option.
5.3 Exercise Period. Options may be exercisable
immediately (subject to repurchase pursuant to Section 12 of this Plan) or may
be exercisable within the times or upon the events determined by the Committee
as set forth in the Stock Option Agreement governing such Option; provided,
however, that no Option will be exercisable after the expiration of ten (10)
years from the date the Option is granted; and provided further that no ISO
granted to a person who directly or by attribution owns more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of any Parent or Subsidiary of the Company ("TEN PERCENT SHAREHOLDER") will
be exercisable after the expiration of five (5) years from the date the ISO is
granted. The Committee also may provide for the exercise of Options to become
exercisable at one time or from time to time, periodically or otherwise, in
such number of Shares or percentage of Shares as the Committee determines.
5.4 Exercise Price. The Exercise Price of an
Option will be determined by the Committee when the Option is granted and may
be not less than 85% of the Fair Market Value of the Shares on the date of
grant; provided that: (i) the Exercise Price of an ISO will be not less than
100% of the Fair Market Value of the Shares on the date of grant; and (ii) the
Exercise Price of any ISO granted to a Ten Percent Shareholder will not be less
than 110% of the Fair Market Value of the Shares on the date of grant. Payment
for the Shares purchased may be made in accordance with Section 8 of this Plan.
5.5 Method of Exercise. Options may be exercised
only by delivery to the Company of a written stock option exercise agreement
(the "EXERCISE AGREEMENT") in a form approved by the Committee (which need not
be the same for each Participant), stating the number of Shares being
purchased, the restrictions imposed on the Shares purchased under such Exercise
Agreement, if any, and such representations and agreements regarding
Participant's investment intent and access to information and other matters, if
any, as may be required or desirable by the Company to comply with applicable
securities laws, together with payment in full of the Exercise Price for the
number of Shares being purchased.
5.6 Termination. Notwithstanding the exercise
periods set forth in the Stock Option Agreement, exercise of an Option will
always be subject to the following:
(a) If the Participant is Terminated for any reason except
death or Disability, then the Participant may exercise
such Participant's Options only to the extent that such
Options would have been exercisable upon the
Termination Date no later than three (3) months after
the Termination Date (or such shorter or longer time
period not exceeding five (5) years as may be
determined by the Committee, with any exercise beyond
three (3) months after the Termination Date deemed to
be an NQSO), but in any event, no later than the
expiration date of the Options.
(b) If the Participant is Terminated because of
Participant's death or Disability (or the Participant
dies within three (3) months after a Termination other
than because of Participant's death or disability),
then Participant's Options may be exercised only to the
extent that such Options would have been exercisable by
Participant on the Termination Date and must be
exercised by Participant (or Participant's legal
representative or authorized assignee) no later than
twelve (12) months after the Termination Date (or such
shorter or longer time period not exceeding five (5)
years as may be determined by the Committee, with any
such exercise beyond (a) three (3) months after the
Termination Date when the Termination is for any reason
other than the Participant's death or Disability, or
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CardioGenesis Corporation
1996 Equity Incentive Plan
(b) twelve (12) months after the Termination Date when
the Termination is for Participant's death or
Disability, deemed to be an NQSO), but in any event no
later than the expiration date of the Options.
(c) If a Participant is determined by the Board to have
committed on act of theft, embezzlement, fraud,
dishonesty, a breach of fiduciary duty to the Company or
Subsidiary, or deliberate disregard of the rules of the
Company or Subsidiary, or if a Participant makes any
unauthorized disclosure of any of the trade secrets or
confidential information of the Company or Subsidiary,
engages in any conduct which constitutes unfair
competition with the Company or Subsidiary, induces any
customer of the Company or Subsidiary to break any
contract with the Company or Subsidiary, or induces any
principal for whom the Company or Subsidiary acts as
agent to terminate such agency relationship, (each of
which acts by the Participant shall constitute
"Misconduct" for purposes of this Plan) neither the
Participant, the Participant's estate nor such other
person who may then hold the Option shall be entitled to
exercise any Option with respect to any Shares
whatsoever, after termination of service, whether or not
after termination of service the Participant may receive
payment from the Company or Subsidiary for vacation pay,
for services rendered prior to termination, for services
rendered for the day on which termination occurs, for
salary in lieu of notice, or for any other benefits. In
making such determination, the Board shall give the
Participant an opportunity to present to the Board
evidence on his behalf. For the purpose of this
paragraph, termination of service shall be deemed to
occur on the date when the Company dispatches notice or
advice to the Participant that his service is
terminated.
(d) If any Participant's employment is terminated by the
Company for any reason other than for Misconduct or, if
applicable, by Constructive Termination, within one
year after a Change of Control has occurred, then all
Options held by such Participant shall become fully
vested for exercise upon the date of termination,
irrespective of the vesting provisions of the
Participant's Option agreement. For purposes of this
subsection (d), the term "Change of Control" shall have
the meaning assigned by this Plan, unless a different
meaning is defined in an individual Participant's
Option.
5.7 Limitations on Exercise. The Committee may
specify a reasonable minimum number of Shares that may be purchased on any
exercise of an Option, provided that such minimum number will not prevent
Participant from exercising the Option for the full number of Shares for which
it is then exercisable.
5.8 Limitations on ISOs. The aggregate Fair Market
Value (determined as of the date of grant) of Shares with respect to which ISOs
are exercisable for the first time by a Participant during any calendar year
(under this Plan or under any other incentive stock option plan of the Company
or any Parent or Subsidiary of the Company) will not exceed $100,000. If the
Fair Market Value of Shares on the date of grant with respect to which ISOs are
exercisable for the first time by a Participant during any calendar year
exceeds $100,000, then the Options for the first $100,000 worth of Shares to
become exercisable in such calendar year will be ISOs and the Options for the
amount in excess of $100,000 that become exercisable in that calendar year will
be NQSOs. In the event that the Code or the regulations promulgated thereunder
are amended after the Effective Date of this Plan to provide for a different
limit on the Fair Market Value of Shares permitted to be subject to ISOs, such
different limit will be automatically incorporated herein and will apply to any
Options granted after the effective date of such amendment.
5.9 Modification, Extension or Renewal. The
Committee may modify, extend or renew outstanding Options and authorize the
grant of new Options in substitution therefor, provided that any such action
may not, without the written consent of a Participant, impair any of such
Participant's rights under any Option previously granted. Any outstanding ISO
that is modified, extended, renewed or otherwise altered will be treated in
accordance with Section 424(h) of the Code. The Committee may reduce the
Exercise Price of outstanding Options without the consent of Participants
affected by a written notice to them; provided, however, that the Exercise
Price may not be reduced below the minimum Exercise Price that would be
permitted under Section 5.4 of this Plan for Options granted on the date the
action is taken to reduce the Exercise Price.
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CardioGenesis Corporation
1996 Equity Incentive Plan
5.10 No Disqualification. Notwithstanding any other
provision in this Plan, no term of this Plan relating to ISOs will be
interpreted, amended or altered, nor will any discretion or authority granted
under this Plan be exercised, so as to disqualify this Plan under Section 422
of the Code or, without the consent of the Participant affected, to disqualify
any ISO under Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer
by the Company to sell to an eligible person Shares that are subject to
restrictions. The Committee will determine to whom an offer will be made, the
number of Shares the person may purchase, the price to be paid (the "PURCHASE
PRICE"), the restrictions to which the Shares will be subject, and all other
terms and conditions of the Restricted Stock Award, subject to the following:
6.1 Form of Restricted Stock Award. All purchases
under a Restricted Stock Award made pursuant to this Plan will be evidenced by
an Award Agreement ("RESTRICTED STOCK PURCHASE AGREEMENT") that will be in such
form (which need not be the same for each Participant) as the Committee will
from time to time approve, and will comply with and be subject to the terms and
conditions of this Plan. The offer of Restricted Stock will be accepted by the
Participant's execution and delivery of the Restricted Stock Purchase Agreement
and full payment for the Shares to the Company within thirty (30) days from the
date the Restricted Stock Purchase Agreement is delivered to the person. If
such person does not execute and deliver the Restricted Stock Purchase
Agreement along with full payment for the Shares to the Company within thirty
(30) days, then the offer will terminate, unless otherwise determined by the
Committee.
6.2 Purchase Price. The Purchase Price of Shares
sold pursuant to a Restricted Stock Award will be determined by the Committee
and will be at least 85% of the Fair Market Value of the Shares on the date the
Restricted Stock Award is granted, except in the case of a sale to a Ten
Percent Shareholder, in which case the Purchase Price will be 100% of the Fair
Market Value. Payment of the Purchase Price may be made in accordance with
Section 8 of this Plan.
6.3 Restrictions. Restricted Stock Awards will be
subject to such restrictions (if any) as the Committee may impose. The
Committee may provide for the lapse of such restrictions in installments and
may accelerate or waive such restrictions, in whole or part, based on length of
service, performance or such other factors or criteria as the Committee may
determine.
7. STOCK BONUSES.
7.1 Awards of Stock Bonuses. A Stock Bonus is an
award of Shares (which may consist of Restricted Stock) for services rendered
to the Company or any Parent or Subsidiary of the Company. A Stock Bonus may
be awarded for past services already rendered to the Company, or any Parent or
Subsidiary of the Company pursuant to an Award Agreement (the "STOCK BONUS
AGREEMENT") that will be in such form (which need not be the same for each
Participant) as the Committee will from time to time approve, and will comply
with and be subject to the terms and conditions of this Plan. A Stock Bonus
may be awarded upon satisfaction of such performance goals as are set out in
advance in the Participant's individual Award Agreement (the "PERFORMANCE STOCK
BONUS AGREEMENT") that will be in such form (which need not be the same for
each Participant) as the Committee will from time to time approve, and will
comply with and be subject to the terms and conditions of this Plan. Stock
Bonuses may vary from Participant to Participant and between groups of
Participants, and may be based upon the achievement of the Company, Parent
and/or Subsidiary individual performance factors or upon such other criteria as
the Committee may determine.
7.2 Terms of Stock Bonuses. The Committee will
determine the number of Shares to be awarded to the Participant and whether
such Shares will be Restricted Stock. If the Stock Bonus is being earned upon
the satisfaction of performance goals pursuant to a Performance Stock Bonus
Agreement, then the Committee will determine: (a) the nature, length and
starting date of any period during which performance is to be measured (the
"PERFORMANCE PERIOD") for each Stock Bonus; (b) the performance goals and
criteria to be used to measure the performance, if any; (c) the number of
Shares that may be awarded to the Participant; and (d) the extent to which such
Stock Bonuses have been earned. Performance Periods may overlap and
Participants may participate
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CardioGenesis Corporation
1996 Equity Incentive Plan
simultaneously with respect to Stock Bonuses that are subject to different
Performance Periods and different performance goals and other criteria. The
number of Shares may be fixed or may vary in accordance with such performance
goals and criteria as may be determined by the Committee. The Committee may
adjust the performance goals applicable to the Stock Bonuses to take into
account changes in law and accounting or tax rules and to make such adjustments
as the Committee deems necessary or appropriate to reflect the impact of
extraordinary or unusual items, events or circumstances to avoid windfalls or
hardships.
7.3 Form of Payment. The earned portion of a Stock
Bonus may be paid currently or on a deferred basis with such interest or
dividend equivalent, if any, as the Committee may determine. Payment may be
made in the form of cash, whole Shares, including Restricted Stock, or a
combination thereof, either in a lump sum payment or in installments, all as
the Committee will determine.
7.4 Termination During Performance Period. If a
Participant is Terminated during a Performance Period for any reason, then such
Participant will be entitled to payment (whether in Shares, cash or otherwise)
with respect to the Stock Bonus only to the extent earned as of the date of
Termination in accordance with the Performance Stock Bonus Agreement, unless
the Committee will determine otherwise.
8. PAYMENT FOR SHARE PURCHASES.
8.1 Payment. Payment for Shares purchased pursuant
to this Plan may be made in cash (by check) or, where expressly approved for
the Participant by the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of shares that either: (1) have been
owned by Participant for more than six (6) months and
have been paid for within the meaning of SEC Rule 144
(and, if such shares were purchased from the Company by
use of a promissory note, such note has been fully paid
with respect to such shares); or (2) were obtained by
Participant in the public market;
(c) by tender of a full recourse promissory note having
such terms as may be approved by the Committee and
bearing interest at a rate sufficient to avoid
imputation of income under Sections 483 and 1274 of the
Code; provided, however, that Participants who are not
employees or directors of the Company will not be
entitled to purchase Shares with a promissory note
unless the note is adequately secured by collateral
other than the Shares;
(d) by waiver of compensation due or accrued to the
Participant for services rendered;
(e) with respect only to purchases upon exercise of an
Option, and provided that a public market for the
Company's stock exists:
(1) through a "same day sale" commitment from the
Participant and a broker-dealer that is a
member of the National Association of
Securities Dealers (an "NASD DEALER") whereby
the Participant irrevocably elects to exercise
the Option and to sell a portion of the Shares
so purchased to pay for the Exercise Price, and
whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the
Exercise Price directly to the Company; or
(2) through a "margin" commitment from the
Participant and a NASD Dealer whereby the
Participant irrevocably elects to exercise the
Option and to pledge the Shares so purchased to
the NASD Dealer in a margin account as security
for a loan from the NASD Dealer in the amount
of the Exercise Price, and whereby the NASD
Dealer irrevocably commits upon receipt of such
Shares to forward the Exercise Price directly
to the Company; or
(f) by any combination of the foregoing.
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CardioGenesis Corporation
1996 Equity Incentive Plan
8.2 Loan Guarantees. The Committee may help the
Participant pay for Shares purchased under this Plan by authorizing a guarantee
by the Company of a third-party loan to the Participant.
9. WITHHOLDING TAXES.
9.1 Withholding Generally. Whenever Shares are to
be issued in satisfaction of Awards granted under this Plan, the Company may
require the Participant to remit to the Company an amount sufficient to satisfy
federal, state and local withholding tax requirements prior to the delivery of
any certificate or certificates for such Shares. Whenever, under this Plan,
payments in satisfaction of Awards are to be made in cash, such payment will be
net of an amount sufficient to satisfy federal, state, and local withholding
tax requirements.
9.2 Stock Withholding. When, under applicable tax
laws, a Participant incurs tax liability in connection with the exercise or
vesting of any Award that is subject to tax withholding and the Participant is
obligated to pay the Company the amount required to be withheld, the Committee
may in its sole discretion allow the Participant to satisfy the minimum
withholding tax obligation by electing to have the Company withhold from the
Shares to be issued that number of Shares having a Fair Market Value equal to
the minimum amount required to be withheld, determined on the date that the
amount of tax to be withheld is to be determined (the "TAX DATE"). All
elections by a Participant to have Shares withheld for this purpose will be
made in writing in a form acceptable to the Committee and will be subject to
the following restrictions:
(a) the election must be made on or prior to the applicable
Tax Date;
(b) once made, then except as provided below, the election
will be irrevocable as to the particular Shares as to
which the election is made;
(c) all elections will be subject to the consent or
disapproval of the Committee;
(d) if the Participant is an Insider and if the Company is
subject to Section 16(b) of the Exchange Act: (1) the
election may not be made within six (6) months of the
date of grant of the Award, except as otherwise
permitted by SEC Rule 16b-3(e) under the Exchange Act,
and (2) either (A) the election to use stock
withholding must be irrevocably made at least six (6)
months prior to the Tax Date (although such election
may be revoked at any time at least six (6) months
prior to the Tax Date) or (B) the exercise of the
Option or election to use stock withholding must be
made in the ten (10) day period beginning on the third
day following the release of the Company's quarterly or
annual summary statement of sales or earnings; and
(e) in the event that the Tax Date is deferred until six
(6) months after the delivery of Shares under Section
83(b) of the Code, the Participant will receive the
full number of Shares with respect to which the
exercise occurs, but such Participant will be
unconditionally obligated to tender back to the Company
the proper number of Shares on the Tax Date.
10. PRIVILEGES OF STOCK OWNERSHIP.
10.1 Voting and Dividends. No Participant will
have any of the rights of a shareholder with respect to any Shares until the
Shares are issued to the Participant. After Shares are issued to the
Participant, the Participant will be a shareholder and have all the rights of a
shareholder with respect to such Shares, including the right to vote and
receive all dividends or other distributions made or paid with respect to such
Shares; provided, that if such Shares are Restricted Stock, then any new,
additional or different securities the Participant may become entitled to
receive with respect to such Shares by virtue of a stock dividend, stock split
or any other change in the corporate or capital structure of the Company will
be subject to the same restrictions as the Restricted Stock; provided, further,
that the Participant will have no right to retain such stock dividends or stock
distributions with respect to Shares that are repurchased at the Participant's
original Purchase Price pursuant to Section 12.
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CardioGenesis Corporation
1996 Equity Incentive Plan
10.2 Financial Statements. The Company will
provide financial statements to each Participant prior to such Participant's
purchase of Shares under this Plan, and to each Participant annually during the
period such Participant has Awards outstanding; provided, however, the Company
will not be required to provide such financial statements to Participants whose
services in connection with the Company assure them access to equivalent
information.
11. TRANSFERABILITY. Awards granted under this Plan, and
any interest therein, will not be transferable or assignable by Participant,
and may not be made subject to execution, attachment or similar process,
otherwise than by will or by the laws of descent and distribution or as
consistent with the specific Plan and Award Agreement provisions relating
thereto. During the lifetime of the Participant an Award will be exercisable
only by the Participant, and any elections with respect to an Award, may be
made only by the Participant.
12. RESTRICTIONS ON SHARES. At the discretion of the
Committee, the Company may reserve to itself and/or its assignee(s) in the
Award Agreement a right to repurchase a portion of or all Shares held by a
Participant following such Participant's Termination at any time within ninety
(90) days after the later of Participant's Termination Date and the date
Participant purchases Shares under this Plan, for cash and/or cancellation of
purchase money indebtedness, at: (A) with respect to Shares that are "Vested"
(as defined in the Award Agreement), the higher of: (l) Participant's original
Purchase Price, or (2) the Fair Market Value of such Shares on Participant's
Termination Date, provided, that such right of repurchase (i) must be exercised
as to all such "Vested" Shares unless a Participant consents to the Company's
repurchase of only a portion of such "Vested" Shares and (ii) terminates when
the Company's securities become publicly traded; or (B) with respect to Shares
that are not "Vested" (as defined in the Award Agreement), at the Participant's
original Purchase Price, provided, that the right to repurchase at the original
Purchase Price lapses at the rate of at least 20% per year over five (5) years
from the date the Shares were purchased (or from the date of grant of options
in the case of Shares obtained pursuant to a Stock Option Agreement and Stock
Option Exercise Agreement), and if the right to repurchase is assignable, the
assignee must pay the Company, upon assignment of the right to repurchase, cash
equal to the excess of the Fair Market Value of the Shares over the original
Purchase Price.
13. CERTIFICATES. All certificates for Shares or other
securities delivered under this Plan will be subject to such stock transfer
orders, legends and other restrictions as the Committee may deem necessary or
advisable, including restrictions under any applicable federal, state or
foreign securities law, or any rules, regulations and other requirements of the
SEC or any stock exchange or automated quotation system upon which the Shares
may be listed or quoted.
14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions
on a Participant's Shares, the Committee may require the Participant to deposit
all certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause
a legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under this Plan will
be required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to
the Company under the promissory note; provided, however, that the Committee
may require or accept other or additional forms of collateral to secure the
payment of such obligation and, in any event, the Company will have full
recourse against the Participant under the promissory note notwithstanding any
pledge of the Participant's Shares or other collateral. In connection with any
pledge of the Shares, Participant will be required to execute and deliver a
written pledge agreement in such form as the Committee will from time to time
approve. The Shares purchased with the promissory note may be released from
the pledge on a pro rata basis as the promissory note is paid.
15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at
any time or from time to time, authorize the Company, with the consent of the
respective Participants, to issue new Awards in exchange for the surrender and
cancellation of any or all outstanding Awards. The Committee may at any time
buy from a Participant an Award previously granted with payment in cash, Shares
(including Restricted Stock) or other consideration, based on such terms and
conditions as the Committee and the Participant may agree.
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CardioGenesis Corporation
1996 Equity Incentive Plan
16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An
Award will not be effective unless such Award is in compliance with all
applicable federal and state securities laws, rules and regulations of any
governmental body, and the requirements of any stock exchange or automated
quotation system upon which the Shares may then be listed or quoted, as they
are in effect on the date of grant of the Award and also on the date of
exercise or other issuance. Notwithstanding any other provision in this Plan,
the Company will have no obligation to issue or deliver certificates for Shares
under this Plan prior to: (a) obtaining any approvals from governmental
agencies that the Company determines are necessary or advisable; and/or (b)
completion of any registration or other qualification of such Shares under any
state or federal law or ruling of any governmental body that the Company
determines to be necessary or advisable. The Company will be under no
obligation to register the Shares with the SEC or to effect compliance with the
registration, qualification or listing requirements of any state securities
laws, stock exchange or automated quotation system, and the Company will have
no liability for any inability or failure to do so.
17. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any
Award granted under this Plan will confer or be deemed to confer on any
Participant any right to continue in the employ of, or to continue any other
relationship with, the Company or any Parent or Subsidiary of the Company or
limit in any way the right of the Company or any Parent or Subsidiary of the
Company to terminate Participant's employment or other relationship at any
time, with or without cause.
18. CORPORATE TRANSACTIONS.
18.1 Assumption or Replacement of Awards by
Successor. In the event of (a) a dissolution or liquidation of the Company,
(b) a merger or consolidation in which the Company is not the surviving
corporation (other than a merger or consolidation with a wholly-owned
subsidiary, a reincorporation of the Company in a different jurisdiction, or
other transaction in which there is no substantial change in the shareholders
of the Company or their relative stock holdings and the Awards granted under
this Plan are assumed, converted or replaced by the successor corporation,
which assumption will be binding on all Participants), (c) a merger in which
the Company is the surviving corporation but after which shareholders owning at
least 80% of the voting stock of the Company (other than any shareholder which
merges, or which owns or controls another corporation which merges, with the
Company in such merger) cease to own their shares or other equity interests in
the Company, or (d) the sale of substantially all of the assets of the Company,
any or all outstanding Awards may be assumed, converted or replaced by the
successor corporation (if any), which assumption, conversion or replacement
will be binding on all Participants. In the alternative, the successor
corporation may substitute equivalent Awards or provide substantially similar
consideration to Participants as was provided to shareholders (after taking
into account the existing provisions of the Awards). The successor corporation
may also issue, in place of outstanding Shares of the Company held by the
Participant, substantially similar shares or other property subject to
repurchase restrictions no less favorable to the Participant. In the event
such successor corporation (if any) refuses to assume or substitute Options, as
provided above, pursuant to a transaction described in this Subsection 18.1,
then notwithstanding any other provision in this Plan to the contrary, such
Options will accelerate at such time and on such conditions as the Board
determines.
18.2 Other Treatment of Awards. Subject to any
greater rights granted to Participants under the foregoing provisions of this
Section 18, in the event of the occurrence of any transaction described in
Section 18.1, any outstanding Awards will be treated as provided in the
applicable agreement or plan of merger, consolidation, dissolution,
liquidation, sale of assets or other "corporate transaction."
18.3 Assumption of Awards by the Company. The
Company, from time to time, also may substitute or assume outstanding awards
granted by another company, whether in connection with an acquisition of such
other company or otherwise, by either; (a) granting an Award under this Plan in
substitution of such other company's award; or (b) assuming such award as if it
had been granted under this Plan if the terms of such assumed award could be
applied to an Award granted under this Plan. Such substitution or assumption
will be permissible if the holder of the substituted or assumed award would
have been eligible to be granted an Award under this Plan if the other company
had applied the rules of this Plan to such grant. In the event the Company
assumes an award granted by another company, the terms and conditions of such
award will remain unchanged (except that the exercise price and the number and
nature of Shares issuable upon exercise of any such option will be adjusted
appropriately
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CardioGenesis Corporation
1996 Equity Incentive Plan
pursuant to Section 424(a) of the Code). In the event the Company elects to
grant a new Option rather than assuming an existing option, such new Option may
be granted with a similarly adjusted Exercise Price.
19. ADOPTION AND SHAREHOLDER APPROVAL. This Plan will
become effective on the date on which the registration statement filed by the
Company with the SEC under the Securities Act registering the initial public
offering of the Company's Common Stock is declared effective by the SEC (the
"EFFECTIVE DATE"); provided, however, that if the Effective Date does not occur
on or before December 31, 1996, this Plan will terminate having never become
effective. This Plan shall be approved by the shareholders of the Company
(excluding Shares issued pursuant to this Plan), consistent with applicable
laws, within twelve (12) months before or after the date this Plan is adopted
by the Board. Upon the Effective Date, the Board may grant Awards pursuant to
this Plan; provided, however, that: (a) no Option may be exercised prior to
initial shareholder approval of this Plan; (b) no Option granted pursuant to an
increase in the number of Shares subject to this Plan approved by the Board
will be exercised prior to the time such increase has been approved by the
shareholders of the Company; and (c) in the event that shareholder approval of
such increase is not obtained within the time period provided herein, all
Awards granted hereunder will be canceled, any Shares issued pursuant to any
Award will be canceled, and any purchase of Shares hereunder will be rescinded.
So long as the Company is subject to Section 16(b) of the Exchange Act, the
Company will comply with the requirements of Rule 16b-3 (or its successor), as
amended, with respect to shareholder approval.
20. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated
as provided herein, this Plan will terminate ten (10) years from the date this
Plan is adopted by the Board or, if earlier, the date of shareholder approval.
This Plan and all agreements thereunder shall be governed by and construed in
accordance with the laws of the State of California.
21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any
time terminate or amend this Plan in any respect, including without limitation
amendment of any form of Award Agreement or instrument to be executed pursuant
to this Plan; provided, however, that the Board will not, without the approval
of the shareholders of the Company, amend this Plan in any manner that requires
such shareholder approval pursuant to the Code or the regulations promulgated
thereunder as such provisions apply to ISO plans or (if the Company is subject
to the Exchange Act or Section 16(b) of the Exchange Act) pursuant to the
Exchange Act or Rule 16b-3 (or its successor), as amended, thereunder,
respectively.
22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of
this Plan by the Board, the submission of this Plan to the shareholders of the
Company for approval, nor any provision of this Plan will be construed as
creating any limitations on the power of the Board to adopt such additional
compensation arrangements as it may deem desirable, including, without
limitation, the granting of stock options and bonuses otherwise than under this
Plan, and such arrangements may be either generally applicable or applicable
only in specific cases.
23. DEFINITIONS. As used in this Plan, the following terms
will have the following meanings:
"AWARD" means any award under this Plan, including any
Option, Restricted Stock or Stock Bonus.
"AWARD AGREEMENT" means, with respect to each Award,
the signed written agreement between the Company and the Participant setting
forth the terms and conditions of the Award.
"BOARD" means the Board of Directors of the Company.
"CHANGE OF CONTROL" means any of the following events:
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act is or becomes the beneficial owner (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company (not
including in the securities beneficially owned by such person any securities
acquired directly from the Company or any of its Affiliates) representing more
than 20% of either the then outstanding shares of the Common Stock of the
Company or the combined voting power of the Company's then outstanding voting
securities; (ii) during any period of two
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CardioGenesis Corporation
1996 Equity Incentive Plan
consecutive years, individuals who at the beginning of such period constituted
the Board and any new director (other than a director designated by a person
who has entered into an agreement or arrangement with the Company to effect a
transaction described in clause (i) or (ii) of this sentence) whose
appointment, election, or nomination for election by the Company's
stockholders, was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the beginning of
the period or whose appointment, election or nomination for election was
previously so approved, cease for any reason to constitute a majority of the
Board; or (iii) there is consummated a merger or consolidation of the Company
or subsidiary thereof with or into any other corporation, other than a merger
or consolidation which would result in the holders of the voting securities of
the Company outstanding immediately prior thereto holding securities which
represent immediately after such merger or consolidation more than 50% of the
combined voting power of the voting securities of either the Company or the
other entity which survives such merger or consolidation or the parent of the
entity which survives such merger or consolidation; or (iv) the stockholders of
the Company approve a plan of complete liquidation of the Company or there is
consummated the sale or disposition by the Company of all or substantially all
of the Company's assets, other than a sale or disposition by the Company of all
or substantially all of the Company's assets to an entity, at least 80% of the
combined voting power of the voting securities of which are owned by persons in
substantially the same proportions as their ownership of the Company
immediately prior to such sale. Notwithstanding the foregoing (i) no "Change
of Control" shall be deemed to have occurred if there is consummated any
transaction or series of integrated transactions immediately following which
the record holders of the Common Stock of the Company immediately prior to such
transaction or series of transactions continue to have substantially the same
proportionate ownership in an entity which owns all or substantially all of the
assets of the Company immediately prior to such transaction or series of
transactions and (ii) "Change of Control" shall exclude the acquisition of
securities representing more than 20% of either the then outstanding shares of
the Common Stock of the Company or the combined voting power of the Company's
then outstanding voting securities by the Company or any of its wholly owned
subsidiaries, or any trustee or other fiduciary holding securities of the
Company under an employee benefit plan now or hereafter established by the
Company.
"CODE" means the Internal Revenue Code of 1986, as
amended.
"COMMITTEE" means the committee appointed by the Board
to administer this Plan, or if no such committee is appointed, the Board.
"COMPANY" means CardioGenesis Corporation or any
successor corporation.
"CONSTRUCTIVE TERMINATION" means a resignation by a
Participant who has been elected by the Board as a corporate officer of the
Company due to diminution or adverse change in the circumstances of such
Participant's employment with the Company, as determined in good faith by the
Participant; including, without limitation, reporting relationships, job
description, duties, responsibilities, compensation, perquisites, office or
location of employment. Constructive Termination shall be communicated by
written notice to the Company, and such termination shall be deemed to occur on
the date such notice is delivered to the Company.
"DISABILITY" means a disability, whether temporary or
permanent, partial or total, within the meaning of Section 22(e)(3) of the
Code, as determined by the Committee.
"DISINTERESTED PERSON" means a director who has not,
during the period that person is a member of the Committee and for one year
prior to commencing service as a member of the Committee, been granted or
awarded equity securities pursuant to this Plan or any other plan of the
Company or any Parent or Subsidiary of the Company, except in accordance with
the requirements set forth in Rule 16b-3(c)(2)(i) (and any successor regulation
thereto) as promulgated by the SEC under Section 16(b) of the Exchange Act, as
such rule is amended from time to time and as interpreted by the SEC.
"EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended.
"EXERCISE PRICE" means the price at which a holder of
an Option may purchase the Shares issuable upon exercise of the Option.
- 11 -
<PAGE> 37
CardioGenesis Corporation
1996 Equity Incentive Plan
"FAIR MARKET VALUE" means, as of any date, the value of
a share of the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq
National Market, its closing price on the Nasdaq
National Market on the last trading day prior to the
date of determination as reported in The Wall Street
Journal;
(b) if such Common Stock is publicly traded and is then
listed on a national securities exchange, its closing
price on the last trading day prior to the date of
determination on the principal national securities
exchange on which the Common Stock is listed or
admitted to trading as reported in The Wall Street
Journal;
(c) if such Common Stock is publicly traded but is not
quoted on the Nasdaq National Market nor listed or
admitted to trading on a national securities exchange,
the average of the closing bid and asked prices on the
last trading day prior to the date of determination as
reported in The Wall Street Journal; or
(d) if none of the foregoing is applicable, by the
Committee in good faith.
"INSIDER" means an officer or director of the Company
or any other person whose transactions in the Company's Common Stock are
subject to Section 16 of the Exchange Act.
"OUTSIDE DIRECTOR" means any director who is not; (a) a
current employee of the Company or any Parent or Subsidiary of the Company; (b)
a former employee of the Company or any Parent or Subsidiary of the Company who
is receiving compensation for prior services (other than benefits under a
tax-qualified pension plan); (c) a current or former officer of the Company or
any Parent or Subsidiary of the Company; or (d) currently receiving
compensation for personal services in any capacity, other than as a director,
from the Company or any Parent or Subsidiary of the Company; provided, however,
that at such time as the term "Outside Director", as used in Section 162(m) of
the Code is defined in regulations promulgated under Section 162(m) of the
Code, "Outside Director" will have the meaning set forth in such regulations,
as amended from time to time and as interpreted by the Internal Revenue
Service.
"OPTION" means an award of an option to purchase Shares
pursuant to Section 5.
"PARENT" means any corporation (other than the Company)
in an unbroken chain of corporations ending with the Company, if at the time of
the granting of an Award under this Plan, each of such corporations other than
the Company owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain.
"PARTICIPANT" means a person who receives an Award
under this Plan.
"PLAN" means this CardioGenesis Corporation 1996 Equity
Incentive Plan, as amended from time to time.
"RESTRICTED STOCK AWARD" means an award of Shares
pursuant to Section 6.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as
amended.
"SHARES" means shares of the Company's Common Stock
reserved for issuance under this Plan, as adjusted pursuant to Sections 2 and
18, and any successor security.
"STOCK BONUS" means an award of Shares, or cash in lieu
of Shares, pursuant to Section 7.
- 12 -
<PAGE> 38
CardioGenesis Corporation
1996 Equity Incentive Plan
"SUBSIDIARY" means 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 stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
"TERMINATION" or "TERMINATED" means, for purposes of this
Plan with respect to a Participant, that the Participant has for any reason
ceased to provide services as an employee, director, consultant or advisor to
the Company or a Parent or Subsidiary of the Company. An employee will not be
deemed to have ceased to provide services in the case of (i) sick leave, (ii)
military leave, or (iii) any other leave of absence approved by the Committee,
provided, that such leave is for a period of not more than 90 days, unless
reemployment upon the expiration of such leave is guaranteed by contract or
statute or unless provided otherwise pursuant to formal policy adopted from
time to time by the Company and issued and promulgated to employees in writing.
In the case of any employee on an approved leave of absence, the Committee may
make such provisions respecting suspension of vesting of the Option while on
leave from the employ of the Company or a Subsidiary as it may deem
appropriate, except that in no event may an Option be exercised after the
expiration of the term set forth in the Option agreement. The Committee will
have sole discretion to determine whether a Participant has ceased to provide
services and the effective date on which the Participant ceased to provide
services (the "Termination Date").
- 13 -
<PAGE> 39
DETACH HERE CRG 1
CARDIOGENESIS CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
May 28, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
The undersigned hereby appoints Allen W. Hill and Richard P. Powers, or
either of them, as proxies, each with full power of substitution, and hereby
authorizes them to represent and to vote, as designated on the reverse side,
all shares of Common Stock, par value $0.001 per share, of CardioGenesis
Corporation (the "Company"), held of record by the undersigned on April 17,
1997, at the Annual Meeting of Stockholders of the Company to be held at the
Stanford Park Hotel, 100 El Camino Real, Menlo Park, California, on Wednesday,
May 28, 1997, at 9:00 a.m. Pacific Daylight Time, and at any adjournments or
postponements thereof.
THIS PROXY WILL BE VOTED AS DIRECTED ON THE REVERSE SIDE. WHEN NO CHOICE IS
INDICATED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES LISTED IN
PROPOSAL 1 AND FOR PROPOSAL 2 AND PROPOSAL 3. In their discretion, the proxy
holders are authorized to vote upon such other business as may properly come
before the meeting or any adjournments or postponements thereof to the extent
authorized by Rule 14a-4(c) promulgated under the Securities Exchange Act of
1934, as amended.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE [SEE REVERSE SIDE]
<PAGE> 40
DETACH HERE CRG 1
[X] Please mark votes as
in this example
The Board of Directors recommends that you vote FOR the election of
the six nominees listed in Proposal 1 and FOR Proposal 2 and
Proposal 3.
1. Election of Directors
Nominees: David B. Apfelberg, Jack M. Gill, Allen W. Hill,
David C. Hull, Jr., Thomas D. Kiley, F. Thomas (Jay) Watkins III
FOR ALL NOMINEES WITHHELD
[ ] [ ]
[ ] ________________________________________
For all nominees except as noted above
2. Approval of the amendment to the Company's 1996 Equity Incentive Plan
to increase the number of shares of Common Stock reserved for issuance
thereunder by 300,000 shares.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Ratification of the selection of Coopers & Lybrand L.L.P. as the
company's independent accountants for the fiscal year ending December
31, 1997.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
MARK HERE FOR
ADDRESS CHANGE [ ]
AND NOTE BELOW
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO
COMPLETE, DATE, SIGN AND PROMPTLY MAIL THIS PROXY IN THE ENCLOSED
RETURN ENVELOPE SO THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING.
Please sign exactly as your name(s) appear(s) on your stock certificate. If
shares of stock stand of record in the names of two or more persons or in the
name of husband and wife, whether as joint tenants or otherwise, both or all of
such persons should sign the proxy. If shares of stock are held of record by a
corporation, the proxy should be executed by the president or vice president
and the secretary or assistant secretary. Executors, administrators or other
fiduciaries who execute the above proxy for a deceased stockholder should give
their full title. Please date the proxy.
Signature: _______________ Date: _______ Signature: ______________ Date: _______
