<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CARDIOVASCULAR DYNAMICS, INC.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement no.:
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(4) Date Filed:
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Notes: ---------------------------------------------------------------------
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<PAGE> 2
CARDIOVASCULAR DYNAMICS, INC.
[LOGO]
13700 ALTON PARKWAY, SUITE 160
IRVINE, CALIFORNIA 92618
----------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 19, 1998
----------
To the Stockholders of CardioVascular Dynamics, Inc.:
You are cordially invited to attend the Annual Meeting of Stockholders
of CardioVascular Dynamics, Inc. ("CVD" or the "Company") on May 19, 1998 at
10:00 a.m., California time. The Annual Meeting will be held at the Company's
executive offices at 13700 Alton Parkway, Suite 160, Irvine, California 92618.
At the meeting, you will be asked to consider and vote upon the
following proposals: (i) the approval of an amendment to the 1996 Stock
Option/Stock Issuance Plan which will effect an increase in the number of shares
of the Company's Common Stock available for issuance by an additional 200,000
shares; (ii) the approval of an amendment to the Employee Stock Purchase Plan to
delete the share number limit on the maximum number of shares of the Company's
Common Stock purchasable by each participant; (iii) the approval of an amendment
to the Company's Amended & Restated Certificate of Incorporation to eliminate
cumulative voting for the election of directors; (iv) the approval of an
amendment to the Company's Amended & Restated Certificate of Incorporation to
provide for a classified Board of Directors; (v) the election of five
individuals to serve as the members of the Company's Board of Directors; and
(vi) the ratification of Ernst & Young LLP as the Company's independent auditors
for the current fiscal year.
Whether or not you plan to attend the Annual Meeting, please mark, sign,
date and return the enclosed proxy card promptly in the accompanying
postage-paid reply envelope. By returning the proxy, you can help CVD avoid the
expense of duplicate proxy solicitations and possibly having to reschedule the
Annual Meeting if a quorum of the outstanding shares is not present or
represented by proxy. If you decide to attend the Annual Meeting and wish to
change your proxy vote, you may do so simply by voting in person at the Annual
Meeting.
April 15, 1998 MICHAEL R. HENSON
Chairman of the Board and
Chief Executive Officer
<PAGE> 3
CARDIOVASCULAR DYNAMICS, INC.
[LOGO]
13700 ALTON PARKWAY, SUITE 160
IRVINE, CALIFORNIA 92618
----------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 19, 1998
----------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
CardioVascular Dynamics, Inc., a Delaware corporation ("CVD" or the "Company"),
will be held on May 19, 1998 at 10:00 a.m. at the Company's executive offices at
13700 Alton Parkway, Suite 160, Irvine, California 92618, for the following
purposes:
1. To approve an amendment to CVD's 1996 Stock Option/Stock Issuance
Plan to effect an increase in the number of shares available for issuance by an
additional 200,000 shares of Common Stock.
2. To approve an amendment to CVD's Employee Stock Purchase Plan to
delete the share number limit on the maximum number of shares of the Company's
Common Stock purchasable by each participant.
3. To approve an amendment to the Company's Amended & Restated
Certificate of Incorporation to eliminate cumulative voting for the election of
directors.
4. To approve an amendment to the Company's Amended & Restated
Certificate of Incorporation to provide for a classified Board of Directors.
5. To elect five members to the Board of Directors of CVD from the
following nominees: Michael R. Henson, William G. Davis, Franklin Brown, Edward
M. Leonard and Gerard von Hoffmann.
6. To ratify the selection of Ernst & Young LLP as CVD's independent
auditors for the current fiscal year ending December 31, 1998.
7. To transact such other business as may properly come before the
meeting.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
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The Board of Directors has fixed the close of business on April 7, 1998
as the record date for the determination of stockholders entitled to notice of
and to vote at this Annual Meeting and at any continuation or adjournment
thereof.
By Order of the Board of Directors
DANA P. NICKELL
Secretary
Irvine, California
April 15, 1998
ALL STOCKHOLDERS ARE INVITED TO ATTEND THE MEETING. WHETHER OR NOT YOU EXPECT TO
ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY AS
PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR REPRESENTATION AT THE MEETING. A
POSTAGE-PREPAID ENVELOPE IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE GIVEN
YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING.
2
<PAGE> 5
CARDIOVASCULAR DYNAMICS, INC.
[LOGO]
13700 ALTON PARKWAY, SUITE 160
IRVINE, CALIFORNIA 92618
----------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 19, 1998
----------
PROXY STATEMENT
----------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
CardioVascular Dynamics, Inc. ("CVD" or the "Company") for use at the Annual
Meeting of Stockholders (the "Annual Meeting") to be held on May 19, 1998 at
10:00 a.m. at the Company's executive offices at 13700 Alton Parkway, Suite 160,
Irvine, California 92618, at which time stockholders of record on April 7, 1998
will be entitled to vote. On April 7, 1998, CVD had outstanding [ ] shares of
its Common Stock ("Common Stock"). Stockholders of record on such date are
entitled to one vote for each share of Common Stock held on all matters to be
voted upon at the meeting.
CVD intends to mail this proxy statement and the accompanying proxy card
on or about April 15, 1998 to all stockholders entitled to vote at the Annual
Meeting. CVD's principal executive offices are located at 13700 Alton Parkway,
Suite 160, Irvine, California 92618. The telephone number at that address is
(714) 457-9546.
VOTING
The presence in person or by proxy of the holders of a majority of the
Common Stock issued and outstanding constitutes a quorum for the transaction of
business at the Annual Meeting. Under the cumulative voting provision in the
Company's Amended & Restated Certificate of Incorporation, each stockholder may
cast for a single nominee for director, or distribute among up to five nominees,
a number of votes equal to five multiplied by the number of shares held by such
stockholder. The amendments to the Company's Amended & Restated Certificate of
Incorporation must be approved by a majority of the outstanding shares of Common
Stock entitled to vote thereon. The other matters submitted for stockholder
approval at this Annual Meeting will be decided by the affirmative vote of a
majority of shares present in person or represented by proxy at the Annual
Meeting and entitled to vote on each matter. With regard to the election of
directors, votes may be cast in favor of or withheld from each nominee; votes
that are withheld will be excluded entirely from the vote and will have no
effect. Abstentions may be specified on all proposals except the election of
directors and will be counted as present for purposes of determining the
existence of a quorum regarding the item
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<PAGE> 6
on which the abstention is noted, and thus have the same effect as negative
votes. If shares are not voted by a broker who is the record holder of the
shares present at the Annual Meeting, or if shares are not voted in other
circumstances in which proxy authority is defective or has been withheld with
respect to any matter, these non-voted shares will be counted for quorum
purposes but are not deemed to be present or represented for purposes of
determining whether stockholder approval of that matter has been obtained.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by the holder of
record by filing with the Secretary of CVD at CVD's principal executive office,
a written notice of revocation or a new duly executed proxy bearing a date later
than the date indicated on the previous proxy, or it may be revoked by the
holder of record attending the meeting and voting in person.
Attendance at the meeting will not, by itself, revoke a proxy.
SOLICITATION
CVD will bear the entire cost of proxy solicitation, including costs of
preparing, assembling, printing and mailing this proxy statement, the proxy card
and any additional material furnished to stockholders. Copies of the
solicitation materials will be furnished to brokerage houses, fiduciaries and
custodians holding in their names shares of Common Stock beneficially owned by
others, to forward to such beneficial owners. CVD may, if deemed necessary or
advisable, retain a proxy solicitation firm to deliver solicitation materials to
beneficial owners and to assist the Company in collecting proxies from such
individuals. CVD may reimburse persons representing beneficial owners of shares
for their expenses in forwarding solicitation materials to such beneficial
owners. Original solicitation of proxies by mail may be supplemented by
telephone, telegram or personal solicitation by directors, officers or other
regular employees of CVD. No additional compensation will be paid to directors,
officers or other regular employees for such services.
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PROPOSAL NO. 1
AMENDMENT TO THE 1996 STOCK OPTION/STOCK ISSUANCE PLAN OF
CARDIOVASCULAR DYNAMICS, INC.
The stockholders are being asked to vote on a proposal to approve
an amendment to the Company's 1996 Stock Option/Stock Issuance Plan (the "Option
Plan") to increase the number of shares of Common Stock authorized for issuance
under the Option Plan by an additional 200,000 shares.
The amendment to the Option Plan was adopted by the Board on March 12,
1998, subject to stockholder approval at the 1998 Annual Meeting. The Board
believes it is in the best interests of the Company to increase the share
reserve so that the Company can continue to attract and retain the services of
those persons essential to the Company's growth and financial success.
The Option Plan originally was adopted by the Board of Directors on May
1, 1996 and approved by the stockholders on May 1, 1996. The Option Plan was
amended by the Board of Directors on April 8, 1997 and approved by the
stockholders on May 16, 1997.
The following is a summary of the principal features of the Option Plan,
as recently amended for the share increase. The summary, however, does not
purport to be a complete description of all the provisions of the Option Plan.
Any stockholder who wishes to obtain a copy of the actual plan document may do
so by written request to the Secretary of CVD at CVD's executive offices in
Irvine, California.
EQUITY INCENTIVE PROGRAMS
The Option Plan is comprised of three separate equity incentive
programs: (i) a Discretionary Option Grant Program; (ii) a Stock Issuance
Program; and (iii) an Automatic Option Grant Program. The Compensation Committee
of the Board administers the Discretionary Option Grant and Stock Issuance
Programs to all persons eligible to participate in the Option Plan, the
Discretionary Option Grant and Stock Issuance Programs, subject to separate but
concurrent administration by the Board. The Plan Administrator (either the
Compensation Committee or the Board, to the extent such entity is carrying out
its administrative functions under the Option Plan with respect to one or more
classes of eligible individuals), has complete discretion (subject to the
provisions of the Option Plan) to authorize discretionary option grants or stock
issuances under the Option Plan. However, all grants under the Automatic Option
Grant Program will be made in strict compliance with the provisions of that
program, and no administrative discretion is exercised by the Plan Administrator
with respect to the grants made thereunder.
SHARE RESERVE
The maximum number of shares of Common Stock issuable over the term of
the Option Plan may not exceed 2,100,000 shares (including the 200,000 shares
for which stockholder approval is sought under this Proposal). In no event may
any one participant in the Option Plan be granted stock options or separately
exercisable stock appreciation rights for more than 800,000 shares in the
aggregate over the term of the Option Plan.
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<PAGE> 8
In the event any change is made to the outstanding shares of Common
Stock by reason of any recapitalization, stock dividend, stock split,
combination of shares, exchange of shares or other change in corporate structure
effected without the Company's receipt of consideration, appropriate adjustments
will be made to the number and class of securities issuable (in the aggregate
and to each participant) under the Option Plan and to the number and class of
securities subject to each outstanding option and the exercise price payable per
share for those securities.
ELIGIBILITY
Employees (including officers), non-employee Board members, consultants
and other independent advisors who provide services to CVD and its parent or
subsidiaries (whether now existing or subsequently established) will be eligible
to participate in the Discretionary Option Grant and Stock Issuance Programs.
Non-employee members of the Board will also be eligible to participate in the
Automatic Grant Program.
As of March 4, 1998, approximately 98 employees (including 6 executive
officers), and 4 non-employee Board members were eligible to participate in the
Discretionary Option Grant and Stock Issuance Programs and 4 non-employee Board
members were eligible to participate in the Automatic Option Grant Program.
VALUATION
The fair market value per share of Common Stock on any relevant date
under the Option Plan will be the closing selling price per share on that date
on the Nasdaq National Market. On March 4, 1998, the closing selling price per
share was $4.50.
DISCRETIONARY OPTION GRANT PROGRAM
Options may be granted under the Discretionary Option Grant Program at
an exercise price per share not less than 85 percent of the fair market value
per share of Common Stock on the option grant date. No granted option will have
a term in excess of ten years.
Upon cessation of service, the optionee will have a limited period of
time in which to exercise any outstanding option to the extent such option is
exercisable for vested shares. The Plan Administrator will have complete
discretion to extend the period following the optionee's cessation of service
during which his or her outstanding options may be exercised and/or to
accelerate the exercisability or vesting of such options in whole or in part.
Such discretion may be exercised at any time while the options remain
outstanding, whether before or after the optionee's actual cessation of service.
The Plan Administrator is authorized to issue two types of stock
appreciation rights in connection with option grants made under the
Discretionary Option Grant Program:
Tandem stock appreciation rights provide the holders with the right to
surrender their options for an appreciation distribution from the Company equal
in amount to the excess of (a) the fair market value of the vested shares of
Common Stock subject to the surrendered option over (b) the aggregate exercise
price payable for such shares. Such appreciation distribution may, at the
discretion of the Plan Administrator, be made in cash or in shares of Common
Stock. Limited stock
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appreciation rights may be granted to officers of the Company as part of their
option grants. Any option with such a limited stock appreciation right in effect
will be automatically cancelled upon the successful completion of a hostile
take-over of the Company. In return for the cancelled option, the officer will
be entitled to a cash distribution from the Company in an amount per cancelled
option share equal to the excess of (a) the take-over price per share over (b)
the exercise price payable for such share.
The Plan Administrator will have the authority to effect the
cancellation of outstanding options under the Discretionary Option Grant Program
which have exercise prices in excess of the then current market price of Common
Stock and to issue replacement options with an exercise price based on the
market price of Common Stock at the time of the new grant.
STOCK ISSUANCE PROGRAM
Shares may be sold under the Stock Issuance Program at a price per share
not less than eighty-five percent (85%) of the fair market value per share of
Common Stock, payable in cash or through a promissory note payable to the
Company. Shares may also be issued solely as a bonus for past services.
The issued shares either may be vested immediately upon issuance or
subject to a vesting schedule tied to the performance of service or the
attainment of performance goals. The Plan Administrator will, however, have the
discretionary authority at any time to accelerate the vesting of any unvested
shares.
AUTOMATIC OPTION GRANT PROGRAM
Under the Automatic Option Grant Program, option grants have been made
to the current non-employee Board members, and option grants will be made to
individuals who join the Board as non-employee members in the future. Additional
automatic option grants will be made at annual intervals to all non-employee
Board members over their continued period of service on the Board. These special
grants may be summarized as follows:
A. Each individual who served as a non-employee Board member on June 19,
1996 was automatically granted on such date an option to purchase 5,000 shares
of Common Stock.
B. Each individual who first becomes a non-employee Board member at any
time after June 19, 1996, whether through election by the stockholders or
appointment by the Board, will automatically be granted, at the time of such
initial election or appointment, an option to purchase 5,000 shares of Common
Stock.
C. On the date of each Annual Stockholders Meeting held after June 19,
1996, each individual who is to continue to serve as a non-employee Board member
after such Annual Meeting will receive an additional option grant to purchase
5,000 shares of Common Stock, provided such individual has been a member of the
Board for at least six (6) months.
Each option will have an exercise price per share equal to 100% of the
fair market value per share of Common Stock on the option grant date and a
maximum term of ten years measured from the option grant date.
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<PAGE> 10
Each option will be immediately exercisable for all the option shares,
but any purchased shares will be subject to repurchase by the Company, at the
exercise price paid per share, upon the optionee's cessation of Board service.
Each initial option grant will vest (and the Company's repurchase rights
will lapse) in four equal annual installments over the optionee's period of
Board service, with the first such installment to vest upon the completion of
one year of Board service measured from the option grant date. Each annual
option grant will vest (and the Company's repurchase rights will lapse) upon the
completion of one year of Board service measured from the option grant date.
The shares subject to each automatic option grant will immediately vest
upon the optionee's death or permanent disability or an acquisition of the
Company by merger or asset sale or a hostile change in control of the Company
(whether by successful tender offer for more than 50% of the outstanding voting
stock or by proxy contest for the election of Board members). In addition, upon
the successful completion of a hostile take-over, each automatic option grant
may be surrendered to the Company for a cash distribution per surrendered option
share in an amount equal to the excess of (a) the take-over price per share over
(b) the exercise price payable for such share.
GENERAL PROVISIONS
ACCELERATION
In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not to
be assumed by the successor corporation or replaced with a comparable option to
purchase shares of the capital stock of the successor corporation will
automatically accelerate in full, and all unvested shares under the Stock
Issuance Program will immediately vest, except to the extent the Company's
repurchase rights with respect to those shares are to be assigned to the
successor corporation. The Plan Administrator will have the discretion to grant
options under the Discretionary Option Grant Program which automatically
accelerate if the options are assumed or replaced in connection with such
acquisition and the individual's service is subsequently terminated within a
designated period (not to exceed 18 months) following the acquisition. The Plan
Administrator will also have the discretion to grant options which automatically
accelerate in the event the individual's service is terminated within a
designated period (not to exceed 18 months) following a hostile change in
control of the Company (whether by successful tender offer for more than 50% of
the outstanding voting stock or by proxy contest for the election of Board
members). The Plan Administrator may also provide for the automatic vesting of
any outstanding shares under the Stock Issuance Program upon similar terms and
conditions.
The acceleration of vesting in the event of a change in the ownership or
control of the Company may be seen as an anti-takeover provision and may have
the effect of discouraging a merger proposal, a takeover attempt or other
efforts to gain control of the Company.
FINANCIAL ASSISTANCE
The Plan Administrator may permit one or more participants to pay the
exercise price of outstanding options or the purchase price of the shares under
the Option Plan by delivering a promissory note payable in installments. The
Plan Administrator will determine the terms of any
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such promissory note. However, the maximum amount of financing provided any
optionee may not exceed the cash consideration payable for the purchased shares
plus all applicable taxes incurred in connection with the acquisition of the
shares. Any such promissory note may be subject to forgiveness in whole or in
part, at the discretion of the Plan Administrator, over the participant's period
of service.
SPECIAL TAX ELECTION
The Plan Administrator may provide one or more holders of options or
unvested shares with the right to have the Company withhold a portion of the
shares otherwise issuable to such individuals in satisfaction of the tax
liability incurred by such individuals in connection with the exercise of those
options or the vesting of those shares. Alternatively, the Plan Administrator
may allow such individuals to deliver previously acquired shares of Common Stock
in payment of such tax liability.
AMENDMENT AND TERMINATION
The Board may amend or modify the Option Plan in any or all respects
whatsoever subject to any required stockholder approval. The Board may terminate
the Option Plan at any time, and the Option Plan will in any event terminate on
April 29, 2006.
OPTION GRANTS
The table below shows, as to each of the executive officers named in the
Summary Compensation Table and the various indicated groups, the number of
shares of Common Stock subject to options granted between January 1, 1997 and
March 4, 1998 under the Option Plan, together with the weighted average exercise
price payable per share.
<TABLE>
<CAPTION>
NUMBER OF OPTION WEIGHTED AVERAGE
NAME AND POSITION SHARES EXERCISE PRICE
- ------------------------------------------ ---------------- ----------------
<S> <C> <C>
Michael R. Henson 55,000 $ 8.79
Chairman of the Board and Chief
Executive Officer
Edward McDonald 50,000 $ 6.50
Vice President, Advanced Technologies
Dana P. Nickell 30,000 $ 9.06
Vice President, Finance and
Administration, Chief Financial Officer
and Corporate Secretary
Jeffrey F. O'Donnell 145,000 $ 7.19
President and Chief Operating Officer
Jeffrey H. Thiel 58,000 $ 6.59
Vice President, Operations
</TABLE>
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<PAGE> 12
<TABLE>
<CAPTION>
NUMBER OF OPTION WEIGHTED AVERAGE
NAME AND POSITION SHARES EXERCISE PRICE
- ------------------------------------------ ---------------- ----------------
<S> <C> <C>
Claire K. Walker 38,000 $ 7.07
Vice President, Clinical Affairs
All current executive officers as a group 376,000 $ 7.38
(6 persons)
All current directors (other than 40,000 $ 8.31
executive officers) as a group (4
persons)
All employees, including current officers 598,000 $ 7.10
who are not executive officers, as a
group (87 persons)
</TABLE>
- ----------
As of March 4, 1998, approximately 353,000 shares of Common Stock had
been issued under the Option Plan, approximately 1,474,000 shares of Common
Stock were subject to outstanding options, and approximately 364,000 shares of
Common Stock were available for future option grants, inclusive of the 200,000
share increase which stockholders are being asked to approve under this Proposal
No. 1.
NEW PLAN BENEFITS
As of March 4, 1998, no options have been granted on the basis of the
200,000 share increase for which stockholder approval is sought under this
Proposal. However, each individual who is reelected as a non-employee Board
member at the Annual Meeting automatically will receive at that time an option
for 5,000 shares of Common Stock at an exercise price equal to the fair market
value of the shares on such grant date.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES
OPTION GRANTS
The following is a summary of certain federal income tax consequences of
participation in the Option Plan. The summary should not be relied upon as being
a complete statement. Federal tax laws are complex and subject to change.
Moreover, participation in the Plan may also have consequences under state and
local tax laws which may vary from the federal tax consequences described below.
For such reasons, the Company recommends that each participant consult his or
her personal tax advisor to determine the specific tax consequences applicable
to him or her.
The 1997 Tax Act changed, among other things, the federal income tax
treatment of capital gains. Generally, the federal tax rate on gains from the
sale of shares of the Company's stock depends upon how long the shares have been
held at the time of sale. For shares held less than 12 months, the gain
("short-term capital gain") is taxed at ordinary income tax rates. For sales
made after July 28, 1997, where the shares have been held more than 12 months
but less than 18 months, the gain ("mid-term capital gain") is subject to
federal income tax at a maximum rate of 28 percent,
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and for shares held more than 18 months, the gain ("long-term capital gain") is
subject to federal income tax at a maximum rate of 20 percent.
INCENTIVE STOCK OPTIONS
No taxable income will be recognized by an optionee under the Plan upon
either the grant or the exercise of an incentive option. Instead, a taxable
event will occur upon the sale or other disposition of the shares acquired upon
exercise of an incentive option, and the tax treatment of the gain or loss
realized will depend upon how long the shares were held before their sale or
disposition. As is discussed below, the exercise of an incentive option also may
result in items of "tax preference" for purposes of the "alternative minimum
tax."
If a sale or other disposition of the shares received upon the exercise
of an incentive option occurs more than (i) one year after the date of exercise
of the option and (ii) two years after the date of grant of the option, the
holder will recognize either mid-term or long-term capital gain or loss
(depending upon whether the shares were held more than 12 or more than 18 months
after exercise) at the time of sale equal to the full amount of the difference
between the proceeds realized and the exercise price paid. However, a sale,
exchange, gift or other transfer of legal title of such stock before the
expiration of either the one-year or two-year period described above will
constitute a "disqualifying disposition." A disqualifying disposition involving
a sale or exchange will result in ordinary income to the optionee in an amount
equal to the lesser of (i) the fair market value of the stock on the date of
exercise minus the exercise price, or (ii) the amount realized on disposition
minus the exercise price. If the amount realized in a disqualifying disposition
exceeds the fair market value of the stock on the date of exercise, the gain
realized, in excess of the amount taxed as ordinary income as indicated above,
will be taxed as capital gain. A disqualifying disposition as a result of a gift
will result in ordinary income to the optionee in an amount equal to the
difference between the exercise price and the fair market value of the stock on
the date of exercise. Any loss realized upon a disqualifying disposition will be
treated as a capital loss. Capital gains and losses resulting from disqualifying
dispositions will be treated as long-term, mid-term or short-term depending upon
whether the shares were held for more or less than the applicable statutory
holding period (which is currently more than one year but less 18 months for
mid-term capital gains and more than 18 months for long-term capital gains). The
Company will be entitled to a tax deduction in an amount equal to the ordinary
income recognized by the optionee as a result of the disqualifying disposition.
If legal title to any shares acquired upon exercise of an incentive
option is transferred by sale, gift or exchange, such transfer will be treated
as a disposition for purposes of determining whether a "disqualifying
disposition" has occurred. However, certain transfers will not be treated as
dispositions for such purposes, such as transfers to an estate or by inheritance
upon an optionee's death, a mere pledge or hypothecation, or a transfer into the
name of the optionee and another person as joint tenants.
Section 55 of the Code imposes an "alternative minimum tax" on an
individual's income to the extent the amount of the alternative minimum tax
exceeds the individual's regular tax for the year. For purposes of computing the
alternative minimum tax, the excess of the fair market value (on the date of
exercise) of the shares received upon the exercise of an incentive option over
the exercise price paid is included in alternative minimum taxable income in the
year the option is exercised. If the shares are sold in the same year that the
option is exercised, the regular tax treatment and the
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alternative tax treatment will be the same. If the shares are sold during a year
subsequent to that in which the option was exercised, the basis of the stock
acquired will equal its fair market value on the date of exercise for purposes
of computing alternative minimum taxable income in the year of sale. For
example, assume that an individual pays an exercise price of $10 to purchase
stock having a fair market value of $15 on the date of exercise. The amount
included in alternative minimum taxable income is $5, and the stock has a basis
of $10 for regular tax purposes and $15 for alternative minimum tax purposes. If
the individual sells the stock in a subsequent year for $20, the gain recognized
is $10 for regular tax purposes and $5 for alternative minimum tax purposes.
An optionee who is subject to the alternative minimum tax in the year of
exercise of an incentive option may claim as a credit against the optionee's
regular tax liability in future years, the amount of alternative minimum tax
paid that is attributable to the exercise of the incentive option. This credit
is available in the first year following the year of exercise in which the
optionee has a regular tax liability.
Under the Plan, the Plan Administrator may permit an optionee to pay the
exercise price of an incentive option in certain circumstances by delivering
shares of Common Stock of the Company already owned by the optionee, valued at
their fair market value on the date of exercise. Generally, if the exercise
price of an incentive option is paid with already-owned shares or by a
combination of cash and already-owned shares, there will be no current taxable
gain or loss recognized by the optionee on the already-owned shares exchanged. A
special rule applies, however, if the shares exchanged were previously acquired
through the exercise of an incentive option and the applicable holding period
requirements for favorable tax treatment of such shares have not been met at the
time of the exchange. In such event, the exchange will be treated as a
disqualifying disposition of such shares and will result in the recognition of
income to the optionee, in accordance with the rules described above for
disqualifying dispositions. If this special rule does not apply, then the new
shares received by the optionee upon the exercise of the option equal in number
to the old shares exchanged will have the same tax basis and holding period for
capital gain purposes as the optionee's basis and holding period in the old
shares. The balance of the shares received by the optionee upon exercise of the
option will have a tax basis equal to any cash paid by the optionee, and if no
cash was paid, the tax basis of such shares will be zero. The holding period of
the additional shares for capital gain purposes will commence on the date of
exercise. The holding period for purposes of the one-year and two-year periods
described above will commence on the date of exercise as to all of the shares
received upon the exercise of an incentive option. If any of the shares subject
to the basis allocation rules described above are subsequently transferred in a
disqualifying disposition, the shares with the lowest tax basis will be treated
as being transferred first.
NONQUALIFIED OPTIONS
No taxable income is recognized by an optionee upon the grant of a
nonqualified option. Upon exercise, however, the optionee will recognize
ordinary income in the amount by which the fair market value of the shares
purchased exceeds, on the date of exercise, the exercise price paid for such
shares. The income recognized by an optionee who is an employee will be subject
to income tax withholding by the Company, which the optionee will be required to
satisfy. The Company will be entitled to a tax deduction equal to the amount of
ordinary income recognized by the optionee, provided certain reporting
requirements are satisfied.
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If the exercise price of a nonqualified option is paid by the optionee
in cash, the tax basis of the shares acquired will be equal to the cash paid
plus the amount of income recognized by the optionee as a result of such
exercise. If the exercise price is paid by delivering shares of Common Stock of
the Company already owned by the optionee or by a combination of cash and
already-owned shares, there will be no current taxable gain or loss recognized
by the optionee on the already-owned shares exchanged (however, the optionee
will nevertheless recognize ordinary income to the extent that the fair market
value of the shares purchased on the date of exercise exceeds the price paid, as
described above). The new shares received by the optionee equal in number to the
old shares exchanged will have the same tax basis and holding period as the
optionee's basis and holding period in the old shares. The balance of the shares
received will have a tax basis equal to any cash paid by the optionee plus the
amount of income recognized by the optionee as a result of such exercise, and
will have a holding period commencing with the date of exercise.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when the Company's repurchase right lapses, an amount
equal to the excess of (i) the fair market value of the shares on the date the
repurchase right lapses over (ii) the exercise price paid for the shares. The
optionee may, however, elect under Section 83(b) of the Internal Revenue Code to
include as ordinary income in the year of exercise of the option an amount equal
to the excess of (i) the fair market value of the purchased shares on the
exercise date over (ii) the exercise price paid for such shares. If the Section
83(b) election is made, the optionee will not recognize any additional income as
and when the repurchase right lapses.
Upon the sale or disposition of shares acquired pursuant to the exercise
of a nonqualified option, the difference between the proceeds realized and the
optionee's basis in the shares will be a capital gain or loss and will be
treated as long-term, mid-term or short-term capital gain or loss if the shares
have been held for more than the applicable statutory holding period (which is
currently more than one year but less 18 months for mid-term capital gains and
more than 18 months for long-term capital gains).
STOCK ISSUED UNDER STOCK ISSUANCE PROGRAM
The receipt of restricted stock issued under the Stock Issuance Program
will not result in a taxable event to the participant until the expiration of
any repurchase rights retained by the Company with respect to such stock, unless
the participant makes an election under Section 83(b) of the Code to be taxed as
of the date of purchase. If no repurchase rights are retained, or if a Section
83(b) election is made, the participant will recognize ordinary income in an
amount equal to the excess of the fair market value of such shares on the date
of purchase over the purchase price paid for such shares. Even if the purchase
price and the fair market value of the shares are the same (in which case there
would be no ordinary income), a Section 83(b) election must be made to avoid
deferral of the date ordinary income is recognized. The election must be filed
with the Internal Revenue Service not later than 30 days after the date of
transfer.
If no Section 83(b) election is made or if no repurchase rights are
retained, a taxable event will occur on each date the participant's ownership
rights vest (e.g., when the Company's repurchase rights expire) as to the number
of shares that vest on that date, and the holding period for capital gain
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purposes will not commence until the date the shares vest. The participant will
recognize ordinary income on each date shares vest in an amount equal to the
excess of the fair market value of such shares on that date over the amount paid
for such shares. Any income recognized by a participant who is an employee will
be subject to income tax withholding by the Company, which the participant will
be required to satisfy. The Company is entitled to a tax deduction in an amount
equal to the ordinary income recognized by the participant. The participant's
basis in the shares will be equal to the purchase price, if any, increased by
the amount of ordinary income recognized.
STOCK APPRECIATION RIGHTS
An optionee who is granted a stock appreciation right will recognize
ordinary income in the year of exercise equal to the amount of the appreciation
distribution. The Company will be entitled to an income tax deduction equal to
the appreciation distribution for the taxable year in which such ordinary income
is recognized by the optionee.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Company anticipates that any compensation deemed paid by it in
connection with disqualifying dispositions of incentive stock option shares or
exercises of non-statutory options granted with exercise prices equal to the
fair market value of the shares on the grant date will qualify as
performance-based compensation for purposes of Internal Revenue Code Section
162(m) and will not have to be taken into account for purposes of the $1 million
limitation per covered individual on the deductibility of the compensation paid
to certain executive officers of the Company. Accordingly, all compensation
deemed paid with respect to those options will remain deductible by the Company
without limitation under Internal Revenue Code Section 162(m).
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the shares of the Company's
outstanding voting stock present or represented by proxy at the Annual Meeting
and entitled to vote on Proposal No. 1 is required for approval to amend the
Option Plan. If such stockholder approval is not obtained, then the share
reserve will not be increased.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF
THE AMENDMENT TO THE 1996 STOCK OPTION/STOCK ISSUANCE PLAN.
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PROPOSAL NO. 2
AMENDMENT TO THE EMPLOYEE STOCK PURCHASE PLAN OF
CARDIOVASCULAR DYNAMICS, INC.
The stockholders are being asked to vote on a proposal to approve an
amendment to the Company's Employee Stock Purchase Plan (the "Purchase Plan") to
delete the 950 share number limit on the maximum number of shares of the
Company's Common Stock purchasable by each participant.
The amendment to the Purchase Plan was adopted by the Board on March 12,
1998, subject to stockholder approval at the Annual Meeting. The Board believes
it is in the best interest of the Company to adopt the amendment to the Purchase
Plan to provide eligible employees with a greater opportunity to acquire a
proprietary interest in the Company. The Board believes that by acquiring a
proprietary interest in the Company, the interests of employees are more closely
aligned with the interests of the stockholders due to their personal financial
interest in the growth and financial success of the Company.
The Purchase Plan originally was adopted by the Board approved by the
Company's stockholders on May 1, 1996, and subsequently was amended by the Board
on April 8, 1997 and approved by the stockholders at the 1997 Annual Meeting.
The amendment of the Purchase Plan by the Board on March 12, 1998 to
delete the 950 share number limit on the maximum number of shares of Common
Stock that could be purchased by a participant on any purchase date does not
affect the other limits on the number of shares of Common Stock purchasable by
each participant under the Purchase Plan. A participant also is limited by: (i)
the amount of the payroll deduction authorized by the participant for the
purpose of acquiring shares of Common Stock during an offering period, which is
a maximum of ten percent of base salary under the terms of the Purchase Plan;
(ii) the prohibition against accruing purchase rights to acquire in excess of
$25,000 worth of Common Stock under the Purchase Plan or other employee stock
purchase plans for each calendar year a participant's purchase right remains
outstanding (determined on the basis of the fair market value of the Common
Stock on a participant's entry date into the offering period); and (iii) the
prohibition against granting a purchase right to an employee who, immediately
after the grant of such right, would own (or otherwise hold options or other
rights to purchase) stock possessing five percent or more of the total voting
power or value of all classes of stock of the Company. (See the discussion below
under "Timing").
Due to the current price of the Company's stock and the income level of
most of the Company's employees, the effective limit on the number of shares
purchasable by any participant under the Purchase Plan would be 950 shares
without approval of the March 12, 1998 amendment. However, the proposed
amendment will, at the Company's current stock price, effectively increase the
number of shares of Common Stock which a participant will be eligible to
purchase under the Purchase Plan. The Board does not know whether participants
will in fact increase the number of shares of Common Stock purchased under the
Purchase Plan, but believes any such increase will be in the best interests of
the Company, as described above.
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The following is a summary of the principal features of the Purchase
Plan, as amended to delete the share number limit on the maximum number of
shares of Common Stock purchasable by each participant. The summary, however,
does not purport to be a complete description of all of the provisions of the
Purchase Plan. Any stockholder who wishes to obtain a copy of the actual plan
document may do so by written request to the Secretary of CVD at CVD's executive
offices in Irvine, California.
PURPOSE
The purpose of the Purchase Plan is to provide eligible employees with
the opportunity to acquire a stock ownership interest in the Company through
periodic payroll deductions designed to qualify under Section 423 of the
Internal Revenue Code. These deductions will be applied at semi-annual intervals
to purchase shares of Common Stock at a discount from the then current market
price.
ADMINISTRATION
The Purchase Plan is administered by the Compensation Committee of the
Board. The Compensation Committee is comprised of two or more non-employee Board
members appointed by the Board who serve for as long as the Board deems
appropriate, and may be removed by the Board at any time. The Compensation
Committee in its capacity as administrator of the Purchase Plan is referred to
herein as the "Plan Administrator."
SHARE RESERVE
A total of 200,000 shares of Common Stock are reserved for issuance
under the Purchase Plan. Although approval of the proposed amendment to the
Purchase Plan will delete the existing limit of 950 shares which any participant
may purchase on any purchase date (see the discussion -- "Offering Period"
below), certain other limitations still apply. First, the total number of shares
of Common Stock available for purchase by all participants over the ten year
term of the Purchase Plan is limited to 200,000 shares. Second, a participant is
limited by the amount of the payroll deduction authorized by such participant
during an offering period, which is a maximum of ten percent of base salary.
Third, a participant may not purchase shares at a rate in excess of $25,000
worth of Common Stock (determined on the basis of the fair market value of the
Common Stock on a participant's entry date into the offering period) for each
calendar year a participant's purchase right remains outstanding.
Finally, no purchase right will be granted to an employee who,
immediately after the grant of such right, would own (or otherwise hold options
or other rights to purchase) stock possessing five percent or more of the total
voting power or value of all classes of stock of the Company. Any payroll
deductions collected which cannot be applied to the purchase of Common Stock by
reason of one or more of these limitations will be refunded. If the total number
of shares for which purchase rights are to be exercised on any purchase date
exceeds the number of shares at the time available for issuance under the
Purchase Plan, then the Plan Administrator will make a pro-rata allocation of
the available shares on a uniform and non-discriminatory basis, and any payroll
deductions not applied to the purchase of the available shares will be refunded
to the participants.
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In the event of any stock dividend, stock split, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments will be made to: (i) the maximum number
and class of securities issuable under the Purchase Plan; (ii) the maximum
number and class of securities purchasable per participant on each purchase
date; and (iii) the number and class of securities and the price per share in
effect under each outstanding purchase right. Such adjustments will prevent any
dilution or enlargement of the rights and benefits of Purchase Plan
participants.
OFFERING PERIOD
Shares of Common Stock are offered for purchase through a series of one
or more offering periods, each with a maximum duration of 24 months. The initial
offering period began on the effective date of the Company's initial public
offering of the Common Stock and ends on the last business day in July 1998. The
next offering period is expected to start on the first business day in August
1998, and any subsequent offering periods will begin as designated by the Plan
Administrator.
Should the fair market value per share of Common Stock on any purchase
date within an offering period be less than the fair market value per share of
Common Stock on the start date of that offering period, then that offering
period automatically will terminate immediately after the purchase of shares on
that purchase date and a new offering period will commence on the next business
day following such purchase date.
Each offering period will be comprised of successive purchase intervals.
The start date for the first purchase interval was the same as the start date of
the initial offering period. Subsequent purchase intervals will begin on the
first business day of February and the first business day of August of each
calendar year within the offering period.
ELIGIBILITY
An employee is eligible to participate in the Purchase Plan after he or
she is employed by the Company or any participating subsidiary for more than 20
hours per week for more than 5 months per calendar year. An eligible employee
may join the Purchase Plan on any entry date (the first business day in February
or August each year) within that offering period on which he or she remains an
eligible employee. The date on which an employee first joins a particular
offering period is such employee's "Entry Date" for that offering period. On
such Entry Date, an employee is granted a purchase right to acquire shares of
Common Stock at the end of each purchase interval within that offering period.
An employee may authorize payroll deductions in any multiple of one
percent of his or her earnings for each purchase interval completed within the
offering period, up to a maximum of ten percent. Earnings include regular base
pay plus any salary contributions made to any Section 401(k) Plan or Section 125
Cafeteria Benefit Plan now or hereafter maintained by the Company. The rate of
payroll deduction may be decreased at any time, but not more than once during
the same purchase interval. In addition, the rate of payroll deduction may be
increased prior to the start of any new purchase interval within the offering
period (but not in excess of ten percent of eligible earnings).
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Payroll deductions are credited to an account established in the name of
the participating employee on the Company's books. No interest is paid on the
balance in an account. However, because the Company pays all administrative
expenses of the Purchase Plan, the full amount of payroll deductions are applied
to the purchase of Common Stock. Payroll deductions may be commingled with the
general assets of the Company and used for general corporate purposes.
TIMING
A purchase right is exercised on the last business day of each purchase
interval. These purchase dates occur on the last business day in January and
July each year during the offering period. The purchase right is exercised by
applying the amount credited in an employee's account to the purchase of shares
of Common Stock on each purchase date. However, any payroll deductions not
applied to the purchase of Common Stock by reason of the limitations on the
number of shares purchasable per participant on any purchase date (see the
limitations described above under "Share Reserve") will be refunded promptly
after such purchase date.
PURCHASE PRICE
The purchase price per share of Common Stock is 85 percent of the lower
of (i) the fair market value per share of Common Stock on an Entry Date into the
offering period or (ii) the fair market value per share on the purchase date.
Generally, the fair market value per share on any relevant date under the
Purchase Plan will be the closing selling price of the Common Stock on that
date, as reported on the Nasdaq National Market. If there is no reported selling
price for such date, then the closing selling price on the next preceding date
for which there is such a quotation will be used.
TERMINATION OF PURCHASE RIGHT
An employee may terminate his or her purchase right by filing a
notification form with the Plan Administrator at any time prior to the last
business day of any purchase interval, and no further payroll deductions are
collected during the remainder of the offering period. Any payroll deductions
already collected for the purchase interval in which the purchase right
terminates will, at an employee's election, be refunded or applied to the
purchase of Common Stock on the next purchase date. If no election is made,
payroll deductions automatically are refunded. Once an employee has terminated
his or her purchase right, he or she must wait until the start of a new offering
period to resume participation in the Purchase Plan.
TERMINATION OF EMPLOYMENT
Upon termination of employment for any reason (including death or
disability) or other loss of eligibility, then all payroll deductions for the
purchase interval in which employment terminates or eligibility ceases
automatically are refunded.
In the event of an approved unpaid leave of absence, an employee may
elect until the last day of the purchase interval in which leave begins, to: (i)
withdraw all payroll deductions already collected for that period; or (ii) have
such funds held for the purchase of shares of Common Stock on the next purchase
date. If no election is made by such purchase date, then all payroll deductions
automatically will be refunded, and no further payroll deductions may be made
during the period of
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such leave. However, upon return to active service, payroll deductions
automatically will resume at the rate in effect at the beginning of such leave.
GENERAL
In the event of any merger, acquisition or other sale of the Company (an
"Acquisition"), then all payroll deductions for the purchase interval in which
such Acquisition occurs automatically will be applied to the purchase of Common
Stock immediately prior to the effective date of the Acquisition, subject to
existing limitations on the number of shares purchasable by a participant (see
the discussion above under "Share Reserve"). The purchase price of such shares
will be eighty-five percent of the lower of (i) the fair market value of the
Common Stock on an employee's Entry Date into the offering period or (ii) the
fair market value of the Common Stock immediately prior to the Acquisition. The
Company will use its best efforts to provide at least ten days prior notice of
any such Acquisition, and each participant will thereafter have the right to
terminate his or her outstanding purchase rights at any time prior to the
effective date of the Acquisition.
Although an employee's purchase right cannot be assigned or transferred,
individuals who purchase Common Stock under the Purchase Plan may resell such
shares without restriction, except for certain executive officers of the Company
who are restricted by applicable securities laws. However, the Federal and state
income tax treatment of the sale proceeds may differ depending on how long an
individual holds shares prior to sale. (See the discussion below, "FEDERAL
INCOME TAX CONSEQUENCES").
The Plan Administrator has the discretion to terminate all outstanding
purchase rights immediately following any purchase date. If the Plan
Administrator exercises this discretion, the Purchase Plan will terminate in its
entirety, no further purchase rights thereafter will be granted or exercised and
no further payroll deductions will be collected under the terminated plan. The
Board may alter or amend the Purchase Plan at any time to become effective
immediately following the close of any semi-annual purchase date. However,
certain amendments may require the approval of the Company's stockholders. The
Purchase Plan in all events will terminate upon the earliest to occur of (i) the
last business day in July 2006; (ii) the date on which all shares available for
issuance under the Purchase Plan have been sold; or (iii) the date on which all
purchase rights are exercised in connection with the Acquisition.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain federal income tax consequences of
participation in the Purchase Plan. The summary should not be relied upon as
being a complete statement. Federal tax laws are complex and subject to change.
Moreover, participation in the Purchase Plan also may have consequences under
state and local tax laws that may vary from the federal tax consequences
described below. For such reasons, the Company recommends that each participant
consult his or her personal tax advisor in order to determine the specific tax
consequences applicable to him or her.
The Purchase Plan and the right of participants to make purchases
thereunder are intended to qualify under the provisions of Sections 421 and 423
of the Code. Under these provisions, no income will be taxable to a participant
at the time of grant or purchase of shares. However, a participant may
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become liable for tax upon disposition of shares acquired under the Purchase
Plan, and the tax consequences will depend upon how long a participant has held
the shares before disposition.
If the shares are disposed of at least two years after the Entry Date
and at least one year after the purchase date, or in the event of a
participant's death (whenever occurring) while owning such shares, then the
lesser of (i) the excess of the fair market value of the shares at the time of
such disposition over the purchase price of the shares or (ii) fifteen percent
of the fair market value of the shares on the Entry Date, will be treated as
ordinary income to the participant. Any further gain upon such disposition will
be taxed as long-term capital gain (if held for more than 18 months after the
purchase date) or as mid-term capital gain (if held for more than one year but
less than 18 months after the purchase date). Any long-term or mid-term capital
gain will be taxed at the rates then in effect. If the shares are sold and the
sale price is less than the purchase price, there is no ordinary income and the
participant will have a capital loss equal to the difference between the sale
price and the purchase price. The ability of a participant to utilize such a
capital loss will depend upon the participant's other tax attributes and the
statutory limitation on capital loss deductions not discussed herein.
If the shares are sold or disposed of (including any disposition by way
of gift) before the expiration of the two-year holding period described above or
within one year after the shares are transferred to the participant, then the
excess of the fair market value of the shares on the purchase date over the
purchase price will be treated as ordinary income to the participant. This
excess will constitute ordinary income for the year of sale or other disposition
even if no gain is realized on the sale or a gratuitous transfer of shares is
made. The balance of the gain will be taxed as capital gain at the rates then in
effect. If the shares are sold for less than their fair market value on the
purchase date, the same amount of ordinary income will be attributed to the
participant and a capital loss is recognized equal to the difference between the
sale price and the value of the shares on such purchase date. As indicated
above, the ability of the participant to utilize such a capital loss will depend
upon the participant's other tax attributes and the statutory limitation on
capital losses not discussed herein.
The ordinary income reported under the rules described above, added to
the actual purchase price of the shares, determines the tax basis of the shares
for the purpose of determining gain or loss on the sale or exchange of the
shares.
The Company is entitled to a deduction for amounts taxed as ordinary
income to a participant only to the extent that ordinary income must be reported
upon disposition of shares by the participant before the expiration of the
holding periods described above.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the shares of the Company's
outstanding voting stock present or represented by proxy at the Annual Meeting
and entitled to vote on Proposal No. 2 is required for approval to amend the
Purchase Plan. If such stockholder approval is not obtained, then the 950 share
limit on the maximum number of shares of the Company's Common Stock purchasable
by each participant under the Purchase Plan will remain.
RECOMMENDATION OF THE BOARD OF DIRECTORS
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THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF
THE AMENDMENT TO THE EMPLOYEE STOCK PURCHASE PLAN.
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PROPOSAL NO. 3
AMENDMENT TO THE AMENDED & RESTATED
CERTIFICATE OF INCORPORATION TO
ELIMINATE CUMULATIVE VOTING
The Board of Directors has proposed the adoption of two amendments to
the Company's Amended & Restated Certificate of Incorporation: (i) an amendment
to eliminate cumulative voting for the election of directors; and (ii) an
amendment to provide for a classified Board of Directors (described in more
detail in Proposal No. 4). Both amendments are designed to protect stockholder
interests in the event of hostile takeover attempts against the Company. The
Board believes that these measures will enable it to consider more effectively
any proposed takeover attempt and to negotiate terms that maximize the benefit
to the Company and its stockholders. Either one or both of the proposed
amendments may have the effect of delaying, deterring, or preventing a change in
control of the Company.
CUMULATIVE VOTING
Cumulative voting permits the holder of each share of stock entitled to
vote in the election of directors to cast that number of votes which equal the
number of directors to be elected. The holder may allocate all votes represented
by a share to a single candidate or may allocate those votes among as many
candidates as he or she chooses. Thus, a stockholder with a significant minority
percentage of the outstanding shares may be able to elect one or more directors
if voting is cumulative. In contrast, the holder or holders of a majority of the
shares entitled to vote in an election of directors are able to elect all the
directors in the absence of cumulative voting.
The Board of Directors believes that under cumulative voting, it is
possible that directors elected by a minority stockholder are likely to be
representatives of the particular interest group who elected them rather than
representatives of a majority of stockholders. Such a director or directors
representing a minority interest could disrupt the management of the Company and
prevent it from operating in the most effective manner. Further, the election of
directors who view themselves as representing or answerable to a particular
minority constituency could introduce an element of discord on the Board of
Directors, impair the ability of the Board to work effectively and discourage
qualified independent individuals from serving as directors. The Board believes
that by providing for the election of directors by majority vote, approval of
the proposed amendment will help ensure that each director acts in the best
interests of a majority of stockholders rather than the best interest of a
minority stockholder or group of stockholders.
Cumulative voting is not available under Delaware law unless
specifically included in a corporation's Certificate of Incorporation. The
Company's Amended & Restated Certificate of Incorporation contains such a
provision allowing cumulative voting. The Board of Directors has proposed to
eliminate cumulative voting by deleting it from the Company's Amended & Restated
Certificate of Incorporation.
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The elimination of cumulative voting could deter investors from
acquiring a minority block in the Company, with a view toward obtaining a board
seat and influencing Company policy. It is also possible that the absence of
cumulative voting might deter efforts to seek control of the Company on a basis
which some stockholders might deem favorable.
The following is a brief review of the anti-takeover aspect of the
proposed amendments, as well as a brief review of existing charter and statutory
provisions which may have the effect of discouraging, delaying or deferring a
hostile takeover attempt. The following, however, is not a complete description
of every anti-takeover aspect of the proposed amendments, nor does it purport to
be a complete description of existing anti-takeover provisions contained in the
Company's Amended & Restated Certificate of Incorporation or under Delaware law.
Any stockholder who wishes to obtain a copy of the Company's Amended & Restated
Certificate of Incorporation may do so by written request to the Secretary of
CVD at CVD's executive offices in Irvine, California.
EFFECT ON CHANGE IN CONTROL OF THE COMPANY
Stockholders should be aware that the overall effect of the two proposed
amendments to the Amended & Restated Certificate of Incorporation is to make it
more difficult for the holders of a majority of the outstanding shares of Common
Stock to change the composition of the Board of Directors and to remove existing
management in circumstances where a majority of the stockholders may be
dissatisfied with the performance of the incumbent directors or otherwise desire
to make changes. These provisions, if included in the Company's Amended &
Restated Certificate of Incorporation, could make a proxy contest a less
effective means of removing or replacing existing directors or could make it
more difficult to make a change in control of the Company which is opposed by
the Board of Directors. This strengthened tenure and authority of the Board of
Directors could enable the Board of Directors to resist change and otherwise
thwart the desires of a majority of the stockholders. Because these provisions
may have the effect of continuing the tenure of the current Board of Directors,
the Board has recognized that the individual directors have a personal interest
in this provision that may differ from those of the stockholders. However, the
Board believes that the primary purpose of the two proposed amendments is to
ensure that the Board will have sufficient time to consider fully any proposed
takeover attempt in light of the short and long-term benefits and other
opportunities available to the Company and, to the extent the Board determines
to proceed with the takeover, to effectively negotiate terms that would maximize
the benefits to the Company and all of its stockholders.
A hostile takeover attempt may have a positive or negative effect on the
Company and its stockholders, depending on the circumstances surrounding a
particular takeover attempt. Takeover attempts that have not been negotiated or
approved by the board of directors of a corporation can seriously disrupt the
business and management of a corporation and generally present to the
stockholders the risk of being forced to consider terms which may be less
favorable to all of the stockholders than would be available in a Board-approved
transaction. Board approved transactions may be carefully planned and undertaken
at an opportune time in order to obtain maximum value for the corporation and
all of its stockholders with due consideration to matters such as the
recognition or postponement of gain or loss for tax purposes, the management and
business of the acquiring corporation and maximum strategic deployment of
corporate assets. In addition, in the case of a proposal which is presented to
the Board of Directors, there is a greater opportunity for the Board to
23
<PAGE> 26
analyze the proposal thoroughly, to develop and evaluate alternatives, to
negotiate for improved terms and to present its recommendations to the
stockholders in the most effective manner.
The Board of Directors recognizes that hostile takeover attempts do not
always have the unfavorable consequences or effects described above and
frequently may be beneficial to stockholders, providing all stockholders with
considerable value for their shares. However, the Board believes that the
potential disadvantages of unapproved takeover attempts are sufficiently great
that prudent steps to reduce the likelihood of such takeover attempts are in the
best interests of the Company and its stockholders.
Notwithstanding the belief of the Board as to the benefits to
stockholders of the two proposed amendments, stockholders should recognize that
one of the effects of such changes may be to discourage a future attempt to
acquire control of the Company which is not presented to and approved by the
Board of Directors, but which a substantial number, and perhaps even a majority,
of the Company's stockholders might believe to be in their best interests or in
which stockholders might receive a substantial premium for their shares over the
current market price. As a result, stockholders who might desire to participate
in such a transaction may not have an opportunity to do so.
By increasing the probability that any person or group seeking control
of the Company would be forced to negotiate directly with the Board of
Directors, the proposed takeover defenses could discourage takeover bids by
means of a hostile tender offer, proxy contest or otherwise without the approval
of the Board. Thus, the principal disadvantages to the stockholders which result
from discouraging such hostile takeover bids would be to (i) reduce the
likelihood that any acquiror would make a hostile tender offer for the
outstanding shares of stock of the Company at a premium over the market rate and
(ii) increase the difficulty of removing the existing Board of Directors and
management even if, in a particular case, removal would be beneficial to
stockholders generally.
Regardless of the terms of any proposed takeover attempt, the Board of
Directors has a fiduciary duty to the stockholders to negotiate for the best
interests of the stockholders and not for its own interests. Further, while the
proposed takeover defenses may discourage hostile takeover attempts, these
provisions would not prevent a hostile acquisition of the Company.
EXISTING ANTI-TAKEOVER PROVISIONS
In addition to the two proposed amendments to the Company's Amended &
Restated Certificate of Incorporation, stockholders should be aware that, to a
certain extent, certain existing statutory and charter provisions may have the
effect of discouraging or deferring hostile takeover attempts. For example, the
Company's Amended & Restated Certificate of Incorporation provides that the
stockholders may not take action by written consent in lieu of a stockholder
meeting. Although the Board is required under Delaware law and the Company's
Amended & Restated Certificate of Incorporation to hold an annual meeting of
stockholders within a certain time period, this provision may deter or delay any
takeover attempt or change in control of the Company. Second, the Company's
Amended & Restated Certificate of Incorporation authorizes the issuance of up to
30,000,000 shares of Common Stock, of which approximately 9,000,000 are
outstanding and approximately 2,000,000 are reserved for issuance under the
Company's equity incentive plans, and
24
<PAGE> 27
up to 5,000,000 shares of preferred stock, none of which are currently issued
and outstanding. Authorized and unissued stock is available for issuance without
further action by the stockholders except as required by law or applicable stock
exchange requirements. In addition to providing the Board with flexibility to
issue the stock for valid corporate purposes such as financings, stock dividends
or approved mergers and acquisitions, such stock can discourage hostile takeover
attempts or make it more difficult to remove existing management. For example,
additional shares of stock could be used to dilute the voting power of shares
then outstanding or issued to persons who would support the Board in opposing a
takeover bid or solicitation in opposition to management.
As a Delaware corporation, the Company is afforded the protection of
Delaware General Corporation Law ("DGCL") Section 203 ("Section 203"), which
generally prohibits a Delaware corporation from engaging in a "Business
Combination" (including, for example, mergers, asset sales, issuance of stock
and other transactions with an "Interested Stockholder" (in general, a person
that is the beneficial owner of 15% or more of a corporation's outstanding
voting stock) for a period of three years following the date that such person
became an Interested Stockholder, unless (a) prior to the date such person
became an Interested Stockholder, the board of directors of the corporation
approved either the Business Combination or the transaction that resulted in the
stockholder becoming an Interested Stockholder, (b) upon consummation of the
transaction that resulted in the stockholder's becoming an Interested
Stockholder, the Interested Stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced (excluding
shares held by directors who are also officers of the corporation and certain
employee stock ownership plans), or (c) on or subsequent to the date such person
became an Interested Stockholder, the Business Combination is approved by the
board of directors of the corporation and authorized at a meeting of
stockholders, and not by written consent, by the affirmative vote of the holders
of at least 66-2/3% of the outstanding voting stock of the corporation not owned
by the Interested Stockholder.
SUMMARY
The Board of Directors has considered the potential disadvantages and
believes that the potential benefits of the two proposed amendments outweigh the
possible disadvantages. In particular, the Board believes that the benefits
associated with enabling the Board to fully consider and negotiate proposed
takeover attempts make these proposals beneficial to the Company and its
stockholders.
The proposal to include these anti-takeover provisions to the Company's
Amended & Restated Certificate of Incorporation does not reflect knowledge on
the part of the Board of Directors or management of any proposed takeover or
other attempt to acquire control of the Company. Management may in the future
propose or adopt other measures designed to discourage takeovers apart from
those proposed in this Proxy Statement, if warranted from time to time in the
judgment of the Board of Directors, although the Board has no such intention at
the present time.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the voting power of all
outstanding capital stock of the Company is required for approval of this
proposal. Abstentions and broker non-votes each will have the same effect as a
negative vote on this proposal.
RECOMMENDATION OF THE BOARD OF DIRECTORS
25
<PAGE> 28
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
PROPOSED AMENDMENT TO THE AMENDED & RESTATED CERTIFICATE OF INCORPORATION TO
ELIMINATE CUMULATIVE VOTING.
26
<PAGE> 29
PROPOSAL NO. 4
AMENDMENT TO THE AMENDED & RESTATED
CERTIFICATE OF INCORPORATION TO
PROVIDE FOR A CLASSIFIED BOARD OF DIRECTORS
Concurrent with the proposed amendment to eliminate cumulative voting,
the Company has proposed a second amendment to its Amended & Restated
Certificate of Incorporation to provide for a classified Board of Directors (the
"Classified Board Provisions"). This amendment also is designed to protect
stockholder interests in the event of hostile takeover attempts against the
Company. The Board believes that both proposed amendments will enable it to
consider more effectively any proposed takeover attempt and to negotiate terms
that maximize the benefit to the Company and all of its stockholders. See the
discussion contained under Proposal No. 3, "EFFECT ON CHANGE IN CONTROL OF THE
COMPANY." The discussion of the amendment to provide for a classified board of
directors should be read in conjunction with the discussion of Proposal No. 3.
The discussions under Proposal No. 3 and hereunder do not describe every
anti-takeover aspect of each proposed amendment, nor do they describe every
anti-takeover provision contained in the Company's Amended & Restated
Certificate of Incorporation or under Delaware law. Any stockholder who wishes
to obtain a copy of the Company's Amended & Restated Certificate of
Incorporation may do so by written request to the Secretary of CVD at CVD's
executive offices in Irvine, California.
Delaware law permits the adoption of a classified Board of Directors,
which divides the Board into two or three "classes" elected for staggered
"terms" of two or three years. A maximum of three classes of directors is
permitted by Delaware law, with members of one class to be elected each year for
a maximum term of three years. Delaware law also provides that, unless the
certificate of incorporation provides otherwise, directors serving on a
classified board of directors may be removed only for cause. The amendment to
the Company's Amended & Restated Certificate of Incorporation does not provide
otherwise.
The classified Board proposal may tend to maintain the incumbency of the
Board as it generally makes it more difficult for stockholders to change a
majority of the directors. A classified board of directors also might make it
more difficult for a person acquiring shares to take immediate control of the
Board of Directors. However, the Board believes that a classified board
contributes to the continuity and stability of leadership and policy.
The directors of the Company are set forth in Proposal No. 5. Under the
Classified Board Provisions, the Board of Directors will be divided into three
classes, designated Class I, Class II and Class III, subject to the approval of
the stockholders at the Annual Meeting. The director in Class I, Gerard von
Hoffmann, will hold office until the Annual Meeting of Stockholders to be held
in 1999; the directors in Class II, Franklin D. Brown and Edward M. Leonard,
will hold office until the Annual Meeting of Stockholders in 2000; and the
directors in Class III, William G. Davis and Michael R. Henson, will hold office
until the Annual Meeting of Stockholders in 2001 (and, in each case, until their
successors are duly elected and qualified or until their earlier resignation,
removal
27
<PAGE> 30
from office or death). After each such election, the directors shall then serve
in succeeding terms of three years and until their successors are duly elected
and qualified.
With the Classified Board Provisions proposed for inclusion in the
Amended & Restated Certificate of Incorporation, unless directors are removed
for cause, it may require at least two annual meetings of stockholders for a
majority of stockholders to make a change in control of the Board of Directors,
since only a portion of the directors will be elected at each meeting. A
significant effect of a classified Board of Directors may be to deter hostile
takeover attempts because an acquirer would experience delay in replacing a
majority of the directors. However, a classified Board of Directors also makes
it more difficult for stockholders to effect a change in control of the Board of
Directors, even if such a change in control is sought due to dissatisfaction
with the performance of the Company's directors.
In the event this proposal is not approved, all directors of the Company
will be elected at each annual meeting. In the event this proposal is approved,
the Company's Amended & Restated Certificate of Incorporation will include the
Classified Board Provisions.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the voting power of all
outstanding capital stock of the Company is required for approval of this
proposal. Abstentions and broker non-votes each will have the same effect as a
negative vote on this proposal.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
PROPOSED AMENDMENT TO THE AMENDED & RESTATED CERTIFICATE OF INCORPORATION TO
PROVIDE FOR A CLASSIFIED BOARD OF DIRECTORS.
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<PAGE> 31
PROPOSAL NO. 5
ELECTION OF DIRECTORS
Five (5) directors will be elected at the Annual Meeting by the holders
of CVD Common Stock to serve until the next Annual Meeting and until their
successors are elected and qualified, or until their earlier death, resignation
or removal.
Assuming the approval of the amendment to the Company's Certificate to
provide for a classified Board (as discussed in Proposal No. 4), Gerard von
Hoffmann will serve as a Class I director, with a term expiring at the Annual
Meeting of Stockholders to be held in 1999, Franklin D. Brown and Edward M.
Leonard will serve as Class II directors, with terms expiring at the Annual
Meeting of Stockholders to be held in 2000 and William G. Davis and Michael R.
Henson will serve as Class III directors, with terms expiring at the Annual
Meeting of Stockholders to be held in 2001. Thereafter, each class of directors
shall be elected for a term of office to expire at the third succeeding annual
meeting of stockholders. Should the amendment providing for the classified Board
not be approved, each of the nominees will serve as a director until the next
annual meeting of stockholders or until his successor is elected and qualified.
The Board of Directors will vote all proxies received by them FOR the
nominees listed below unless otherwise instructed in writing on such proxy. The
five (5) candidates receiving the highest number of affirmative votes of shares
entitled to vote at the Annual Meeting will be elected directors of CVD. In the
event any nominee is unable to or declines to serve as a director at the time of
the Annual Meeting, the proxies will be voted for an additional nominee who
shall be designated by the current Board of Directors to fill the vacancy. As of
the date of this Proxy Statement, the Board of Directors is not aware of any
nominee who is unable or will decline to serve as director. In the event that
additional persons are nominated for election as directors, the proxy holders
intend to vote all proxies received by them in such a manner in accordance with
cumulative voting as will assure the election of as many of the nominees listed
below as possible, with any required selection among such nominees to be
determined by the proxy holders.
Franklin Brown was appointed a director by the Board on June 19, 1997,
and Mitchell Dann resigned from his position as director of the Company on
December 18, 1997.
INFORMATION WITH RESPECT TO NOMINEES
Set forth below, as of March 1, 1998, for each nominee for director of
CVD is information regarding his age, position(s) with CVD, the period he has
served as a director, any family relationship with any other director or
executive officer of CVD, and the directorships currently held by him in
corporations whose shares are publicly registered.
29
<PAGE> 32
<TABLE>
<CAPTION>
NOMINEE, AGE AND PRINCIPAL OCCUPATION AND
FIRST YEAR AS DIRECTOR BUSINESS EXPERIENCE
- -------------------------------- -----------------------------------------------
<S> <C>
Franklin D. Brown, 54, 1997 Franklin D. Brown is Chairman and President of
FOB Healthcare Consulting. Mr. Brown has served
on the board of several domestic and
international companies, and has more than 25
years of multinational management experience in
the health care industry in the areas of
pharmaceuticals, disposables, implantables and
capital equipment. Mr. Brown served as
Chairman, President and CEO at Imagyn Medical,
Inc. from October 1994 until the sale of the
company in September 1997. Prior to Imagyn, Mr.
Brown served as President and CEO of Pharmacia
Deltec, Inc., an ambulatory drug delivery
company, for eight years. From 1982 to 1986, he
was President of Pharmacia Inc.'s health care
group and General Manager of its hospital
division. Prior to his employment with
Pharmacia, Mr. Brown held various sales and
marketing positions with Choay Laboratories,
Mead Johnson, Abbott and Sterling Drug. Mr.
Brown currently is a director of Xillix
Technologies and Bridge Medical. Mr. Brown was
awarded Entrepreneur of the year award in 1991.
Mr. Brown received an M.B.A. from the
University of Michigan and a bachelors degree
from Western Michigan University.
William G. Davis, 66, 1995 Mr. Davis is an independent business
consultant. From 1957 to 1984, Mr. Davis was
associated with Eli Lilly and Company, a
diversified health care company, where he
served as Executive Vice President, Eli Lilly
International Corporation, from 1972 to 1975,
Executive Vice President, Pharmaceutical
Division, from 1975 to 1982, and President,
Medical Instrument Systems Division, from 1982
until his retirement in 1984. Mr. Davis also is
a director of ALZA Corporation, Collagen
Corporation and EndoSonics Corporation, and
served as a director of Target Therapeutics,
Inc. from 1993 to 1997.
</TABLE>
30
<PAGE> 33
<TABLE>
<CAPTION>
NOMINEE, AGE AND PRINCIPAL OCCUPATION AND
FIRST YEAR AS DIRECTOR BUSINESS EXPERIENCE
- -------------------------------- -----------------------------------------------
<S> <C>
Michael R. Henson, 52, 1995 Mr. Henson joined CVD in February 1995 as
President, Chief Executive Officer and Chairman
of the Board of Directors. Prior to joining
CVD, Mr. Henson served as the Chief Executive
of EndoSonics Corporation from 1988 to February
1995, and as Chairman of the Board from
February 1993 to November 1996. Between April
1983 and February 1988, Mr. Henson served as
President and Chief Executive Officer of
Trimedyne, Inc., a manufacturer of medical
lasers and catheters. Prior to joining
Trimedyne in 1983, Mr. Henson held positions as
Vice President for G.D. Searle & Company,
Director of Marketing for the Hospital Products
Division of Abbott Laboratories and Marketing
Manager for Bristol Myers and Company. Mr.
Henson also serves as a director of Urologix,
Inc.
Edward M. Leonard, 56, 1996 Since September 1997, Mr. Leonard has been a
Managing Director of Broadview Associates LLC,
an investment bank specializing in mergers and
acquisitions. From 1978 to September 1997, Mr.
Leonard was a partner in the law firm of
Brobeck, Phleger & Harrison LLP, which served
as CVD's general counsel from the Company's
formation until September 1997. Mr. Leonard
also serves as a director of EndoSonics
Corporation.
Gerard von Hoffmann, 41, 1996 Gerard von Hoffmann joined the Company as a
director in April 1996. He has been with the
law firm of Knobbe, Martens, Olson & Bear LLP,
CVD's patent counsel, since 1986 and has been a
partner since 1989.
</TABLE>
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors met eight times during the year ended December
31, 1997. Each Director attended at least 75% of the aggregate of (i) the total
number of meetings of the Board of Directors and (ii) the total number of
meetings held by all Committees of the Board on which such Director served. CVD
has a standing Audit Committee composed of Messrs. Edward M. Leonard and Gerard
von Hoffmann. The Audit Committee primarily is responsible for approving the
services performed by the Company's independent public accountants and for
reviewing and evaluating the Company's accounting principles and reporting
practices and its system of internal accounting controls. The Audit Committee
met two times during the year ended December 31, 1997. CVD has a standing
Compensation Committee which met five times during the year ended December 31,
1997. For the 1997 fiscal year, this Committee consisted of Franklin Brown and
William G. Davis. The Committee administers the 1996 Option Plan and reviews and
acts on matters relating to
31
<PAGE> 34
compensation levels and benefit plans for key executives of CVD. The
Compensation Committee has the exclusive power and authority to make stock
option grants under the 1996 Option Plan to the Company's officers.
REMUNERATION
Non-employee directors each receive a fee of $1,000 per quarter, $1,000
for each Board meeting attended and reimbursement for certain travel expenses
and other out-of-pocket costs. Members of Committees of the Board each receive
an additional fee of $500 for each Committee meeting attended. Non-employee
Board members are eligible to receive periodic option grants under the Automatic
Option Grant Program in effect under the Company's 1996 Stock Option/Stock
Issuance Plan, as summarized in Proposal No. 1 above.
Mr. Leonard, a member of the Company's Board of Directors, was a partner
at Brobeck, Phleger & Harrison LLP until September 1997, which firm served as
the Company's general counsel until September 1997. Mr. von Hoffmann, a member
of the Company's Board of Directors, is a partner at Knobbe, Martens, Olson &
Bear LLP, which serves as Patent Counsel to the Company.
All directors hold office until the next Annual Meeting of Stockholders
and until their successors have been elected. However, upon approval by the
stockholders of Proposal No. 4 of a classified Board of Directors, Gerard von
Hoffmann will serve as a Class I director, with a term expiring at the Annual
Meeting of Stockholders to be held in 1999, Franklin D. Brown and Edward M.
Leonard will serve as Class II directors, with terms expiring at the Annual
Meeting of Stockholders to be held in 2000 and William G. Davis and Michael R.
Henson will serve as Class III directors, with terms expiring at the Annual
Meeting of Stockholders to be held in 2001. Thereafter, each class of directors
shall be elected for a term of office to expire at the third succeeding annual
meeting of stockholders. Officers are appointed to serve, at the discretion of
the Board of Directors, until their successors are appointed. There are no
family relationships among executive officers or directors of CVD. There are no
arrangements or understandings involving any director or any nominee regarding
such person's status as a director or nominee.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
The members of the Board of Directors, the executive officers of CVD and
persons who hold more than 10% of the Company's outstanding Common Stock are
subject to the reporting requirements of Section 16(a) of the Securities
Exchange Act of 1934 which require them to file reports with respect to their
ownership of the Common Stock and their transactions in such Common Stock. Based
upon (i) the copies of Section 16(a) reports which CVD received from such
persons for their 1997 fiscal year transactions in the Common Stock and their
Common Stock holdings and (ii) the written representations received from one or
more of such persons that no annual Form 5 reports were required to be filed by
them for the 1996 fiscal year, CVD believes that all reporting requirements
under Section 16(a) for such fiscal year were met in a timely manner by its
executive officers, Board members and greater than ten-percent stockholders,
except that Mr. von Hoffmann filed one late report with respect to shares of
Common Stock received as a stockholder of Cardiometrics, Inc. as partial merger
consideration pursuant to the acquisition of Cardiometrics, Inc. by EndoSonics
Corporation.
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<PAGE> 35
CERTAIN TRANSACTIONS
Other than the officer loan described above under Executive Compensation
and Related Information, the Company was not involved in any transaction during
the fiscal year ended December 31, 1997 in which a director, officer or greater
than 5% stockholder had a direct or indirect material interest involving an
amount in excess of $60,000.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF ALL FIVE
NOMINEES NAMED ABOVE.
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<PAGE> 36
PROPOSAL NO. 6
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The firm of Ernst & Young LLP served as independent auditors for CVD for
the fiscal year ended December 31, 1997. The Board of Directors, on the
recommendation of CVD's management, has selected that firm to continue in this
capacity for the current fiscal year. CVD is asking the stockholders to ratify
the selection by the Board of Directors of Ernst & Young LLP, as independent
auditors to audit the consolidated financial statements of CVD for the fiscal
year ending December 31, 1998 and to perform other appropriate services. A
representative of Ernst & Young LLP is expected to be present at the Annual
Meeting to respond to stockholders' questions, and that representative will be
given an opportunity to make a brief presentation to the stockholders if he or
she so desires and will be available to respond to appropriate questions. CVD
has been advised by Ernst & Young LLP that neither that firm nor any of its
associates has any material relationship with CVD nor any affiliate of CVD.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION.
In the event that a majority of the shares voted at the Annual Meeting
do not vote for ratification of the selection of Ernst & Young LLP, the Board of
Directors will reconsider such selection. Under all circumstances, the Board
retains the corporate authority to change the auditors at a later date.
GENERAL
SECURITY OWNERSHIP OF OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to CVD
regarding the ownership of CVD's Common Stock as of March 1, 1998 by (i) each
stockholder known to CVD to be a beneficial owner of more than five percent (5%)
of CVD's Common Stock, (ii) each director and nominee for director, (iii) the
Named Officers (as such term is defined under the caption "Executive
Compensation and Related Information -- Summary of Cash and Certain Other
Compensation") and (iv) all current directors and officers of CVD as a group.
<TABLE>
<CAPTION>
- ---------------------------------------------------
NUMBER OF SHARES PERCENT OF
BENEFICIALLY OUTSTANDING
NAME AND ADDRESS OWNED (1) SHARES (2)
- --------------------------------------- ---------------- -----------
<S> <C> <C>
EndoSonics Corporation(3) 1,724,016 19.66
2870 Kilgore Rd.
Rancho Cordova, CA 95670
Chancellor LGT Asset Management, Inc.(4) 916,261 10.45
50 California Street, 27th Floor
San Francisco, CA 94111
</TABLE>
34
<PAGE> 37
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
BENEFICIALLY OUTSTANDING
NAME AND ADDRESS OWNED (1) SHARES (2)
- --------------------------------------- ---------------- -----------
<S> <C> <C>
Interactive Research Advisors, Inc.(5) 556,000 6.34
101 Park Center Plaza, Suite 1300
San Jose, CA 95113
Boston Scientific Corporation(6) 501,000 5.71
One Boston Scientific Place
Natick, MA 01760
Michael R. Henson(7) 247,450 2.82
Franklin D. Brown(8) 11,000 *
William G. Davis(9) 25,430 *
Gerard von Hoffmann(10) 21,054 *
Edward M. Leonard(11) 48,692 *
Edward A. McDonald(12) 43,048 *
Dana P. Nickell(13) 42,402 *
Jeffrey F. O'Donnell(14) 68,393 *
Jeffrey H. Thiel(15) 31,937 *
Claire K. Walker(16) 61,238 *
All directors and officers as a group 600,644 6.85
(10 persons)(17)
Total Principal Stockholders 4,297,921 49.02
</TABLE>
*Represents beneficial ownership of less than 1%.
(1) The number of shares of Common Stock beneficially owned includes any
shares issuable pursuant to stock options that may be exercised within
60 days after March 1, 1998. Shares issuable pursuant to such options
are deemed outstanding for computing percentage of the person holding
such options but are not deemed to be outstanding for computing the
percentage of any other person.
(2) Applicable percentages are based on 8,768,000 shares, which represents
9,413,000 shares outstanding on March 1, 1998, less 645,000 shares held
by the Company.
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<PAGE> 38
(3) Pursuant to a Schedule 13G/A filed with the Commission on March 2, 1998,
EndoSonics Corporation reported that it had sole voting and investment
power over 1,724,016 shares.
(4) Chancellor LGT Asset Management, Inc. filed a Schedule 13G/A with the
Commission on February 9, 1998 on behalf of itself and Chancellor LGT
Trust Company, as investment advisors for various fiduciary accounts and
LGT Asset Management, Inc., as the holding company for Chancellor LGT
Asset Management, Inc. Chancellor LGT Asset Management, Inc and
Chancellor LGT Trust Company reported that as of January 31, 1997, it
had sole voting and investment power over 916,261 shares. LGT Asset
Management, Inc. is an indirect wholly owned subsidiary of Liechtenstein
Global Trust, AG, which has numerous worldwide affiliates and is
controlled by The Prince of Liechtenstein Foundation, a parent
organization for the various business enterprises of the Princely Family
of Liechtenstein.
(5) Pursuant to a Schedule 13G filed with the Commission on February 17,
1998, Interactive Research Advisors, Inc. reported that it had sole
voting and investment power over 556,000 shares.
(6) Pursuant to a Schedule 13G/A filed with the Commission on February 13,
1998, Boston Scientific Corporation reported that as of December 31,
1997 it had sole voting and investment power over 501,000 shares.
(7) Includes 58,450 shares subject to options exercisable within 60 days
after March 1, 1998.
(8) Includes 10,000 shares subject to options exercisable within 60 days
after March 1, 1998.
(9) Includes 5,917 shares subject to options exercisable within 60 days
after March 1, 1998. Mr. Davis shares voting and investment power with
his spouse as co-trustee with respect to 6,930 shares held in a
revocable trust.
(10) Includes 15,000 shares subject to options exercisable within 60 days
after March 1, 1998.
(11) Includes 15,000 shares subject to options exercisable within 60 days
after March 1, 1998. Mr. Leonard shares voting and investment power as a
beneficiary with respect to 22,807 shares held in a retirement trust.
Mr. Leonard disclaims beneficial ownership with respect to 200 shares
held by his spouse and 3,000 shares held as custodian for his minor
children under the Uniform Gift to Minors Act.
(12) Includes 10,000 shares subject to options exercisable within 60 days
after March 1, 1998. Mr. McDonald disclaims beneficial ownership with
respect to 3,000 shares held by his spouse, Kathleen E. Briscoe, M.D.,
in an IRA account and 2,000 shares held by the Estate of Lisa M.
Briscoe, of which his spouse serves as a co-executrix and is a
beneficiary with respect to 50 percent of the assets.
(13) Includes 19,729 shares subject to options exercisable within 60 days
after March 1, 1998.
(14) Includes 65,521 shares subject to options exercisable within 60 days
after March 1, 1998.
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<PAGE> 39
(15) Includes 27,658 shares subject to options exercisable within 60 days
after March 1, 1998. Mr. Thiel shares voting and investment power with
his spouse with respect to 4,229 shares.
(16) Includes 25,791 shares subject to options exercisable within 60 days
after March 1, 1998.
(17) Includes 265,649 shares subject to options exercisable within 60 days
after March 1, 1998.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors makes
recommendations to the full Board with respect to the base salary and bonuses to
be paid to the Company's executive officers each fiscal year. In addition, the
Compensation Committee has the exclusive authority to administer the CVD 1996
Stock Option/Stock Issuance Plan with respect to option grants and stock
issuances made thereunder to officers and other key employees. The following is
a summary of the policies of the Compensation Committee which affect the
compensation paid to executive officers, as reflected in the tables and text set
forth elsewhere in this Proxy Statement.
GENERAL COMPENSATION POLICY
The Company's compensation policy is designed to attract and retain
qualified key executives critical to the Company's success and to provide such
executives with performance-based incentives tied to the achievement of Company
milestones. One of the Compensation Committee's primary objectives is to have a
substantial portion of each officer's total compensation contingent upon the
Company's performance as well as upon the individual's contribution to the
success of CVD as measured by his personal performance. Accordingly, each
executive officer's compensation package is comprised primarily of three
elements: (i) base salary which reflects individual performance and expertise
and is designed to be competitive with salary levels in the industry; (ii)
variable performance awards payable in cash and tied to the Company's
achievement of certain goals; and (iii) long-term stock-based incentive awards
which strengthen the mutuality of interests between the executive officers and
the CVD stockholders.
FACTORS
The principal factors which the Compensation Committee considered in
establishing the components of each executive officer's compensation package for
the 1997 fiscal year are summarized below. However, the Committee may in its
discretion apply different factors, particularly different measures of financial
performance, in setting executive compensation for future fiscal years.
BASE SALARY
The base salary levels for the executive officers were established by
the Board for the 1997 fiscal year on the basis of the following factors:
personal performance, the estimated salary levels in effect for similar
positions at a select group of companies with which the Company competes for
executive talent, and internal comparability considerations. Although the
Compensation Committee reviewed various compensation surveys, the Board, did not
rely upon any specific survey for
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<PAGE> 40
comparative compensation purposes. Instead, the Board made its decisions as to
the appropriate market level of base salary for each executive officer on the
basis of its understanding of the salary levels in effect for similar positions
at those companies with which the Company competes for executive talent. Base
salaries will be reviewed by the Compensation Committee on an annual basis, and
adjustments will be made in accordance with the factors indicated above.
ANNUAL INCENTIVE COMPENSATION
The CVD Employee Bonus Plan provides the Board of Directors with
discretionary authority to award cash bonuses to executive officers and
employees in accordance with recommendations made by the Compensation Committee.
The Compensation Committee's recommendations are based upon the extent to which
certain financial and performance targets (established semi-annually by the
Compensation Committee) are met and the contribution of each such officer and
employee to the attainment of such targets. For fiscal year 1997, the
performance targets for each of the Named Officers included gross sales, cash
flow, engineering product goals and regulatory submission goals. The weight
given to each factor varied from individual to individual.
LONG-TERM INCENTIVE COMPENSATION
The 1996 Stock Option/Stock Issuance Plan also provides the Board with
the ability to align the interests of the executive officer with those of the
stockholders and provide each individual with a significant incentive to manage
CVD from the perspective of an owner with an equity stake in the business. The
number of shares subject to each option grant is based upon the officer's
tenure, level of responsibility and relative position in CVD. The Company has
established general guidelines for making option grants to the executive
officers in an attempt to target a fixed number of unvested option shares based
upon the individual's position with the Company and their existing holdings of
unvested options. However, the Company does not adhere strictly to these
guidelines and will vary the size of the option grant made to each executive
officer as it feels the circumstances warrant. Each grant allows the officer to
acquire shares of CVD Common Stock at a fixed price per share (the market price
on the grant date) over a specified period of time (up to 10 years from the date
of grant). The option normally vests in periodic installments over a four-year
period, contingent upon the executive officer's continued employment with the
Company. Accordingly, the option will provide a return to the executive officer
only if he or she remains in the Company's employ and the market price of the
Company's Common Stock appreciates over the option term.
CEO COMPENSATION
The Compensation Committee set the base salary for Mr. Michael R.
Henson, the Company's Chief Executive Officer for the 1997 fiscal year, at a
level which is designed to provide him with a salary competitive with salaries
paid to chief executive officers of similarly-sized companies in the industry
and commensurate with Mr. Henson's experience. The Compensation Committee's did
not intend to have this particular component of Mr. Henson's compensation
affected to any significant degree by Company performance. Mr. Henson received
stock option grants in January and April of 1997 to purchase a total of 55,000
shares. The grants were intended as compensation for Mr. Henson's performance
during the 1996 fiscal year. Mr. Henson did not receive any option grants
intended as long-term incentive compensation for the 1997 fiscal year.
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<PAGE> 41
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to publicly held corporations for compensation
exceeding $1 million paid to certain of the corporation's executive officers.
The limitation applies only to compensation which is not considered to be
performance-based. The non-performance based compensation to be paid to the
Company's executive officers for the 1997 fiscal year did not exceed the $1
million limit per officer, nor is it expected that the non-performance based
compensation to be paid to the Company's executive officers for fiscal 1998 will
exceed that limit. The Company's 1996 Stock Option/Stock Issuance Plan is
structured so that any compensation deemed paid to an executive officer in
connection with the exercise of option grants made under that plan will qualify
as performance-based compensation which will not be subject to the $1 million
limitation. Because it is very unlikely that the cash compensation payable to
any of the Company's executive officers in the foreseeable future will approach
the $1 million limit, the Compensation Committee has decided at this time not to
take any other action to limit or restructure the elements of cash compensation
payable to the Company's executive officers. The Compensation Committee will
reconsider this decision should the individual compensation of any executive
officer ever approach the $1 million level.
COMPENSATION COMMITTEE
William G. Davis
Franklin Brown
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of the Company's Board of
Directors for the 1997 fiscal year were Franklin Brown (who replaced Mitchell
Dann in December 1997 upon Mr. Dann's resignation from the Board) and William G.
Davis. No member of the Compensation Committee was at any time during the 1997
fiscal year or at any other time an officer or employee of CVD.
No executive officer of CVD served on the board of directors or
compensation committee of any entity which has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee.
STOCK PERFORMANCE GRAPH
The graph depicted below shows CVD's stock price as an index assuming
$100 invested on June 19, 1996 (the date of CVD's initial public offering),
along with the composite prices of companies listed on the CRSP Total Return
Index for National Association of Securities Dealers Automated Quotation
("Nasdaq") Stock Market and the Hambrecht & Quist Incorporated Total Return
Index for Healthcare Technology Companies (Excluding Biotechnology). This
information has been provided to CVD by Hambrecht & Quist Incorporated.
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<PAGE> 42
[PERFORMANCE GRAPH]
Note: Assumes $100 invested on 6/19/96 in CVD and in the CRSP Total Return
Index for Nasdaq Stock Market and the H&Q Total Return Index for
Healthcare Technology Companies (Excluding Biotechnology). Assumes
Reinvestment of Dividends on a daily basis.
Notwithstanding anything to the contrary set forth in any of the
Company's previous filings under the Securities Act of 1933 or the Securities
Exchange Act of 1934 which might incorporate future filings, including this
Proxy Statement, the preceding Compensation Committee Report on Executive
Compensation and the Company Stock Performance Graph will not be incorporated by
reference into any of those prior filings, nor will such report or graph be
incorporated by reference into any future filings made by the Company under
those statutes.
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the compensation earned, by the Company's
Chief Executive Officer, Mr. Henson, who has served in such capacity since
February 1, 1995, and five executive officers whose compensation for the 1997
fiscal year was in excess of $100,000, for services rendered in all capacities
to the Company for each of the last two fiscal years. All the individuals named
in the table will hereinafter be referred to as the "Named Officers."
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<PAGE> 43
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------------------
SHARES
UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS(2) OPTIONS
- --------------------------- ---- --------- -------- --------
<S> <C> <C> <C> <C>
Michael R. Henson 1997 219,051 22,000 55,000(3)
Chairman of the Board and 1996 200,000 60,000 130,000(4)
Chief Executive Officer 1995 189,850 70,000 250,000
Edward A. McDonald 1997 119,580 9,600 50,000
Vice President, Advanced Technologies
Dana P. Nickell 1997 120,960 7,258 30,000(3)
Vice President, Finance and 1996 108,000 19,440 --
Administration, Chief Financial 1995 5,934 -- 56,000
Officer and Corporate Secretary
Jeffrey F. O'Donnell 1997 181,034 15,550 145,000(5)
President and Chief Operating 1996 179,200 15,000 --
Officer 1995 8,585 4,000 100,000
Jeffrey H. Thiel 1997 120,000 12,000 58,000(6)
Vice President, Operations 1996 18,371 -- 50,000
Claire K. Walker 1997 113,275 11,214 38,000(3)
Vice President, Clinical Affairs
</TABLE>
(1) Includes amounts contributed by the Named Officers to the Company's
401(K) Plan.
(2) Represents amounts paid in subsequent fiscal year for work performed in
prior fiscal year.
(3) Represents options granted in 1997 fiscal year for work performed in
1996 fiscal year.
(4) Mr. Henson voluntarily returned to the Company in 1997 options to
acquire 130,000 shares. The Company has not made any replacement grants
for such options, nor is there any agreement to do so.
(5) Includes 25,000 options granted in 1997 fiscal year for work performed
in 1996 fiscal year.
(6) Includes 38,000 options granted in 1997 fiscal year for work performed
in 1996 fiscal year.
(7) Includes 28,000 options granted in 1997 fiscal year for work performed
in 1996 fiscal year.
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<PAGE> 44
STOCK OPTIONS
The following table provides information with respect to the stock
option grants made during the 1997 fiscal year under the Company's 1996 Stock
Option/Stock Issuance Plan to the Named Officers. No stock appreciation rights
were granted during such fiscal year to the Named Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION
FOR OPTION TERM
INDIVIDUAL GRANTS
-----------------------------------------------------
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO EXERCISE
UNDERLYING EMPLOYEES OR BASE
OPTION IN FISCAL PRICE EXPIRATION
NAME GRANTED(1) YEAR(2) ($/SH)(3) DATE 5%($)(4) 10%($)(4)
---- ---------- ------- --------- ---- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Michael R. Henson 40,000 5 9.50 1/12/07 238,980 605,622
15,000 2 6.88 4/20/07 64,902 164,474
Edward A. McDonald 40,000 5 6.88 4/20/07 173,072 438,598
10,000 1 5.00 12/17/07 31,445 79,687
Dana P. Nickell 25,000 3 9.50 1/12/07 149,362 378,514
5,000 1 6.88 4/20/07 21,634 54,825
Jeffrey F. O'Donnell 15,000 2 9.50 1/12/07 89,617 227,108
10,000 1 6.88 4/20/07 43,268 109,649
100,000 11 7.31 9/18/07 459,722 1,165,026
20,000 2 5.00 12/17/07 62,889 159,374
Jeffrey H. Thiel 8,000 1 9.50 1/12/07 47,796 121,124
30,000 3 6.88 4/20/07 129,804 328,948
20,000 2 5.00 12/17/07 62,889 159,374
Claire K. Walker 10,000 1 9.50 1/12/07 59,745 151,406
18,000 2 6.88 4/20/07 77,882 197,369
10,000 1 5.00 12/18/07 31,445 79,687
</TABLE>
(1) The options listed in the table were granted under the Company's 1996
Stock Option/Stock Issuance Plan. The options have a maximum term of ten
years measured from the date of grant. Twenty-five percent (25%) of the
options are exercisable upon the optionee's completion of one year of
service measured from the date of grant, and as to the balance of the
option shares in a series of successive equal monthly installments upon
the optionee's completion of each additional month of service over the
next 36 months thereafter.
(2) Based upon options granted for an aggregate of 870,000 shares to
employees in 1997, including the Named Officers.
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<PAGE> 45
(3) The exercise price may be paid in cash, in shares of the Company's
Common Stock valued at fair market value on the exercise date or through
a cashless exercise procedure involving a same-day sale of the purchased
shares. The Company may also finance the option exercise by loaning the
optionee sufficient funds to pay the exercise price for the purchased
shares, together with any federal and state income tax liability
incurred by the optionee in connection with such exercise. The
Compensation Committee of the Board of Directors, as the Plan
Administrator of the Company's 1996 Stock Option/Stock Issuance Plan,
has the discretionary authority to reprice the options through the
cancellation of those options and the grant of replacement options with
an exercise price based on the fair market value of the option shares on
the grant date.
(4) The 5% and 10% assumed annual rates of compounded stock price
appreciation are mandated by rules of the Securities and Exchange
Commission. There can be no assurance provided to any executive officer
or any other holder of the Company's securities that the actual stock
price appreciation over the option term will be at the assumed 5% and
10% levels or at any other defined level. Unless the market price of the
Common Stock appreciates over the option term, no value will be realized
from the option grants made to the executive officers.
OPTION EXERCISES AND HOLDINGS
The table below sets forth information concerning the exercise of
options during the 1997 fiscal year and unexercised options held by the Named
Officers as of the end of such year. No stock appreciation rights were exercised
by the Named Officers during such fiscal year or were outstanding at the end of
that year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
AGGREGATE UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES VALUE OPTIONS AT FY-END OPTIONS AT FY-END($)(2)
ACQUIRED REALIZED ---------------------------- ----------------------------
NAME ON EXERCISE ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael R. Henson 57,800 $386,963 33,867 113,333 $186,269 $623,332
Edward A. McDonald 0 0 0 50,000 0 275,000
Dana P. Nickell 22,000 140,500 6,000 58,000 33,000 319,000
Jeffrey F. O'Donnell 0 0 50,000 195,000 275,000 1,072,500
Jeffrey H. Thiel 0 0 0 108,000 0 594,000
Claire K. Walker 0 0 16,333 50,667 89,832 278,669
</TABLE>
(1) Based on the deemed fair value (as determined by the Board) for options
exercised prior to the initial public offering, less the exercise price
payable for such shares
(2) Based on the fair market value of the Company's Common Stock at
year-end, $5.50 per share, less the exercise price payable for such
shares.
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<PAGE> 46
MANAGEMENT CONTRACTS AND CHANGE IN CONTROL AGREEMENTS
None of the Named Officers have employment agreements with CVD. The
employment of each of the Named Officers may be terminated at any time at the
discretion of the Board of Directors. However, the Compensation Committee of the
Board of Directors has the authority as administrator of the Company's 1996
Stock Option/Stock Issuance Plan to provide for the accelerated vesting of the
shares of Common Stock subject to any outstanding options held by the Chief
Executive Officer and the Company's other executive officers and any unvested
shares actually held by those individuals under the 1996 Plan, in the event
their employment were to be terminated (whether involuntarily or through a
forced resignation) following a hostile take-over of the Company effected
through a successful tender for more than 50% of the Company's outstanding
Common Stock or through a change in the majority of the Board as a result of one
or more contested elections for Board membership.
OFFICER LOANS
On June 15, 1996, CVD extended a loan in the amount of $150,000, to
Jeffrey F. O'Donnell, the Company's President and Chief Operating Officer. The
note was secured by a second deed of trust on Mr. O'Donnell's home and has a
five-year term with interest compounding semi-annually at 6%. Mr. O'Donnell paid
the loan in full on January 22, 1998. On September 16, 1996, the Company
extended an interest free loan to Michael R. Henson, the Company's President and
Chief Executive Officer, in the amount of $175,000. The Company secured the note
by a deed of trust on certain real property owned by Mr. Henson. Mr. Henson paid
the loan in full on August 19, 1997. On January 24, 1997, the Company extended a
loan in the amount of $100,000 to Jeffrey H. Thiel, the Company's Vice President
of Operations. The note was secured by a second deed of trust on Mr. Thiel's
home and has a five-year term with interest compounding semi-annually at 6%. The
principal and interest will be due five years from the date of the note.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Under the present rules of the Commission, the deadline for stockholders
to submit proposals to be considered for inclusion in CVD's Proxy Statement for
next year's Annual Meeting of Stockholders is December 16, 1998. Such proposals
may be included in next year's Proxy Statement if they comply with certain rules
and regulations promulgated by the Commission.
OTHER BUSINESS
The Board of Directors is not aware of any other matter which may be
presented for action at the Annual Meeting. Should any other matter requiring a
vote of the stockholders arise, it is intended that the proxy holders will vote
on such matters in accordance with their best judgment.
BY ORDER OF THE BOARD OF DIRECTORS
Dana P. Nickell
Secretary
April 15, 1998
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<PAGE> 47
PROXY
CARDIOVASCULAR DYNAMICS, INC.
ANNUAL MEETING OF STOCKHOLDERS, MAY 19, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned revokes all previous proxies, acknowledges receipt of
the notice of annual meeting of stockholders to be held on May 19, 1998 and the
proxy statement and appoints Michael R. Henson and [ ], or either of them, the
proxy of the undersigned, with full power of substitution, to vote all shares of
Common Stock of CardioVascular Dynamics, Inc. ("CVD") which the undersigned is
entitled to vote, either on his or her own behalf or on behalf of an entity or
entities, at the Annual Meeting of Stockholders of CVD to be held at the
Company's executive offices at 13700 Alton Parkway, Suite 160, Irvine,
California 92618 on Tuesday, May 19, 1998 at 10:00 a.m., and at any adjournment
or postponement thereof, and to vote in their discretion on such other business
as may properly come before the Annual Meeting and any postponement or
adjournment thereof.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
Please mark your votes as indicated in [X] this example
1. AMENDMENT TO CVD'S 1996 STOCK OPTION/STOCK ISSUANCE PLAN TO EFFECT AN
INCREASE IN THE POOL OF SHARES AVAILABLE FOR ISSUANCE BY AN ADDITIONAL
200,000 SHARES OF COMMON STOCK.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. AMENDMENT TO CVD's EMPLOYEE STOCK PURCHASE PLAN TO DELETE THE SHARE
NUMBER LIMIT ON THE MAXIMUM NUMBER OF SHARES OF COMMON STOCK PURCHASABLE
BY EACH PARTICIPANT.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. AMENDMENT TO THE COMPANY'S AMENDED & RESTATED CERTIFICATE OF
INCORPORATION TO ELIMINATE CUMULATIVE VOTING OF DIRECTORS.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
<PAGE> 48
4. AMENDMENT TO THE COMPANY'S AMENDED & RESTATED CERTIFICATE OF
INCORPORATION TO PROVIDE FOR A CLASSIFIED BOARD OF DIRECTORS.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
5. ELECTION OF DIRECTORS INSTRUCTION: To withhold authority to vote for any
individual nominee mark the "EXCEPTIONS" box, and strike a line through
the nominee's name in the list below:
FRANKLIN D. BROWN EDWARD M. LEONARD
WILLIAM G. DAVIS GERARD VON HOFFMANN
MICHAEL R. HENSON
WITHHOLD
FOR AUTHORITY
all nominees to vote for
listed below all nominees EXCEPTIONS
[ ] [ ] [ ]
6. RATIFICATION OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS FOR FISCAL
YEAR 1998.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
The Board of Directors recommends a vote FOR each of the director nominees
listed above and FOR the other proposals set forth above. This Proxy, when
properly executed will be voted as specified above. This Proxy will be voted FOR
Proposals 1, 2, 3, 4, and 6 and FOR each of the nominees listed under Proposal
No. 5 if no specification is made. This proxy will also be voted at the
discretion of the proxy holders on such matters other than the three specific
items as may come before the meeting.
PLEASE RETURN YOUR EXECUTED PROXY TO CVD'S TRANSFER AGENT IN THE ENCLOSED
ENVELOPE, OR, IF NECESSARY, DELIVER IT TO CVD, ATTENTION: SECRETARY.
Please print the name(s) appearing on each share certificate(s) over which you
have voting authority:
---------------------------------------------------
(Print name(s) as it (they) appear on certificate)
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<PAGE> 49
Dated:_____________________ Signature(s)_______________________________________
Please sign exactly as your name(s) is (are) shown on the share certificate to
which the Proxy applies. When shares are held by joint tenants, both should
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title, as such. If a corporation, please sign in full corporate
name by the President or another authorized officer. If a partnership, please
sign in the partnership name by an authorized person.
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
3
