<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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
[_] Definitive Proxy Statement Rule 14a-6(e)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
Nitinol Medical Technologies, 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:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
Preliminary Copies
NITINOL MEDICAL TECHNOLOGIES, INC.
27 Wormwood Street
Boston, Massachusetts 02210-1625
Notice of 1998 Annual Meeting of Stockholders
To Be Held on Wednesday, June 3, 1998
The 1998 Annual Meeting of Stockholders of Nitinol Medical Technologies,
Inc. (the "Company") will be held at the Company's offices at 27 Wormwood
Street, Boston, Massachusetts, on Wednesday, June 3, 1998 at 9:30 a.m., local
time, to consider and act upon the following matters:
1. To elect seven members of the Board of Directors, each to serve for a
one-year term;
2. To approve the Company's Second Amended and Restated Certificate of
Incorporation, which eliminates all references to the Company's
convertible preferred stock and redeemable preferred stock, as
described herein;
3. To approve (i) an amendment to the Company's 1996 Stock Option Plan,
as described herein, and (ii) the continuance of such plan, as amended;
4. To approve the Company's 1998 Stock Incentive Plan and the reservation
of 800,000 shares of Common Stock for issuance thereunder;
5. To ratify the appointment of Arthur Andersen LLP as the Company's
independent auditors for the current year; and
6. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Stockholders of record at the close of business on April 17, 1998 are
entitled to notice of and to vote at the meeting or any adjournment thereof.
By Order of the Board of Directors,
Theodore I. Pincus, Secretary
Boston, Massachusetts
April 23, 1998
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER
TO ENSURE REPRESENTATION OF YOUR SHARES AT THE MEETING. NO POSTAGE NEED BE
AFFIXED IF THE PROXY IS MAILED IN THE UNITED STATES.
<PAGE>
Preliminary Copies
NITINOL MEDICAL TECHNOLOGIES, INC.
27 Wormwood Street
Boston, Massachusetts 02210-1625
Proxy Statement for the
1998 Annual Meeting of Stockholders
To Be Held on June 3, 1998
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Nitinol Medical Technologies, Inc. (the
"Company") for use at the 1998 Annual Meeting of Stockholders to be held on
June 3, 1998 and at any adjournment of that meeting (the "Annual Meeting"). All
proxies will be voted in accordance with the stockholders' instructions, and if
no choice is specified, the proxies will be voted in favor of the matters set
forth in the accompanying Notice of Meeting. Any proxy may be revoked by a
stockholder at any time before its exercise by delivery of a written revocation
or a subsequently dated proxy to the Secretary of the Company or by voting in
person at the Annual Meeting.
At the close of business on April 17, 1998, the record date for the
determination of stockholders entitled to vote at the Annual Meeting, there were
outstanding and entitled to vote an aggregate of shares of Common
----------
Stock of the Company, par value $.001 per share (the "Common Stock"),
constituting all of the outstanding voting stock of the Company. Each share
entitles the record holder to one vote on each of the matters to be voted upon
at the Annual Meeting.
The Company's Annual Report for the year ended December 31, 1997 is being
mailed to stockholders with the mailing of this Notice and Proxy Statement on or
about April 23, 1998.
A copy of the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, as filed with the Securities and Exchange Commission, except
for exhibits, will be furnished without charge to any stockholder upon written
request to the Chief Financial Officer, Nitinol Medical Technologies, Inc., 27
Wormwood Street, Boston, Massachusetts 02210-1625. Exhibits will be provided
upon written request and payment of an appropriate processing fee.
Votes Required
The holders of a majority of the shares of Common Stock issued and
outstanding and entitled to vote at the Annual Meeting shall constitute a quorum
for the transaction of business at the Annual Meeting. Shares of Common Stock
present in person or represented by proxy (including shares which abstain or do
not vote with respect to one or more of the matters presented for stockholder
approval) will be counted for purposes of determining whether a quorum exists at
the Annual Meeting.
1
<PAGE>
The affirmative vote of the holders of a plurality of the shares of Common
Stock voting on the matter is required for the election of directors. The
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock is required to approve the proposed Second Amended and Restated
Certificate of Incorporation. The affirmative vote of the holders of a majority
of the shares of Common Stock voting on the matter is required to: (i) approve
the proposed amendments to, and the continuance of, the Company's 1996 Stock
Option Plan, (ii) approve the Company's 1998 Stock Incentive Plan and (iii)
ratify the appointment of Arthur Andersen LLP as the Company's independent
auditors for the current year.
Shares which abstain from voting as to a particular matter, and shares held
in "street name" by brokers or nominees who indicate on their proxies that they
do not have discretionary authority to vote such shares as to a particular
matter, will not be voted in favor of such matter and also will not be counted
as shares voting or votes cast on such matter. Accordingly, abstentions and
"broker non-votes" will have no effect on the voting on a matter that requires
the affirmative vote of a plurality or a majority of the shares voting or votes
cast on such matter. However, because shares which abstain and shares
represented by broker non-votes are nonetheless considered outstanding shares,
abstentions and broker non-votes with respect to the proposed Second Amended and
Restated Certificate of Incorporation will have the same effect as a vote
against the Second Amended and Restated Certificate of Incorporation.
Stock Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of February 28, 1998
with respect to the beneficial ownership of shares of Common Stock by (i) each
person known by the Company to beneficially own more than 5% of the outstanding
shares of Common Stock, (ii) each nominee for director of the Company, (iii)
each executive officer of the Company named in the Summary Compensation Table
set forth under the caption "Executive Compensation" below and (iv) all
directors and executive officers of the Company as of February 28, 1998 as a
group:
<TABLE>
<CAPTION>
Percentage
Number of of
Shares Outstanding
Beneficially Common
Name and Address of Beneficial Owner (1) Owned (2) Stock (3)
- ------------------------------------------ ------------ -----------
<S> <C> <C>
Whitney Equity Partners, L.P. 1,829,010 18.62%
c/o J.H. Whitney & Co.
177 Broad Street
Stamford, CT 06901
C. Leonard Gordon (4) 768,007 7.59%
c/o Immunotherapy Inc.
360 Lexington Avenue
New York, NY 10017
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Percentage
Number of of
Shares Outstanding
Beneficially Common
Name and Address of Beneficial Owner (1) Owned (2) Stock (3)
- ------------------------------------------ ------------ -----------
<S> <C> <C>
Fletcher Spaght, Inc. (5) 615,826 6.27%
222 Berkeley Street
Boston, MA 02116-3761
Jack Reinstein (6) 541,594 5.48%
2231 Sunset Plaza Drive
Los Angeles, CA 90069
Morris Simon, M.D. (7) 113,838 1.15%
Michael C. Brooks (8) 4,722 *
c/o J.H. Whitney & Co.
177 Broad Street
Stamford, CT 06901
R. John Fletcher (5) (9) 4,722 *
c/o Fletcher Spaght, Inc.
222 Berkeley Street
Boston, MA 02116-3761
Jeffrey R. Jay, M.D. (10) 4,722 *
c/o J.H. Whitney & Co.
177 Broad Street
Stamford, CT 06901
Robert A. Van Tassel, M.D. (11) 3,611 *
c/o Minneapolis Cardiology Associates
920 East 28th Street, Suite 300
Minneapolis, MN 55407-1139
Thomas M. Tully (12) 324,690 3.20%
David A. Chazanovitz (13) 83,295 *
Theodore I. Pincus (14) 63,711 *
All directors and executive 1,371,318 12.86%
officers of the Company as
a group (9 persons) (15)
</TABLE>
__________________________
*Less than 1%
(1) Except as otherwise indicated, the address of each beneficial owner is
c/o Nitinol Medical Technologies, Inc., 27 Wormwood Street, Boston, MA
02210-1625.
3
<PAGE>
(2) The number of shares of Common Stock beneficially owned by each director or
executive officer is determined under the rules of the Securities and
Exchange Commission, and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under such rules, beneficial
ownership includes any shares as to which the individual has sole or shared
voting power or investment power and also any shares which the individual
has the right to acquire within the 60-day period following February 28,
1998 through the exercise of any stock option or other right. Unless
otherwise indicated, each person has sole investment and voting power (or
shares such power with his spouse) with respect to the shares set forth in
the table. The inclusion herein of any shares deemed beneficially owned
does not constitute an admission of beneficial ownership of those shares.
(3) The number of shares deemed outstanding for purposes of calculating these
percentages is comprised of the 9,823,186 shares of Common Stock
outstanding on February 28, 1998, plus any shares of Common Stock issuable
to the person in question within the 60-day period following February 28,
1998 pursuant to the exercise of stock options or any other rights held by
such person.
(4) Mr. Gordon's shares are all owned jointly with his wife. Includes 299,703
shares of Common Stock issuable to Mr. Gordon within the 60-day period
following February 28, 1998 pursuant to the exercise of stock options.
(5) Consists of an aggregate of 504,008 shares of Common Stock and warrants to
purchase 111,818 shares of Common Stock at an exercise price of $2.15 per
share held by Fletcher Spaght, Inc., of which Mr. Fletcher is the founder,
Chief Executive Officer and a principal stockholder. Of the 111,818
warrants, warrants to purchase 28,489 shares of Common Stock at an exercise
price of $2.15 per share may be transferred to Mr. Chazanovitz under
certain conditions pursuant to an agreement between Mr. Chazanovitz and
Fletcher Spaght, Inc. Mr. Fletcher is a director of the Company.
(6) Includes 61,401 shares of Common Stock issuable to Mr. Reinstein within the
60-day period following February 28, 1998 pursuant to the exercise of stock
options and 104,008 shares owned by Synergistic Associates, Inc. Money
Purchase Pension Plan, of which Mr. Reinstein is the sole trustee.
(7) Includes 59,208 shares of Common Stock issuable to Dr. Simon within the 60-
day period following February 28, 1998 pursuant to the exercise of stock
options. Dr. Simon disclaims beneficial ownership of 66,406 shares owned by
his wife.
(8) Consists of 4,722 shares of Common Stock issuable to Mr. Brooks within the
60-day period following February 28, 1998 pursuant to the exercise of stock
options. Mr. Brooks is a managing member of J.H. Whitney Equity Partners,
L.L.C., the general partner of Whitney Equity Partners, L.P. Mr. Brooks
disclaims beneficial ownership of the shares held by Whitney Equity
Partners, L.P., except to the extent of his proportionate pecuniary
interest therein.
4
<PAGE>
(9) Consists of 4,722 shares of Common Stock issuable to Mr. Fletcher within
the 60-day period following February 28, 1998 pursuant to the exercise of
stock options.
(10) Consists of 4,722 shares of Common Stock issuable to Dr. Jay within the 60-
day period following February 28, 1998 pursuant to the exercise of stock
options. Dr. Jay is a managing member of J.H. Whitney Equity Partners,
L.L.C., the general partner of Whitney Equity Partners, L.P. Dr. Jay
disclaims beneficial ownership of the shares held by Whitney Equity
Partners, L.P., except to the extent of his proportionate pecuniary
interest therein.
(11) Consists of 3,611 shares of Common Stock issuable to Dr. Van Tassel within
the 60-day period following February 28, 1998 pursuant to the exercise of
stock options.
(12) Consists of 324,690 shares of Common Stock issuable to Mr. Tully within the
60-day period following February 28, 1998 pursuant to the exercise of stock
options.
(13) Includes 79,348 shares of Common Stock issuable to Mr. Chazanovitz within
the 60-day period following February 28, 1998 pursuant to the exercise of
stock options. Does not include warrants to purchase 28,489 shares of
Common Stock at an exercise price of $2.15 per share which may be
transferred to Mr. Chazanovitz under certain conditions pursuant to an
agreement between Mr. Chazanovitz and Fletcher Spaght, Inc.
(14) Consists of 63,711 shares of Common Stock issuable to Mr. Pincus within the
60-day period following February 28, 1998 pursuant to the exercise of stock
options.
(15) Includes an aggregate of 844,437 shares of Common Stock issuable pursuant
to the exercise of stock options held by all directors and executive
officers of the Company as a group which are exercisable within the 60-day
period following February 28, 1998.
PROPOSAL 1 - ELECTION OF DIRECTORS
The persons named in the enclosed proxy will vote to elect as directors the
seven nominees listed below, unless authority to vote for the election of any or
all of the nominees is withheld by marking the proxy to that effect. All of the
nominees listed below are currently directors of the Company. All of the
nominees have indicated their willingness to serve, if elected, but if any
should be unable or unwilling to serve, proxies may be voted for a substitute
nominee designated by the Board of Directors.
Nominees
Set forth below for each nominee are his name and age, his position(s) with
the Company, his principal occupation and business experience during the past
five years, and the year of his first election as a director of the Company:
5
<PAGE>
Thomas M. Tully, age 52, has served as President, Chief Executive Officer
and a director of the Company since January 1996. From June 1995 to January
1996, Mr. Tully served as a consultant to the Company. From May 1994 to April
1995, Mr. Tully served as President of the Institute of Molecular Biology, a
biotechnology company focused on tissue repair and regeneration and from August
1991 to March 1994, Mr. Tully served as President of Organogenesis, Inc., a
biotechnology company focused on the commercialization of medical device
applications of tissue engineering. Prior to that Mr. Tully served for three
years as the President of the Schneider division of Pfizer, Inc., which
concentrates on interventional radiology and cardiology, and spent nine years in
various executive positions in consumer products and medical devices at Johnson
& Johnson, Inc. and was the founding President of Johnson & Johnson
Interventional Systems, an interventional medicine company.
Morris Simon, M.D., age 72, a co-founder of the Company, has been a
director and the Scientific Director of the Company since 1986. Since 1973, he
has been a Chairman and Director of Clinical Radiology at Boston's Beth Israel
Hospital, now the Beth Israel Deaconness Medical Center. Since 1976, he has
been a Professor of Radiology at Harvard Medical School and in 1997 became
Professor Emeritus. The Company is an outgrowth of his pioneering research on
the medical potential of the thermal shape-memory alloy, Nitinol, initiated in
his laboratory at Beth Israel Hospital.
C. Leonard Gordon, age 68, a co-founder of the Company, served as the
Company's Chief Executive Officer and President, from August 1990 to January
1996 and as Chairman of the Board from January 1996 until January 1998. Mr.
Gordon has served as a director of the Company since its inception in 1986. Mr.
Gordon has been engaged in venture capital enterprises for more than 10 years,
particularly in the field of new medical technologies and devices. He was co-
founder and Chief Executive Officer of (i) Oxigene, Inc. a publicly-traded
company engaged in the design and development of drugs and (ii) Biofield Corp.,
a publicly-traded medical device company that has developed a breast cancer
detection system. Mr. Gordon presently serves as Chairman of the Board of
Biofield Corp. and Chairman of the Board and Chief Executive Officer of
Immunotherapy, Inc., a privately-held biotechnology company. Mr. Gordon has
practiced law in New York City for approximately 42 years and is currently of
counsel to Gordon Altman Butowsky Weitzen Shalov & Wein. Mr. Gordon is a
director of Biofield Corp., a medical technology company.
Michael C. Brooks, age 53, has been a director of the Company since March
1996. He has been a General Partner of J.H. Whitney & Co., a venture capital
investment partnership, since January 1985.
R. John Fletcher, age 52, was elected a director of the Company in January
1996. Mr. Fletcher is the founder and Chief Executive Officer of Fletcher
Spaght, Inc., a management consulting company which specializes in strategic
development for health care and high technology businesses. Prior to founding
Fletcher Spaght, Inc. in 1983, he was a senior member of The Boston Consulting
Group, a management consulting company. Mr. Fletcher was the Chairman of the
Board of InnerVentions, Inc. from April 1995 to February 1996, at which time the
Company acquired InnerVentions. See "Certain Transactions." Mr. Fletcher is a
director of AutoImmune, Inc., a biotechnology company developing orally
6
<PAGE>
administered pharmaceutical products and Cayenne Software, Inc., a software
development company.
Jeffrey R. Jay, M.D., age 39, has been a director of the Company since
March 1996. Since 1993, he has been a General Partner of J.H. Whitney & Co., a
venture capital partnership. Currently, Dr. Jay is a director of Advance
ParadigM, Inc., a pharmaceutical benefits manager. If elected to the Board, Dr.
Jay will be appointed Chairman of the Board.
Robert A. Van Tassel, M.D., age 59, has been a director of the Company
since March 1997. Dr. Van Tassel is a Board-certified cardiologist and has been
practicing as a consulting cardiologist at the Minneapolis Heart Institute at
Abbott Northwestern Hospital in Minneapolis since 1970. He is currently
Chairman of the Abbott Northwestern Hospital Cardiovascular Services Division
and a member of the Board of Directors of both Abbott Northwestern Hospital and
Medica Health Plan. Dr. Van Tassel has also served as a Clinical Professor of
Medicine at the University of Minnesota since 1972. In addition, Dr. Van Tassel
was a founder of the Minneapolis Heart Institute and past President of the
Institute's Foundation. Dr. Van Tassel was also a founder of AngioMedics Inc.,
a medical device company which was purchased by Pfizer Corporation in 1986. Dr.
Van Tassel is a director of Boston Advanced Technologies, Inc., a fuels analysis
company, AngioMedics II, a medical technology company, and Acist Medical
Systems, a medical devices company.
There are no family relationships among any of the executive officers and
director nominees of the Company.
Board and Committee Meetings
The Board of Directors met 7 times during 1997. Each director attended at
least 75% of the meetings of the Board and of the committees on which he then
served.
The Board of Directors has a standing Audit Committee, which is responsible
for reviewing the scope and results of the annual audit, discussing the
Company's internal accounting control policies and procedures and considering
and recommending the selection of the Company's independent auditors. The
current members of the Audit Committee are Messrs. Gordon, Brooks and Fletcher,
each a non-employee director. The Audit Committee held 3 meetings during 1997.
The Board of Directors has a standing Compensation Committee, which is
responsible for reviewing the Company's overall compensation policies and
setting the compensation of the Company's executive officers. The current
members of the Compensation Committee are Messrs. Tully and Gordon and Dr. Jay.
The Compensation Committee held 3 meetings during 1997.
The Board of Directors has a standing Stock Option Committee, which
administers the Company's stock option plans. The current members of the Stock
Option Committee are Mr. Fletcher and Dr. Jay. The Stock Option Committee held
3 meetings during 1997.
Compensation Committee Interlocks and Insider Participation
7
<PAGE>
In July 1996, in connection with the Company's initial public offering of
Common Stock, the Board of Directors established a Compensation Committee
consisting of three members, including two of the Company's non-employee
directors. Prior to the establishment of the Compensation Committee,
compensation decisions were made by the entire Board of Directors. The current
members of the Company's Compensation Committee are Messrs. Tully and Gordon and
Dr. Jay. No executive officer of the Company has served as a director or member
of the compensation committee (or other committee serving an equivalent
function) of any other entity, whose executive officers served as a director of
or member of the Compensation Committee of the Company.
Director Compensation
Each non-employee director of the Company who is not otherwise compensated
by the Company receives an annual fee of $4,000 and all directors receive
reimbursement of travel expenses incurred in connection with their attendance at
Board and Committee meetings. The Company also has entered into an oral
arrangement (now expired) with C. Leonard Gordon, the former Chairman of the
Board, and a written agreement with Dr. Morris Simon pursuant to which the
Company paid Mr. Gordon and Dr. Simon certain additional fees for their service
on the Board of Directors. See "Certain Transactions."
In 1996, the Board of Directors adopted, and the stockholders approved, the
Nitinol Medical Technologies, Inc. 1996 Stock Option Plan for Non-Employee
Directors (the "Director Plan"), which provides for the issuance of a maximum
of 150,000 shares of Common Stock. Pursuant to the Director Plan, on September
27, 1996, each non-employee director of the Company who did not otherwise
receive compensation from the Company received an option to purchase 10,000
shares of Common Stock. In addition, the Director Plan provides that options
to purchase 10,000 shares of Common Stock will be granted to each new non-
employee director upon his or her initial election to the Board of Directors.
These options vest in equal monthly installments over a three-year period
commencing on the date of grant. Pursuant to the Director Plan, options to
purchase 2,500 shares of Common Stock are also granted annually to each eligible
director, other than to a director who receives an initial grant of options in
the same year. These options vest six months after the date of grant. The
exercise price of options granted under the Director Plan will equal the fair
market value of the Common Stock on the date of grant. In the event an optionee
ceases to serve as a director, each option may be exercised by the optionee for
the portion then exercisable at any time within one year after the optionee
ceases to serve as a director of the Company.
Executive Compensation
Summary Compensation Table
The following table sets forth certain information concerning the
compensation for each of the last three fiscal years for the Company's Chief
Executive Officer and its three other most highly compensated executive officers
whose total annual salary and bonus exceeded $100,000 in the fiscal year ended
December 31, 1997 (collectively, the "Named Executives").
8
<PAGE>
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
-------------
Annual Number of
Compensation Securities
------------------- Underlying All Other
Salary Bonus Stock Options Compensation
Name and Principal Position Year ($) ($) (#)(2)(3) ($)(1)
- ----------------------------------- ---- -------- ------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Thomas M. Tully 1997 $216,426 $57,500 50,000(ITC) --
President and Chief 1996 194,398 50,000 419,590 $125,000(5)
Executive Officer (4) 1995 45,000 15,000 -- --
David A. Chazanovitz 1997 $171,085 $19,000 15,000 --
President, Septal Repair 1996 144,940 32,000 43,420 --
Division (4) 1995 20,000 -- -- --
Theodore I. Pincus 1997 $169,760 $31,667 20,000(ITC) --
Executive Vice President 1996 145,774 14,000 59,473 --
and Chief Financial 1995 31,000 10,000 52,630 --
Officer (4)(6)
C. Leonard Gordon 1997 $ 90,000 $ -- -- $ --
Former Chairman of the 1996 135,000 -- -- 51,000(9)
Board and Former Chief 1995 112,500 1,000 210,525 54,000(9)
Executive Officer (7)(8)
</TABLE>
- ------------------------------
(1) In accordance with the rules of the Securities and Exchange Commission,
other compensation in the form of perquisites and other personal benefits
has been omitted in those instances where such perquisites and other
personal benefits constituted less than the lesser of $50,000 or ten percent
of the total of annual salary and bonus for the Named Executive for the
fiscal year.
(2) The Company has never granted any stock appreciation rights.
(3) In addition to receiving options to purchase Common Stock of the Company,
certain of the Named Executives have been granted options to purchase common
stock of Image Technologies Corporation, an affiliate of the Company
("ITC"), as compensation for service to ITC in capacities other than as an
executive officer of the Company.
(4) Salaries include amounts earned by all three individuals as part-time
consultants to the Company in 1995 and early 1996 before joining the Company
as full-time employees.
(5) Represents the amount paid to Mr. Tully in connection with the execution of
his employment agreement and upon the closing of the Company's acquisition
of the septal repair technology.
(6) The 1997 bonus includes $21,667, representing one-third forgiveness of a
$65,000 loan made by the Company to Mr. Pincus, which loan will be forgiven
each year over a three-year period commencing May 1996 so long as Mr. Pincus
remains employed by the Company.
(7) Mr. Gordon served as Chief Executive Officer of the Company through January
1996 and as a consultant to the Company for the remainder of 1996 and all of
1997. He will receive no compensation as an officer of the Company in 1998.
(8) Does not include income received by Mr. Gordon in 1995 as an "S" Corporation
stockholder.
(9) Includes $50,000 paid in each of 1996 and 1995 in connection with the
negotiation of an exclusive licensing agreement with Boston Scientific
Company, and director's fees of $1,000 and $4,000 paid in 1996 and 1995,
respectively.
9
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth certain information concerning grants of
stock options made during the year ended December 31, 1997 to each of the Named
Executives.
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------------------------------------------
Percentage Potential Realizable
Number of of Total Value at Assumed
Securities Options Exercise Annual Rates of Stock
Underlying Granted to or Base Price Appreciation for
Options Employees Price per Option Term(1)
Granted in Fiscal Share Expiration ----------------------
Name (#) Year % ($/share) Date 5%($) 10%($)
---- ---------- ---------- ------------ ---------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas M. Tully..... 50,000(2) N/A $6.65(3) 5/29/07 $209,000 $530,000
David A.
Chazanovitz......... -- -- -- -- -- --
Theodore I. Pincus.. 20,000(2) N/A $6.65(3) 5/29/07 $ 83,600 $212,000
C. Leonard Gordon... -- -- -- -- -- --
</TABLE>
- --------------------
(1) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock appreciation of 5% and 10% compounded
annually from the date the respective options were granted to their
expiration date. The gains shown are net of the option exercise price, but
do not include deductions for taxes or other expenses associated with the
exercise of the option or the sale of the underlying shares. Actual gains,
if any, on stock option exercises will depend on the future performance of
the Common Stock, the option holder's continued employment through the
option period and the date on which the options are exercised.
(2) Represents options to purchase shares of common stock of ITC. The options
vest in four equal annual installments commencing on the date of grant,
although they are not exercisable while the Company's option to acquire the
remaining equity interest in ITC remains outstanding and exercisable. The
options to purchase shares of common stock of ITC will convert into options
to purchase shares of Common Stock of the Company of equal value if the
Company exercises its option to purchase the remaining equity interest in
ITC (which option is exercisable at any time until May 30, 1999, subject to
extension for an additional six months under certain circumstances) and are
subject to acceleration in the event of any other change of control.
(3) The exercise price is equal to the fair market value of ITC's common stock
on the date of grant, as determined by the Board of Directors of ITC.
10
<PAGE>
Aggregated Option Exercises in Last Fiscal
Year and Fiscal Year-End Option Values
The following table sets forth, for each Named Executive, the number of
shares of Common Stock acquired on exercise of options during the fiscal year
ended December 31, 1997, the aggregate dollar value realized upon such exercise
and the number and value of unexercised options held by the Named Executive on
December 31, 1997.
<TABLE>
Number of Securities
Underlying Unexercised Value of Unexercised
Number of Options at In-the-Money Options at
Shares Value December 31, 1997 December 31, 1997
Acquired on Realized Exercisable/Unexercisable Exercisable/Unexercisable
Name Exercise (#) ($)(1) (#) ($)(2)
---- ------------ -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Thomas M. Tully(3)........ -- -- 281,378/138,212 $1,292,594/369,129
David A. Chazanovitz(4)... -- -- 69,115/ 70,358 $ 367,763/301,905
Theodore I. Pincus(5)..... 10,000 $119,605 53,478/ 48,625 $ 283,597/196,706
C. Leonard Gordon(6)...... -- -- 264,617/ 38,011 $1,651,034/222,364
</TABLE>
- ----------------------
(1) Represents the difference between the exercise price and the fair market
value of the Common Stock on the date of exercise.
(2) Represents the difference between the last reported sale price per share of
the Common Stock on December 31, 1997 ($8.00 per share), as reported on the
Nasdaq National Market, and the option exercise price, multiplied by the
number of shares underlying the options.
(3) Exercisable includes options to purchase 209,927 shares at an exercise price
of $2.15 per share, 61,451 shares at $6.95 per share and 10,000 shares at
$10.00 per share. Unexercisable includes options to purchase 53,230 shares
at an exercise price of $2.15 per share, 54,982 shares at $6.95 per share
and 30,000 shares at $10.00 per share.
(4) Exercisable includes options to purchase 62,865 shares at an exercise price
of $2.15 per share and 6,250 shares at $10.00 per share. Unexercisable
includes options to purchase 51,608 shares at an exercise price of $2.15 per
share and 18,750 shares at $10.00 per share.
(5) Exercisable includes options to purchase 48,478 shares at an exercise price
of $2.15 per share and 5,000 shares at $10.00 per share. Unexercisable
includes options to purchase 33,625 shares at $2.15 per share and 15,000
shares at $10.00 per share.
(6) Exercisable includes options to purchase 26,315 shares at an exercise price
of $0.76 per share, 65,788 shares at $1.14 per share and 172,514 shares at
$2.15 per share. Unexercisable includes options to purchase 38,011 shares
at an exercise price of $2.15 per share.
Employment and Severance Agreements
Effective September 1, 1995, Thomas M. Tully became President and Chief
Executive Officer of the Company pursuant to an employment agreement dated
February 13, 1996. The agreement is for a term of three years; however, if Mr.
Tully is employed by the Company on June 1, 1998, the term will automatically be
extended until August 31, 1999, unless either party gives three months' prior
written notice. Pursuant to his agreement, Mr. Tully received a salary
11
<PAGE>
of $175,000 until August 31, 1996, received a salary of $200,000 from September
1, 1996 until August 31, 1997 and currently receives a salary of $250,000 per
year. Mr. Tully is also eligible to receive bonus payments upon the achievement
by the Company of certain specified goals. In addition, in connection with the
execution of his employment agreement and upon the closing of the acquisition by
the Company of the septal repair technology, Mr. Tully received a lump sum
payment of $125,000 and non-qualified stock options to purchase 263,157 shares
of the Company's Common Stock, which options are exercisable at $2.15 per share.
Options to purchase 42,631 shares vested upon execution of the agreement and the
remaining options vest at a rate of 3.45% per month and are accompanied by
certain "piggy-back" registration rights. The options are exercisable for a
period of ten years after the date of grant and become immediately exercisable
in the event of a change of control of the Company. If Mr. Tully's employment is
terminated due to his death or disability, the number of options deemed to be
exercisable shall be an amount equal to the number of options exercisable at the
date of termination multiplied by two, and the portion of the options due to
become exercisable on the first day of the month coincident with or next
following the date of termination, prorated for the number of days he was
employed during that month, shall become exercisable and all other unexercisable
options shall expire. Mr. Tully will forfeit all unexercisable options if the
Company terminates his employment with or without cause. If the Company
terminates Mr. Tully's employment without cause, the Company will be obligated
to continue to pay his annual salary for a period of one year from termination.
Mr. Tully has agreed not to compete with the Company for a period of one year
after he ceases to be employed by the Company. Mr. Tully has agreed to serve on
the Company's Board of Directors upon request of the Company during the term of
his employment agreement.
Effective January 1, 1996, David A. Chazanovitz became President, Septal
Repair Division pursuant to a three-year employment agreement dated February 13,
1996. Pursuant to his agreement, Mr. Chazanovitz received a salary of $160,000
until December 31, 1996, received a salary of $175,000 from January 1, 1997
until December 31, 1997 and currently receives a salary of $185,000 per year.
Mr. Chazanovitz is also eligible to receive bonus payments upon the achievement
by the Company of certain specified goals. In connection with his employment,
Mr. Chazanovitz received (i) non-qualified stock options to purchase 92,105
shares of the Company's Common Stock at an exercise price of $2.15 per share,
which vest at a rate of 2.77% per month and (ii) options to purchase an
aggregate of up to 26,315 shares of the Company's Common Stock at an exercise
price of $2.15 per share, which vest upon the earlier of (x) the achievement of
certain milestones as described in his employment agreement or (y) December 31,
2000. The options are exercisable for a period of ten years after the date of
grant and become immediately exercisable in the event of a change of control of
the Company. If Mr. Chazanovitz's employment is terminated due to his death or
disability, the portion of the options due to become exercisable on the first
day of the month coincident with or next following the date of termination,
prorated for the number of days he was employed during the month, shall become
exercisable and all other unexercisable options shall expire. Mr. Chazanovitz
will forfeit all unexercisable options if the Company terminates his employment
with or without cause. If the Company terminates Mr. Chazanovitz's employment
without cause, the Company will be obligated to continue to pay his annual
salary for a period of six months from termination. Mr. Chazanovitz has agreed
not to compete with the Company for a period of one year after he ceases to be
employed by the Company.
12
<PAGE>
Effective May 1996, Theodore I. Pincus became Executive Vice President and
Chief Financial Officer pursuant to a three-year employment agreement. Pursuant
to his employment agreement dated May 17, 1996, Mr. Pincus received a salary of
$160,000 until April 30, 1997, currently receives a salary of $175,000 per year
and commencing May 1, 1998 will receive a salary of $185,000 per year. In
addition, Mr. Pincus received living expenses of $35,000 the first year and
$20,000 the second year, in lieu of receiving the Company's relocation benefits
package. Mr. Pincus is also eligible to receive bonus payments upon the
achievement by the Company of certain specified goals. In connection with his
employment, Mr. Pincus received non-qualified stock options to purchase 39,473
shares of Common Stock of the Company at an exercise price of $2.15 per share.
The options vest in equal monthly installments over three years. The options are
exercisable for a period of ten years after the date of grant and become
immediately exercisable in the event of a change of control of the Company. If
Mr. Pincus's employment is terminated due to his death or disability, the
portion of the options due to become exercisable on the first day of the month
coincident with or next following the date of termination, prorated for the
number of days he was employed during the month, shall become exercisable and
all other unexercisable options shall expire. Mr. Pincus will forfeit all
unexercisable options if the Company terminates his employment with or without
cause. If the Company terminates Mr. Pincus's employment without cause, the
Company will be obligated to continue to pay his annual salary for a period of
six months after termination. Mr. Pincus has agreed not to compete with the
Company for a period of one year after he ceases to be employed by the Company.
Certain Transactions
In February 1996, the Company entered into an Agreement and Plan of Merger
pursuant to which InnerVentions, Inc. ("InnerVentions"), a wholly-owned
subsidiary of Fletcher Spaght, Inc. ("Fletcher Spaght") and the exclusive
licensee of the technology relating to the CardioSEAL Septal Occluder, was
merged with and into NMT Heart, Inc., a wholly-owned subsidiary of the Company.
Pursuant to the Agreement and Plan of Merger, the Company acquired all the
existing development, manufacturing and testing equipment, patent licenses,
know-how and documentation relating to the manufacture of the CardioSEAL Septal
Occluder, which was originally developed by Bard Radiology, a division of C.R.
Bard, Inc., later donated to Children's Hospital of Boston and then licensed to
InnerVentions. In connection with the merger, Fletcher Spaght received 514,651
shares of Common Stock of the Company and warrants to purchase 111,818 shares of
Common Stock at an exercise price of $2.15 per share, which shares and warrants
are accompanied by certain "piggy-back" registration rights. In connection with
the transaction, the Company agreed to use its best efforts to nominate a
designee of Fletcher Spaght as a director of the Company, and certain of the
Company's stockholders agreed to vote their shares of Common Stock in favor of
such designee. Fletcher Spaght's designee, R. John Fletcher, the founder and
Chief Executive Officer of Fletcher Spaght, was initially elected to the Board
of Directors of the Company in January 1996 and has served on the Board of
Directors of the Company since that time.
In February 1996, the Company sold an aggregate of 3,787,104 shares of
Convertible Preferred Stock for an aggregate purchase price of $8,500,000 to
certain investors. Upon the consummation of the Company's initial public
offering in October 1996, the outstanding shares of Convertible Preferred Stock
were automatically converted into units, consisting of an aggregate of 1,993,212
shares of Common Stock and 37,871 shares of the Company's Redeemable Preferred
Stock. The Redeemable Preferred Stock was redeemed by the Company upon
consummation of the initial public offering at an aggregate redemption price of
$4,250,000 plus accrued dividends of approximately $255,000 thereon. In
connection with the sale of the Convertible Preferred Stock, the Company entered
into a Registration Rights Agreement with the purchasers of the Convertible
Preferred Stock, granting to such purchasers certain demand and "piggy-back"
registrations rights. Whitney Equity Partners, L.P. purchased 1,829,066 shares
(on a Common Stock equivalent basis) for an aggregate purchase price of
$4,105,000 in the offering. In addition, in connection with the transaction,
certain of the Company's stockholders agreed to vote their shares of Common
Stock in favor of the two Board designees of Whitney Equity Partners L.P.
Whitney Equity Partner L.P.'s designees, Michael C. Brooks and Jeffrey R. Jay,
M.D., both of whom are General Partners of J.H. Whitney & Co., an affiliate of
Whitney Equity Partners L.P., were initially elected to the Board of Directors
of the Company in March 1996 and have served on the Board of Directors of the
Company since that time.
In January 1996, C. Leonard Gordon, the former Chairman of the Board of
Directors of the Company, entered into an oral arrangement with the Company to
provide certain executive services to the Company, including serving as the
Chairman of the Board and consulting upon various aspects of the Company
business. The Company agreed to compensate Mr. Gordon for
13
<PAGE>
such services in an amount not to exceed $135,000 per year. In 1997, the Company
paid Mr. Gordon $90,000 for such services. Mr. Gordon will receive no
compensation from the Company in 1998 other than compensation as a director.
In April 1987, the Company entered into a Technology Purchase Agreement
with Morris Simon, M.D. pursuant to which the Company agreed to pay Dr. Simon
certain royalty payments based on sales of products using the technology
invented by Dr. Simon relating to the Company's Simon Nitinol Filter. Dr. Simon
assigned a percentage of his royalty payments to the Beth Israel Hospital
Association. In January 1996, Dr. Simon entered into an oral arrangement with
the Company to provide certain consulting services to the Company, including
serving as the Company's Scientific Director. The Company paid Dr. Simon
$100,000 for such services in 1997. In February 1998, the Company and Dr. Simon
entered into a two-year consulting agreement pursuant to which Dr. Simon agreed
to perform certain consulting and advisory services for the Company, such
services not to exceed eight days per month. The Company agreed to pay Dr.
Simon $8,333 per month for such services as well as certain royalty payments and
license fees based on sales of products which are covered by an issued patent
and which are developed by Dr. Simon, solely or jointly with others, during the
term of the consulting agreement. The term of the consulting agreement will be
automatically extended for successive one year periods unless either party gives
60 days' prior written notice. If the Company terminates the agreement, other
than for material breach, the Company will be obligated to continue to pay Dr.
Simon's monthly consulting fee for twelve months and will be obligated to
continue to make royalty and license fees payments. In the event of Dr. Simon's
death, the royalty payments and license fees shall continue to be payable to the
executors or personal representatives of his estate. In addition, in connection
with the consulting arrangement, Dr. Simon received non-qualified stock options
to purchase 50,000 shares of Common Stock of the Company at an exercise price of
$10.50 per share. The options vest upon the achievement of certain milestones
as described in the option agreements, are exercisable for a period of ten years
after the date of grant and become immediately exercisable in the event of a
change of control of the Company. The shares of Common Stock issuable upon
exercise of the options are accompanied by certain "piggy-back" registration
rights.
In May 1996, the Company loaned Theodore I. Pincus, the Company's Executive
Vice President and Chief Financial Officer, $65,000, one third of which is being
forgiven each year over the three-year period commencing May 1996; provided,
however, that (i) if Mr. Pincus is terminated for cause (as defined in his
employment agreement) the then-outstanding loan together with interest at prime
plus one percent shall become immediately due and payable, or (ii) if Mr. Pincus
is terminated for any other reason, the then-outstanding loan together with
interest at prime plus one percent shall be payable monthly with a final payment
due on April 30, 1999.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors, executive officers and holders of more than 10% of the
Common Stock to file with the Securities and Exchange Commission initial reports
of ownership and reports of changes in ownership of Common Stock and other
equity securities of the Company. Except as described below, and based solely
upon a review of reports submitted, and representations made, to the
14
<PAGE>
Company, the Company believes that during 1997, its executive officers,
directors and holders of more than 10% of the Common Stock complied with all
Section 16(a) filing requirements.
In September 1997, Dr. Morris Simon, a director of the Company, filed an
amended Initial Statement of Beneficial Ownership of Securities to report his
indirect beneficial ownership of 66,406 shares of Common Stock held by his
spouse, of which Dr. Simon disclaims beneficial ownership.
In February 1998, R. John Fletcher, a director of the Company and Chief
Executive Officer and principal stockholder of Fletcher Spaght, Inc., filed an
Annual Statement of Changes in Beneficial Ownership to report the sale by
Fletcher Spaght, Inc. of 10,628 shares of Common Stock in May 1997.
In March 1998, both R. John Fletcher and C. Leonard Gordon, a co-founder,
director and the former Chairman of the Board of the Company, filed Statements
of Changes in Beneficial Ownership to report the grant of options to purchase
2,500 shares of Common Stock to them in November 1997 pursuant to the Director
Plan.
Report of the Compensation Committee
The Compensation Committee of the Company's Board of Directors, which is
currently comprised of Mr. Tully and two non-employee directors, Mr. Gordon and
Dr. Jay, and the Stock Option Committee, which is currently comprised of two
non-employee directors, Mr. Fletcher and Dr. Jay, are responsible for
establishing compensation policies with respect to the Company's executive
officers, including the Chief Executive Officer and the other executive officers
named in the Summary Compensation Table, and setting the compensation for these
individuals.
The Company's executive compensation program is designed to maximize the
performance of the Company's executive officers and, thereby, to maximize the
Company's business goals and stockholder returns. Executive compensation
consists of a combination of base salary, annual cash bonuses and merit-based
stock incentives. The Compensation Committee considers merit-based stock
incentives, which are determined by the Stock Option Committee, to be a critical
component of an executive's compensation package in order to help align
executive interests with stockholder interests.
Compensation Philosophy
The objectives of the executive compensation program are to align
compensation with business objectives and individual performance and to enable
the Company to attract, retain and reward executive officers who are expected to
contribute to the long-term success of the Company. The Company's executive
compensation philosophy is based on the principles of competitive and fair
compensation and sustained performance.
. Competitive and Fair Compensation
The Company is committed to providing an executive compensation program
that helps attract and retain highly qualified executives. In order to
ensure continuity of certain key members of management, the Board has
approved multi-year
15
<PAGE>
employment contracts with each of the Company's executive officers. To
ensure that compensation is competitive, the Company compares its
compensation practices with those of similar companies in the industry
and sets the Company's compensation guidelines based on this review. The
Compensation Committee believes compensation for the Company's executive
officers is within the range of compensation paid to executives with
comparable qualifications, experience and responsibilities in the same
or similar businesses and in companies of comparable size and success.
The Compensation Committee also strives to achieve equitable
relationships both among the compensation of individual officers and
between the compensation of officers and other employees throughout the
Company.
. Sustained Performance
Executive officers are rewarded based upon corporate performance and
individual performance. Corporate performance is evaluated by reviewing
the extent to which strategic scientific and business plan goals are
met, including such factors as meeting budgeted financial targets,
continued innovation in the development of the Company's technologies,
formation of new business alliances and acquisitions. Individual
performance is evaluated by reviewing attainment of specified individual
objectives.
In evaluating each executive officer's performance, the Compensation
Committee and the Stock Option Committee generally conform to the following
process:
. Company and individual goals and objectives are set at the beginning of
the performance cycle.
. At the end of the performance cycle, the accomplishment of the
executive's goals and objectives and his or her contributions to the
Company are evaluated and communicated to the executive.
. The results, combined with comparative compensation practices of other
companies in the industry, are then used to review base salary levels
and to determine cash bonuses and stock compensation awards.
Annual compensation for the Company's executives generally consists of
three elements - base salary, cash bonuses and stock options.
Each of the Company's executive officers has entered into a three-year
employment agreement with the Company which sets forth the executive's base
salary during the term of the agreement. In addition, Mr. Tully's employment
agreement provides that salary increases beyond the annual increases set forth
in the agreement are to be considered by the Board annually and that any actual
additional increase in his base salary is at the discretion of the Board. The
base salaries are generally set by reviewing compensation for competitive
positions in the market and the historical compensation levels of the particular
executive. Payment of bonus awards is based on the Company's financial
performance as well as individual
16
<PAGE>
performance measured against targeted performance and various additional
performance criteria. Fifty percent of each executive's bonus compensation is
objectively determined and based upon the Company's achievement of financial
goals established by the Board of Directors. The remaining fifty percent of each
executive's bonus compensation is subjectively determined based upon targeted
performance criteria which varies for each executive based on his area of
responsibility. Subjective performance criteria include an executive's ability
to motivate others, develop the skills necessary to grow as the Company matures,
recognize and pursue new business opportunities and initiate programs to enhance
the Company's growth and success.
Compensation at the executive officer level also includes the long-term
incentives afforded by stock options. The stock option program, which is
administered by the Stock Option Committee, is designed to promote the identity
of long-term interests between the Company's employees and its stockholders and
to assist in the retention of executives. The size of option grants is
generally intended to reflect the executive's position with the Company and his
contributions to the Company, including his success in achieving the individual
performance criteria described above. The option program generally uses a four-
year vesting period to encourage key employees to continue in the employ of the
Company. When granting stock options, it has generally been the policy of the
Company to fix the exercise price of such options at 100% of the fair market
value of the Common Stock on the date of grant. Options to purchase shares of
Common Stock of the Company were not granted to any of the Company's executive
officers in 1997. Instead, and in connection with the Company's investment in
Image Technologies Corporation, Messrs. Tully and Pincus were granted options to
purchase shares of common stock of ITC. In the event the Company exercises its
option to purchase the remaining outstanding stock of ITC, which option is
exercisable at any time until May 29, 1999 and may be extended for an additional
six months under certain circumstances, all options to purchase shares of ITC
shall be converted into options to purchase shares of Common Stock of the
Company.
Compliance with Internal Revenue Code Section 162(m). Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"), generally disallows a
federal income tax deduction to public companies for certain compensation in
excess of $1.0 million paid to a corporation's chief executive officer and any
of its four other most highly compensated executive officers. Qualifying
performance-based compensation will not be subject to the deduction limit if
certain requirements are met. The Company has proposed amendments to the 1996
Stock Option Plan, and has structured the 1998 Equity Incentive Plan, to qualify
income received upon the exercise of stock options granted under such plans as
qualifying performance-based compensation. The Company intends to review the
potential effects of Section 162(m) periodically and in the future may decide to
structure additional portions of the Company's compensation program in a manner
designed to permit deductibility for federal income tax purposes.
Mr. Tully's 1997 Compensation
Mr. Tully, the President and Chief Executive Officer of the Company, is
eligible to participate in the same executive compensation plans available to
the other executive officers of the Company. The Compensation Committee and the
Stock Option Committee believe that Mr. Tully's annual compensation, including
the portion of his compensation based upon the Company's merit-based stock
option program, has been set at a level competitive with other companies in the
industry.
17
<PAGE>
Mr. Tully's salary for 1997 increased to $216,426 from $194,398 in 1996.
Mr. Tully's cash compensation is based upon the terms of his employment
agreement with the Company. Mr. Tully also received bonus compensation of
$57,500 in 1997. Mr. Tully did not participate in the Compensation Committee's
discussion of his 1997 bonus compensation.
Compensation Committee
C. Leonard Gordon
Jeffrey R. Jay, M.D.
Thomas M. Tully
Stock Option Committee
R. John Fletcher
Jeffrey R. Jay, M.D.
Stock Performance Graph
The following graph compares the cumulative total stockholder return on the
Common Stock of the Company from September 27, 1996 (the date the Company's
Common Stock was registered under the Securities Exchange Act of 1934, as
amended) through December 31, 1997 with the cumulative total return during this
period of (i) The Nasdaq Stock Market U.S. Index and (ii) The S&P Health Care
(Medical Products and Supplies) Index. This graph assumes the investment of
$100 on September 27, 1996 in the Company's Common Stock, and in each of the
indices listed above, and assumes dividends are reinvested.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Cumulative Total Return
-----------------------
9/27/96 12/31/96 3/31/97 6/30/97 9/30/97 12/31/97
-------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Nitinol Medical $ 100.00 $ 113.64 $ 72.73 $ 137.50 $ 129.55 $ 72.73
Technologies, Inc.
The Nasdaq Stock $ 100.00 $ 104.91 $ 99.23 $ 116.68 $ 137.28 $ 128.74
Market U.S. Index
The S&P Health Care $ 100.00 $ 100.67 $ 99.59 $ 118.93 $ 123.67 $ 125.51
(Medical Products and
Supplies) Index
</TABLE>
PROPOSAL 2 - APPROVAL OF SECOND
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
On March 10, 1998, the Board of Directors of the Company unanimously voted
to recommend to the stockholders that (i) the Company's Amended and Restated
Certificate of Incorporation be amended to eliminate all references to the
Company's Convertible Preferred
18
<PAGE>
Stock and Redeemable Preferred Stock and to make conforming numbering changes
and (ii) the Company's Second Amended and Restated Certificate of Incorporation
reflecting such amendments be adopted.
The Board of Directors believes that the proposed amendment to eliminate
the references to the Company's Convertible Preferred Stock and Redeemable
Preferred Stock is in the best interests of the Company and its stockholders and
therefore recommends a vote "FOR" this proposal.
The authorized capital stock of the Company currently consists of (i)
30,000,000 shares of Common Stock, par value $.001 per share, (ii) 3,000,000
shares of undesignated Preferred Stock, par value $.001 per share, (iii)
3,800,000 shares of Convertible Preferred Stock, par value $.001 per share (the
"Convertible Preferred Stock") and (iv) 38,000 shares of Redeemable Preferred
Stock, par value $.001 per share (the "Redeemable Preferred Stock"). In
February 1996, the Company sold an aggregate of 3,787,104 shares of Convertible
Preferred Stock to certain investors. Upon the consummation of the Company's
initial public offering in October 1996, the outstanding shares of Convertible
Preferred Stock were automatically converted into units, consisting of an
aggregate of 1,993,212 shares of Common Stock and 37,871 shares of Redeemable
Preferred Stock. The Redeemable Preferred Stock was redeemed by the Company
upon consummation of the initial public offering.
Accordingly, there are no outstanding shares of Convertible Preferred Stock
or Redeemable Preferred Stock. The proposed amendment, and the adoption of the
Second Amended and Restated Certificate of Incorporation, will not significantly
alter the authorized capital structure of the Company, and if the Second Amended
and Restated Certificate of Incorporation is adopted, the Board of Directors
will continue to have authority to issue up to 3,000,000 shares of Preferred
Stock with terms to be established by the Board of Directors at the time of
issuance.
Under Delaware law, stockholders are not entitled to dissenter's rights
with respect to the adoption of the Company's proposed Second Amended and
Restated Certificate of Incorporation.
PROPOSAL 3 - APPROVAL OF AMENDMENT TO AND
CONTINUANCE OF 1996 STOCK OPTION PLAN
Under the terms of the 1996 Stock Option Plan (the "1996 Plan"), the
Company is authorized to grant options to purchase up to 600,000 shares of
Common Stock to employees, officers, directors, agents, consultants or
independent contractors of the Company and its subsidiaries. The Company may
grant options that are intended to qualify as incentive stock options within the
meaning of Section 422 of the Code ("incentive stock options") or nonstatutory
options not intended to qualify as incentive stock options. The purpose of the
1996 Plan is to ensure that the Company may continue to attract and retain key
employees, officers, agents, consultants and independent contractors who are
expected to contribute to the Company's growth and success.
Section 162(m) of the Code, enacted in 1993, generally disallows a tax
deduction to public companies for compensation over $1 million paid to the
corporation's chief executive officer and four other most highly compensated
executive officers. Qualifying performance-based compensation is not subject to
the deduction limit if certain requirements are met. In particular, income
recognized upon the exercise of a stock option is not subject to the deduction
limit if the option has an exercise price at least equal to the fair market
value of the Common Stock on the date of grant and was issued under a plan
approved by stockholders that provides a limit to the number of shares that may
be issued under the plan to any individual.
19
<PAGE>
Although the 1996 Plan as currently in effect does not include a limit on
the number of shares that may be issued to any participant, options granted
under the 1996 Plan to date comply with Section 162(m) pursuant to a transition
rule implementing Section 162(m). The transition rule will expire at the Annual
Meeting to be held in 2000. To comply with Section 162(m) after the 2000 Annual
Meeting, the 1996 Plan must be amended to include a limit on the number of
shares that may be issued to any participant and the amendment and the
continuance of the 1996 Plan must be approved by the Company's stockholders.
Accordingly, on March 10, 1998 the Board of Directors voted, subject to
stockholder approval, (i) to amend the 1996 Plan to comply with the Section
162(m) per participant limit and (ii) to continue the 1996 Plan. The 1996 Plan,
as amended and continued, provides that the maximum number of shares of Common
Stock with respect to which any option may be granted to any participant shall
be 150,000 shares over the remaining eight-year life of the 1996 Plan. If the
stockholders do not vote to continue the 1996 Plan, the Company will not grant
any further options under the 1996 Plan.
The Board of Directors believes that the amendment and continuance of the
1996 Plan are in the best interests of the Company and its stockholders and
therefore recommends that the stockholders vote "FOR" this proposal.
Summary of the 1996 Plan
The following is a summary of the material provisions of the 1996 Plan:
Administration and Eligibility
The 1996 Plan is administered by the Board of Directors which may delegate
any or all of its power to a committee appointed by the Board. Subject to the
express provisions of the 1996 Plan, the Board has authority to construe the
respective option agreements, to prescribe, amend and rescind rules and
regulations relating to the 1996 Plan and to make all other determinations, in
the judgment of the Board, necessary or desirable for the administration of the
1996 Plan. The Board has authorized the Compensation Committee and the Stock
Option Committee to administer certain aspects of the 1996 Plan.
Options may be granted to persons who are, at the time of grant, employees,
officers, directors, agents, consultants or independent contractors of the
Company; provided that incentive stock options may be granted only to persons
who are eligible to receive such options under Section 422 of the Code.
Number of Shares and Exercise Price
Subject to adjustment as provided in the 1996 Plan, the maximum number of
shares of Common Stock of the Company which may be issued and sold under the
1996 Plan is 600,000 shares (subject to adjustment in the event of stock splits
and other similar events). If the amendment and continuance of the 1996 Plan
are approved, the maximum number of shares of Common Stock with respect to which
an option may be granted to any participant under the 1996 Plan will be 150,000
shares over the remaining eight-year life of the 1996 Plan (subject to
adjustment in the event of stock splits and other similar events).
The Board of Directors selects the exercise price per share of stock,
provided the exercise price cannot be less than (a) 110% of fair market value
for incentive stock options granted to a
20
<PAGE>
holder of more than 10% of the Company's capital stock, (b) 100% of fair market
value for incentive stock options generally and (c) 85% of fair market value for
nonstatutory options. The option price may be paid in cash, by check or with
shares of Common Stock owned by the optionee as provided in the 1996 Plan. The
Board of Directors shall also determine the expiration of the option period,
provided that (i) in the case of incentive stock options, the date shall not be
later than 10 years after the date on which the option is granted, (ii) in the
case of incentive stock options granted to a holder of more than 10% of the
Company's capital stock, such date shall not be later than five years after the
date on which the option is granted and (iii) in all cases, options shall be
subject to earlier termination as provided in the 1996 Plan.
Terms of Options
Except as the Board of Directors may otherwise determine or provide in the
applicable option agreement, all options are nontransferable other than by will
or the laws of descent and distribution; provided, however, that nonstatutory
options may be transferred by certain persons required to file reports under
Section 16(a) of the Exchange Act pursuant to a qualified domestic relations
order (as defined in Rule 16b-3 promulgated under the Exchange Act). Holders of
incentive stock options may generally exercise such options up to three months
after termination of employment with the Company, unless termination results
from death or disability, in which case such options may be exercised up to one
year after termination. Holders of nonstatutory options may exercise such
options after termination of employment with the Company during the period
specified in the applicable option agreement.
The Board of Directors (or its appointed committee) determines when options
granted under the 1996 Plan become exercisable. The Board of Directors may
accelerate the date on which any option granted may be exercised or extend the
period during which any particular option may be exercised, provided that no
such extension shall be permitted if it would cause the 1996 Plan to fail to
comply with Section 422 of the Code.
Subject to the prior approval of the Board of Directors, an optionee may
elect to satisfy any tax withholding obligations with respect to shares issued
upon exercise of options by causing the Company to withhold shares of Common
Stock otherwise issuable upon the exercise of an option or by delivering to the
Company shares of Common Stock then owned by such optionee. The shares so
delivered or withheld shall have a fair market value equal to such withholding
obligation.
Amendment and Termination
The Board of Directors may at any time modify or amend the 1996 Plan in any
respect, except that if at any time the approval of the stockholders of the
Company is required under Section 422 of the Code or any successor provision
with respect to incentive stock options or under Rule 16b-3 promulgated under
the Exchange Act with respect to options held by persons who are required to
file reports pursuant to Section 16(a) of the Exchange Act, the Board of
Directors may not effect such modification or amendment without such approval.
The termination or any amendment of the 1996 Plan shall not, without the consent
of an optionee, effect his or her rights under an option previously granted.
In the event of a consolidation or merger or sale of all or substantially
all of the assets of the Company in which outstanding shares of Common Stock are
exchanged for securities, cash
21
<PAGE>
or other property of any other corporation or business entity or in the event of
a liquidation of the Company, the Board of Directors of the Company or the board
of directors of any corporation assuming the obligations of the Company may, in
its discretion, take any one or more of the following actions as to outstanding
options: (a) provide that such options shall be assumed, or equivalent options
shall be substituted, by the acquiring or succeeding corporation (or an
affiliate thereof) or (b) provide that all unexercised options will terminate
immediately prior to the consummation of such transaction unless exercised by
the optionee within a specified period following the date of such notice.
The 1996 Plan shall terminate on June 17, 2006.
Federal Income Tax Consequences
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to options granted under the
1996 Plan and with respect to the sale of Common Stock acquired under the 1996
Plan.
Incentive Stock Options. In general, a participant will not recognize
taxable income upon the grant or exercise of an incentive stock option.
Instead, a participant will recognize taxable income with respect to an
incentive stock option only upon the sale of Common Stock acquired through the
exercise of the option ("ISO Stock"). The exercise of an incentive stock option
may, however, subject the participant to the alternative minimum tax.
Generally, the tax consequences of selling ISO Stock will vary with the
length of time that the participant has owned the ISO Stock at the time it is
sold. If the participant sells ISO Stock after having owned it for at least two
years from the date the option was granted (the "Grant Date") and one year from
the date the option was exercised (the "Exercise Date"), then the participant
will recognize long-term capital gain in an amount equal to the excess of the
sale price of the ISO Stock over the exercise price.
If the participant sells ISO Stock for more than the exercise price prior
to having owned it for at least two years from the Grant Date and one year from
the Exercise Date (a "Disqualifying Disposition"), then all or a portion of the
gain recognized by the participant will be ordinary compensation income and the
remaining gain, if any, will be a capital gain. This capital gain will be a
long-term capital gain if the participant has held the ISO Stock for more than
one year prior to the date of sale.
If a participant sells ISO Stock for less than the exercise price, then the
participant will recognize capital loss equal to the excess of the exercise
price over the sale price of the ISO Stock. This capital loss will be a long-
term capital loss if the participant has held the ISO Stock for more than one
year prior to the date of sale.
Nonstatutory Stock Options. As in the case of an incentive stock option, a
participant will not recognize taxable income upon the grant of a nonstatutory
stock option. Unlike the case of an incentive stock option, however, a
participant who exercises a nonstatutory stock option generally will recognize
ordinary compensation income in an amount equal to the excess of the fair market
value of the Common Stock acquired through the exercise of the option ("NSO
Stock") on the Exercise Date over the exercise price.
22
<PAGE>
With respect to any NSO Stock, a participant will have a tax basis equal to
the exercise price plus any income recognized upon the exercise of the option.
Upon selling NSO Stock, a participant generally will recognize capital gain or
loss in an amount equal to the excess of the sale price of the NSO Stock over
the participant's tax basis in the NSO Stock. This capital gain or loss will be
a long-term gain or loss if the participant has held the NSO stock for more than
one year prior to the date of the sale.
Tax Consequences to the Company. The grant of an option under the 1996 Plan
will have no tax consequences to the Company. Moreover, in general, neither the
exercise of an incentive stock option nor the sale of any Common Stock acquired
under the 1996 Plan will have any tax consequences to the Company. The Company
generally will be entitled to a business expense deduction, however, with
respect to any ordinary compensation income recognized by a participant under
the 1996 Plan, including as a result of the exercise of a nonstatutory stock
option or a Disqualifying Disposition. Any such deduction will be subject to the
limitations of Section 162(m) of the Code. The Company will have a withholding
obligation with respect to ordinary compensation income recognized by
participants with respect to nonstatutory stock options under the 1996 Plan who
are employees or otherwise subject to withholding.
PROPOSAL 4 -- APPROVAL OF 1998 STOCK INCENTIVE PLAN
On March 10, 1998, the Board of Directors of the Company adopted, subject
to stockholder approval, the 1998 Stock Incentive Plan (the "1998 Plan"). Up to
800,000 shares of Common Stock (subject to adjustment in the event of stock
splits and other similar events) may be issued pursuant to awards granted under
the 1998 Plan.
The Board of Directors believes that adoption of the 1998 Plan is essential
to the Company's ability to maintain a competitive position in attracting,
retaining and motivating key personnel. Accordingly, the Board of Directors
believes that adoption of the 1998 Plan is in the best interests of the Company
and its stockholders and recommends a vote "FOR" the adoption of the 1998 Plan
and the reservation of 800,000 shares of Common Stock for issuance thereunder.
The 1998 Plan will become effective upon stockholder approval of the 1998
Plan at the Meeting. If the 1998 Plan is not approved by the stockholders, no
awards will be granted under the 1998 Plan.
Summary of the 1998 Plan
The following is a brief summary of the material terms of the 1998 Plan.
Description of Awards
The 1998 Plan provides for the grant of incentive stock options intended to
qualify under Section 422 of the Code, nonstatutory stock options, restricted
stock awards and other stock-based awards, including the grant of shares based
upon certain conditions, the grant of securities convertible into Common Stock
and the grant of stock appreciation rights (collectively "Awards").
23
<PAGE>
Incentive Stock Options and Nonstatutory Stock Options. Optionees receive
the right to purchase a specified number of shares of Common Stock at a
specified option price and subject to such other terms and conditions as are
specified in connection with the option grant. Options may be granted at an
exercise price which may be less than, equal to or greater than the fair market
value of the Common Stock on the date of grant. Under present law, however,
incentive stock options and options intended to qualify as performance-based
compensation under Section 162(m) of the Code may not be granted at an exercise
price less than the fair market value of the Common Stock on the date of grant
(or less than 110% of the fair market value in the case of incentive stock
options granted to optionees holding more than 10% of the voting power of the
Company). Options may not be granted for a term in excess of ten years. The
1998 Plan permits the Board to determine the manner of payment of the exercise
price of options, including through payment by cash, check or in connection with
a "cashless exercise" through a broker, by surrender to the Company of shares of
Common Stock, by delivery to the Company of a promissory note or by any other
lawful means.
Restricted Stock Awards. Restricted stock Awards entitle recipients to
acquire shares of Common Stock, subject to the right of the Company to
repurchase all or part of such shares from the recipient in the event that the
conditions specified in the applicable Award are not satisfied prior to the end
of the applicable restriction period established for such Award.
Other Stock-Based Awards. Under the 1998 Plan, the Board has the right to
grant other Awards based upon the Common Stock having such terms and conditions
as the Board may determine, including the grant of shares based upon certain
conditions, the grant of securities convertible into Common Stock and the grant
of stock appreciation rights.
General Provisions Applicable to Awards. The 1998 Plan authorizes the Board
to provide for transferable Awards. In addition, except as otherwise determined
by the Board, participants may satisfy withholding tax requirements by delivery
of shares of Common Stock, including shares retained from the Award creating the
tax obligation.
Eligibility to Receive Awards
Officers, employees (including individuals who have accepted an offer for
employment), directors, consultants and advisors of the Company and its
subsidiaries are eligible to be granted Awards under the 1998 Plan. Under
present law, however, incentive stock options may only be granted to employees.
The maximum number of shares with respect to which Awards may be granted to any
participant under the 1998 Plan may not exceed 200,000 shares over the ten-year
life of the 1998 Plan.
As of March 31, 1998, approximately 57 persons would have been eligible to
receive Awards under the 1998 Plan, including the Company's three executive
officers and six non-employee directors. The granting of Awards under the 1998
Plan is discretionary and the Company cannot now determine the number or type of
Awards to be granted in the future to any particular person or group.
On March 31, 1998, the last reported sale price of the Company's Common
Stock on the Nasdaq National Market was $10 5/16.
24
<PAGE>
Administration
The 1998 Plan is administered by the Board of Directors. The Board has the
authority to adopt, amend and repeal the administrative rules, guidelines and
practices relating to the 1998 Plan and to interpret the provisions of the 1998
Plan. Pursuant to the terms of the 1998 Plan, the Board of Directors may
delegate authority under the 1998 Plan to one or more committees of the Board,
and subject to certain limitations, to one or more executive officers of the
Company. The Board has authorized the Compensation Committee and the Stock
Option Committee to administer certain aspects of the 1998 Plan, including the
granting of options to executive officers. Subject to any applicable
limitations contained in the 1998 Plan, the Board of Directors, the Compensation
Committee, the Stock Option Committee or any other committee or executive
officer to whom the Board delegates authority, as the case may be, selects the
recipients of Awards and determines (i) the number of shares of Common Stock
covered by options and the dates upon which such options become exercisable,
(ii) the exercise price of options, (iii) the duration of options and (iv) the
number of shares of Common Stock subject to any restricted stock or other stock-
based Awards and the terms and conditions of such Awards, including conditions
for repurchase, issue price and repurchase price.
The Board of Directors is required to make appropriate adjustments in
connection with the 1998 Plan and any outstanding Awards to reflect stock
dividends, stock splits and certain other events. The 1998 Plan also provides
for adjustments to be made to Awards if the Common Stock of the Company is
converted into or exchanged for cash, securities or other property in connection
with a merger, consolidation or statutory share exchange transaction (an
"Acquisition Event"). In the case of options, upon the occurrence of an
Acquisition Event, or the execution by the Company of any agreement with respect
to an Acquisition Event, the Board shall provide that all outstanding options
shall be assumed, or equivalent options substituted, by the acquiring
corporation. If the acquiring corporation does not agree to assume, or
substitute for, such options, then the Board shall accelerate the exercisability
of all outstanding options or provide for a cash out of the value of such
options.
Amendment or Termination
No Award may be made under the 1998 Plan after March 10, 2008, but Awards
previously granted may extend beyond that date. The Board of Directors may at
any time amend, suspend or terminate the 1998 Plan, except that no Award
designated as subject to Section 162(m) of the Code by the Board of Directors
after the date of such amendment shall become exercisable, realizable or vested
(to the extent such amendment was required to grant such Award) unless and until
such amendment shall have been approved by the Company's stockholders.
Federal Income Tax Consequences
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to Awards granted under the
1998 Plan and with respect to the sale of Common Stock acquired under the 1998
Plan.
Incentive Stock Options. In general, a participant will not recognize
taxable income upon the grant or exercise of an incentive stock option. Instead,
a participant will recognize taxable income with respect to an incentive stock
option only upon the sale of Common Stock acquired
25
<PAGE>
through the exercise of the option ("ISO Stock"). The exercise of an incentive
stock option, however, may subject the participant to the alternative minimum
tax.
Generally, the tax consequences of selling ISO Stock will vary with the
length of time that the participant has owned the ISO Stock at the time it is
sold. If the participant sells ISO Stock after having owned it for at least two
years from the date the option was granted (the "Grant Date") and one year from
the date the option was exercised (the "Exercise Date"), then the participant
will recognize long-term capital gain in an amount equal to the excess of the
sale price of the ISO Stock over the exercise price.
If the participant sells ISO Stock for more than the exercise price prior
to having owned it for at least two years from the Grant Date and one year from
the Exercise Date (a "Disqualifying Disposition"), then all or a portion of the
gain recognized by the participant will be ordinary compensation income and the
remaining gain, if any, will be a capital gain. This capital gain will be a
long-term capital gain if the participant has held the ISO Stock for more than
one year prior to the date of sale.
If a participant sells ISO Stock for less than the exercise price, then the
participant will recognize capital loss equal to the excess of the exercise
price over the sale price of the ISO Stock. This capital loss will be a long-
term capital loss if the participant has held the ISO Stock for more than one
year prior to the date of sale.
Nonstatutory Stock Options. As in the case of an incentive stock option, a
participant will not recognize taxable income upon the grant of a nonstatutory
stock option. Unlike the case of an incentive stock option, however, a
participant who exercises a nonstatutory stock option generally will recognize
ordinary compensation income in an amount equal to the excess of the fair market
value of the Common Stock acquired through the exercise of the option ("NSO
Stock") on the Exercise Date over the exercise price.
With respect to any NSO Stock, a participant will have a tax basis equal to
the exercise price plus any income recognized upon the exercise of the option.
Upon selling NSO Stock, a participant generally will recognize capital gain or
loss in an amount equal to the excess of the sale price of the NSO Stock over
the participant's tax basis in the NSO Stock. This capital gain or loss will be
a long-term gain or loss if the participant has held the NSO Stock for more than
one year prior to the date of the sale.
Restricted Stock Awards. A participant will not recognize taxable income
upon the grant of a restricted stock Award, unless the participant makes an
election under Section 83(b) of the Code (a "Section 83(b) Election"). If the
participant makes a Section 83(b) Election within 30 days of the date of the
grant, then the participant will recognize ordinary income, for the year in
which the Award is granted, in an amount equal to the difference between the
fair market value of the Common Stock at the time the Award is granted and the
purchase price paid for the Common Stock. If a Section 83(b) Election is not
made, the participant will recognize ordinary income, at the time that the
forfeiture provisions or restrictions on transfer lapse, in an amount equal to
the difference between the fair market value of the Common Stock at the time of
such lapse and the original purchase price paid for the Common Stock. The
participant will have a basis in the Common Stock acquired equal to the sum of
the price paid and the amount of ordinary compensation income recognized.
26
<PAGE>
Upon the disposition of the Common Stock acquired pursuant to a restricted
stock Award, the participant will recognize a capital gain or loss equal to the
difference between the sale price of the Common Stock and the participant's
basis in the Common Stock. The gain or loss will be a long-term gain or loss if
the shares are held for more than one year. For this purpose, the holding period
shall begin just after the date on which the forfeiture provisions or
restrictions lapse if a Section 83(b) Election is not made, or just after the
Award is granted if a Section 83(b) Election is made.
Other Stock-Based Awards. The tax consequences associated with any other
stock-based Award granted under the 1998 Plan will vary depending on the
specific terms of such Award. Among the relevant factors are whether or not the
Award has a readily ascertainable fair market value, whether or not the Award is
subject to forfeiture provisions or restrictions on transfer, the nature of the
property to be received by the participant under the Award and the participant's
holding period and tax basis for the Award or underlying Common Stock.
Tax Consequences to the Company. The grant of an Award under the 1998 Plan
will have no tax consequences to the Company. Moreover, in general, neither the
exercise of an incentive stock option nor the sale of any Common Stock acquired
under the 1998 Plan will have any tax consequences to the Company. The Company
generally will be entitled to a business expense deduction, however, with
respect to any ordinary compensation income recognized by a participant under
the 1998 Plan, including as a result of the exercise of a nonstatutory stock
option, a Disqualifying Disposition, the lapse of forfeiture restrictions, or a
Section 83(b) Election. Any such deduction will be subject to the limitations of
Section 162(m) of the Code. Although a participant's Disqualifying Disposition
of ISO Stock will result in the recognition of ordinary compensation income, the
Company will have no withholding obligation with respect to that income. In
contrast, the Company will have a withholding obligation with respect to any
ordinary compensation income recognized with respect to a non-statutory or
restricted stock award by participants under the 1998 Plan who are employees or
otherwise subject to withholding.
PROPOSAL 5 - RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected the firm of Arthur Andersen LLP as the
Company's independent auditors for the current fiscal year. Arthur Andersen LLP
has served as the independent auditors for the Company since 1987. Although
stockholder approval of the Board of Directors' selection of Arthur Andersen LLP
is not required by law, the Board of Directors believes that it is advisable to
give stockholders an opportunity to ratify this selection. If this proposal is
not approved at the Annual Meeting, the Board of Directors will reconsider its
selection of Arthur Andersen LLP.
Representatives of Arthur Andersen LLP are expected to be present at the
Annual Meeting, will have the opportunity to make a statement if they desire to
do so and will also be available to respond to appropriate questions from
stockholders.
27
<PAGE>
OTHER MATTERS
Matters to be Considered at the Meeting
The Board of Directors does not know of any other matters which may come
before the Annual Meeting. However, if any other matters are properly presented
to the Annual Meeting, it is the intention of the persons named in the
accompanying proxy to vote, or otherwise act, in accordance with their judgment
on such matters.
Solicitation of Proxies
The Company will bear the costs of soliciting proxies. In addition to
solicitations by mail, the Company's directors, officers and regular employees,
without additional remuneration, may solicit proxies by telephone, telegraph,
facsimile, e-mail and personal interviews. The Company will also request
brokerage houses, custodians, nominees and fiduciaries both to forward copies of
the proxy material to those persons for whom they hold shares and to request
instructions for voting the proxies. The Company will reimburse such brokerage
houses and other persons for their reasonable expenses in connection with this
distribution.
Stockholder Proposals for 1999 Annual Meeting
Proposals of stockholders intended to be presented at the 1999 Annual
Meeting of Stockholders must be received by the Company at its principal
offices, 27 Wormwood Street, Boston, Massachusetts 02210 no later than December
24, 1998 in order to be considered for inclusion in the proxy statement for that
meeting.
By Order of the Board of Directors,
Theodore I. Pincus, Secretary
April 23, 1998
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. PROMPT RESPONSE WILL
GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING AND YOUR COOPERATION IS
APPRECIATED. STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR STOCK PERSONALLY
EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.
28
<PAGE>
NITINOL MEDICAL TECHNOLOGIES, INC.
1996 STOCK OPTION PLAN
Adopted by the Board of Directors on June 17, 1996
1. PURPOSE.
-------
The purpose of the Nitinol Medical Technologies, Inc. 1996 Stock Option
Plan (the "Plan") is to provide a means whereby selected employees, officers,
directors, agents, consultants, and independent contractors of Nitinol Medical
Technologies, Inc., a Delaware corporation (the "Company"), or of any parent or
subsidiary (as defined in subsection 5.7 hereof and referred to hereinafter as
"Affiliates") thereof, may be granted incentive stock options and/or
nonqualified stock options to purchase shares of common stock, $.001 par value
("Common Stock") in order to attract and retain the services or advice of such
directors, employees, officers, agents, consultants, and independent contractors
and to provide additional incentive for such persons to exert maximum efforts
for the success of the Company and its Affiliates by encouraging stock ownership
in the Company.
2. ADMINISTRATION.
--------------
Subject to Section 2.3 hereof, the Plan shall be administered by the Board
of Directors of the Company (the "Board") or, in the event the Board shall
appoint and/or authorize a committee of two or more members of the Board to
administer the Plan, by such committee. The administrator of the Plan shall
hereinafter be referred to as the "Plan Administrator".
The foregoing notwithstanding, in the event the Company shall register any
of its equity securities pursuant to Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and any directors are
eligible to receive options under the Plan, then with respect to grants to be
made to directors: (a) the Plan Administrator shall be constituted so as to
meet the requirements of Section 16(b) of the Exchange Act and Rule 16b-3
thereunder, each as amended from time to time, or (b) if the Plan Administrator
cannot be so constituted, no options shall be granted under the Plan to any
directors.
2.1 PROCEDURES.
----------
The Board shall designate one of the members of the Plan Administrator
as chairman. The Plan Administrator may hold meetings at such times and
places as it shall determine. The acts of a majority of the members of the
Plan Administrator present at meetings at which a quorum exists, or acts
approved in writing by all Plan Administrator members, shall be valid acts
of the Plan Administrator.
<PAGE>
2.2 RESPONSIBILITIES.
----------------
Except for the terms and conditions explicitly set forth herein, the
Plan Administrator shall have the authority, in its discretion, to
determine all matters relating to the options to be granted under the Plan,
including, without limitation, selection of whether an option will be an
incentive stock option or a nonqualified stock option, selection of the
individuals to be granted options, the number of shares to be subject to
each option, the exercise price per share, the timing of grants and all
other terms and conditions of the options. Grants under the Plan need not
be identical in any respect, even when made simultaneously. The Plan
Administrator may also establish, amend, and revoke rules and regulations
for the administration of the Plan. The interpretation and construction by
the Plan Administrator of any terms or provisions of the Plan or any option
issued hereunder, or of any rule or regulation promulgated in connection
herewith, shall be conclusive and binding on all interested parties, so
long as such interpretation and construction with respect to incentive
stock options corresponds to the requirements of Internal Revenue Code of
1986, as amended (the "Code") Section 422, the regulations thereunder, and
any amendments thereto. The Plan Administrator shall not be personally
liable for any action made in good faith with respect to the Plan or any
option granted thereunder.
2.3 RULE 16b-3 AND SECTION 16(b) COMPLIANCE; BIFURCATION OF PLAN.
------------------------------------------------------------
It is the intention of the Company that the Plan comply in all
respects with Rule 16b-3 under the Exchange Act, to the extent applicable,
and in all events the Plan shall be construed in favor of its meeting the
requirements of Rule 16b-3. If any Plan provision is later found not to be
in compliance with such Rule, such provision shall be deemed null and void.
The Board of Directors may act under the Plan only if all members thereof
are "disinterested persons" as defined in Rule 16b-3 and further described
in Section 4 hereof; and from and after the date that the Company first
registers a class of equity securities under Section 12 of the Exchange
Act, no director or officer or other Company "insider" subject to Section
16 of the Exchange Act may sell shares received upon the exercise of an
option during the six month period immediately following the grant of the
option. Notwithstanding anything in the Plan to the contrary, the Board,
in its absolute discretion, may bifurcate the Plan so as to restrict,
limit, or condition the use of any provision of the Plan to participants
who are officers and directors or other persons subject to Section 16(b) of
the Exchange Act without so restricting, limiting, or conditioning the Plan
with respect to other participants.
-2-
<PAGE>
3. STOCK SUBJECT TO THE PLAN.
-------------------------
The stock subject to this Plan shall be the Common Stock, presently
authorized but unissued or subsequently acquired by the Company. Subject to
adjustment as provided in Section 7 hereof, the aggregate amount of Common Stock
to be delivered upon the exercise of all options granted under the Plan shall
not exceed in the aggregate 600,000 shares as such Common Stock was constituted
on the effective date of the Plan. If any option granted under the Plan shall
expire, be surrendered, exchanged for another option, cancelled, or terminated
for any reason without having been exercised in full, the unpurchased shares
subject thereto shall thereupon again be available for purposes of the Plan,
including for replacement options which may be granted in exchange for such
surrendered, cancelled, or terminated options.
4. ELIGIBILITY.
-----------
An incentive stock option may be granted only to any individual who, at the
time the option is granted, is an employee of the Company or any Affiliate
thereof. A nonqualified stock option may be granted to any director, employee,
officer, agent, consultant, or independent contractor of the Company or any
Affiliate thereof, whether an individual or an entity. Any party to whom an
option is granted under the Plan shall be referred to hereinafter as an
"Optionee".
A director shall in no event be eligible for the benefits of the Plan
unless at the time discretion is exercised in the selection of a director as a
person to whom options may be granted, or in the determination of the number of
shares which may be covered by options granted to the director, the Plan
complies with the requirements of Rule 16b-3 under the Exchange Act.
5. TERMS AND CONDITIONS OF OPTIONS.
-------------------------------
Options granted under the Plan shall be evidenced by written agreements
which shall contain such terms, conditions, limitations, and restrictions as the
Plan Administrator shall deem advisable and which are not inconsistent with the
Plan. Notwithstanding the foregoing, options shall include or incorporate by
reference the following terms and conditions:
5.1 NUMBER OF SHARES AND PRICE.
--------------------------
The maximum number of shares that may be purchased pursuant to the
exercise of each option, and the price per share at which such option is
exercisable (the "exercise price"), shall be as established by the Plan
Administrator; provided, that the Plan Administrator shall act in good
faith to establish the exercise price which shall be not less than 100% of
the fair market value per share of the Common Stock at the time of grant of
the option with
-3-
<PAGE>
respect to incentive stock options and not less than 85% of the fair value
per share of the Common Stock at the time the option is granted with
respect to non-qualified stock options; and provided, further, that, with
respect to incentive stock options granted to greater than ten percent
stockholders, the exercise price shall be as required by Section 6 hereof.
5.2 TERM AND MATURITY.
-----------------
Subject to the restrictions contained in Section 6 hereof with respect
to granting stock options to greater than ten percent stockholders, the
term of each stock option shall be as established by the Plan Administrator
and, if not so established, shall be ten years from the date of its grant,
but in no event shall the term of any incentive stock option exceed a ten
year period. The vesting period and time for exercising an option shall be
prescribed by the Plan Administrator in each particular case.
5.3 EXERCISE.
--------
Subject to any vesting schedule established by the Plan Administrator
pursuant to Subsection 5.2 hereof, each option may be exercised in whole or
in part; provided, that only whole shares may be issued pursuant to the
exercise of any option. Subject to any other terms and conditions herein,
the Plan Administrator may provide that an option may not be exercised in
whole or in part for a stated period or periods of time during which such
option is outstanding; provided, that the Plan Administrator may rescind,
modify, or waive any such limitation at any time and from time to time
after the grant date thereof. During an Optionee's lifetime, any incentive
stock options granted under the Plan are personal to such Optionee and are
exercisable solely by such Optionee. Options shall be exercised by
delivery to the Company of notice of the number of shares with respect to
which the option is exercised, together with payment of the exercise price
in accordance with Section 5.4 hereof.
5.4 PAYMENT OF EXERCISE PRICE.
-------------------------
Payment of the option exercise price shall be made in full at the time
the notice of exercise of the option is delivered to the Company and shall
be in cash, bank certified or cashier's check, or personal check (unless at
the time of exercise the Plan Administrator in a particular case determines
not to accept a personal check) for shares of Common Stock being purchased.
-4-
<PAGE>
The Plan Administrator can determine at the time the option is granted
in the case of incentive stock options, or at any time before exercise in
the case of nonqualified stock options, that additional forms of payment
will be permitted.
To the extent permitted by the Plan Administrator and applicable laws
and regulations (including, without limitation, federal tax and securities
laws and regulations and state corporate law), an option may be exercised
by delivery of a properly executed Notice of Exercise, together with
irrevocable instructions to a broker, all in accordance with the
regulations of the Federal Reserve Board, to promptly deliver to the
Company the amount of sale or loan proceeds to pay the exercise price and
any federal, state, or local withholding tax obligations that may arise in
connection with the exercise; provided, that the Plan Administrator, in its
sole discretion, may at any time determine that this sentence, to the
extent the instructions to the broker call for an immediate sale of the
shares, shall not be applicable to any Optionee who is subject to Section
16(b) of the Exchange Act, or is not an employee at the time of exercise.
5.5 WITHHOLDING TAX REQUIREMENT.
---------------------------
The Company or any Affiliate thereof shall have the right to retain
and withhold from any payment of cash or Common Stock under the Plan the
amount of taxes required by any government to be withheld or otherwise
deducted and paid with respect to such payment. No option may be exercised
unless and until arrangements satisfactory to the Company, in its sole
discretion, to pay such withholding taxes are made. At its discretion, the
Company may require an Optionee to reimburse the Company for any such taxes
required to be withheld by the Company and withhold any distribution in
whole or in part until the Company is so reimbursed. In lieu thereof, the
Company shall have the right to withhold from any other cash amounts due or
to become due from the Company to the Optionee an amount equal to such
taxes or retain and withhold a number of shares having a market value not
less than the amount of such taxes required to be withheld by the Company
to reimburse the Company for any such taxes and cancel (in whole or in
part) any such shares of Common Stock so withheld. If required by Section
16(b) of the Exchange Act, the election to pay withholding taxes by
delivery of shares of Common Stock held by any person who at the time of
exercise is subject to Section 16(b) of the Exchange Act shall be made
either six months prior to the date the option exercise becomes taxable or
at such other times as the Company may determine as necessary to comply
with Section 16(b) of the Exchange Act. Although the Company may, in its
discretion, accept Common Stock as payment of withholding taxes, the
Company shall not be obligated to do so.
-5-
<PAGE>
5.6 NONTRANSFERABILITY.
------------------
5.6.1 OPTION.
------
Options granted under the Plan and the rights and privileges
conferred hereby may not be transferred, assigned, pledged, or
hypothecated in any manner (whether by operation of law or otherwise)
other than by will or by the applicable laws of descent and
distribution or pursuant to a qualified domestic relations order as
defined in Section 414(p) of the Code, or Title I of the Employee
Retirement Income Security Act of 1974, as amended, or the rules
thereunder, and shall not be subject to execution, attachment, or
similar process. Any attempt to transfer, assign, pledge,
hypothecate, or otherwise dispose of any option under the Plan or of
any right or privilege conferred hereby, contrary to the Code or to
the provisions of the Plan, or the sale or levy or any attachment or
similar process upon the rights and privileges conferred hereby shall
be null and void ab initio. The designation by an Optionee of a
beneficiary does not, in and of itself, constitute an impermissible
transfer under this subsection 5.6.1.
5.6.2 STOCK.
-----
The Plan Administrator may provide in the agreement granting
the option that (a) the Optionee may not transfer or otherwise dispose
of shares acquired upon exercise of an option without first offering
such shares to the Company for purchase on the same terms and
conditions as those offered to the proposed transferee or (b) upon
termination of employment of an Optionee the Company shall have a six
month right of repurchase as to the shares acquired upon exercise,
which right of repurchase shall allow for a maximum purchase price
equal to the fair market value of the shares on the termination date.
The foregoing rights of the Company shall be assignable by the Company
upon reasonable written notice to the Optionee.
5.7 TERMINATION OF RELATIONSHIP.
---------------------------
If the Optionee's relationship with the Company or any Affiliate
thereof ceases for any reason other than termination for cause, death, or
total disability, and unless by its terms the option sooner terminates or
expires, then the Optionee may exercise, for a three month period, that
portion of the Optionee's option which is exercisable at the time of such
cessation, but the Optionee's option shall terminate at the end of the
three month period following such cessation as to all shares for which it
has not theretofore been exercised, unless, in the case of a nonqualified
stock option, such provision is
-6-
<PAGE>
waived in the agreement evidencing the option or by resolution adopted by
the Plan Administrator within 90 days of such cessation. If, in the case of
an incentive stock option, an Optionee's relationship with the Company or
Affiliate thereof changes from employee to nonemployee (i.e., from employee
to a position such as a consultant), such change shall constitute a
termination of an Optionee's employment with the Company or Affiliate and
the Optionee's incentive stock option shall terminate in accordance with
this subsection 5.7.
If an Optionee is terminated for cause, any option granted hereunder
shall automatically terminate as of the first discovery by the Company of
any reason for termination for cause, and such Optionee shall thereupon
have no right to purchase any shares pursuant to such option. "Termination
for cause" shall mean dismissal for dishonesty, conviction or confession of
a crime punishable by law (except minor violations), fraud, misconduct, or
disclosure of confidential information. If an Optionee's relationship with
the Company or any Affiliate thereof is suspended pending an investigation
of whether or not the Optionee shall be terminated for cause, all
Optionee's rights under any option granted hereunder likewise shall be
suspended during the period of investigation.
If an Optionee's relationship with the Company or any Affiliate
thereof ceases because of a total disability, the Optionee's option shall
not terminate or, in the case of an incentive stock option, cease to be
treated as an incentive stock option until the end of the 12 month period
following such cessation (unless by its terms it sooner terminates and
expires). As used in the Plan, the term "total disability" refers to a
mental or physical impairment of the Optionee which is expected to result
in death or which has lasted or is, in the opinion of the Company and two
independent physicians, expected to last for a continuous period of 12
months or more and which causes or is, in such opinion, expected to cause
the Optionee to be unable to perform his or her duties for the Company and
to be engaged in any substantial gainful activity. Total disability shall
be deemed to have occurred on the first day after the Company and the two
independent physicians have furnished their opinion of total disability to
the Plan Administrator.
For purposes of this subsection 5.7, a transfer of relationship
between or among the Company and/or any Affiliate thereof shall not be
deemed to constitute a cessation of relationship with the Company or any of
its Affiliates. For purposes of this subsection 5.7, with respect to
incentive stock options, employment shall be deemed to continue while the
Optionee is on military leave, sick leave, or other bona fide leave of
absence (as determined by the Plan Administrator). The foregoing
notwithstanding, employment shall not be
-7-
<PAGE>
deemed to continue beyond the first 90 days of such leave, unless the
Optionee's reemployment rights are guaranteed by statute or by contract.
As used herein, the term "Affiliate" shall be defined as follows: (a)
when referring to a subsidiary corporation, "Affiliate" shall mean any
corporation (other than the Company) in, at the time of the granting of the
option, an unbroken chain of corporations ending with the Company, if stock
possessing 50% or more of the total combined voting power of all classes of
stock of each of the corporations other than the Company is owned by one of
the other corporations in such chain; and (b) when referring to a parent
corporation, "Affiliate" shall mean any corporation in an unbroken chain of
corporations ending with the Company if, at the time of the granting of the
option, each of the corporations other than the Company owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
5.8 DEATH OF OPTIONEE.
-----------------
If an Optionee dies while he or she has a relationship with the
Company or any Affiliate thereof or within the three month period (or 12
month period in the case of totally disabled Optionees) following cessation
of such relationship, any option held by such Optionee, to the extent that
the Optionee would have been entitled to exercise such option, may be
exercised within one year after his or her death by the personal
representative of his or her estate or by the person or persons to whom the
Optionee's rights under the option shall pass by will or by the applicable
laws of descent and distribution.
5.9 STATUS OF STOCKHOLDER.
---------------------
Neither the Optionee nor any party to which the Optionee's rights and
privileges under the option may pass shall be, or have any of the rights or
privileges of, a stockholder of the Company with respect to any of the
shares issuable upon the exercise of any option granted under the Plan
unless and until such option has been exercised.
5.10 CONTINUATION OF EMPLOYMENT.
--------------------------
Nothing in the Plan or in any option granted pursuant to the Plan
shall confer upon any Optionee any right to continue in the employ of the
Company or of an Affiliate thereof, or to interfere in any way with the
right of the Company or of any such Affiliate to terminate his or her
employment or other relationship with the Company at any time.
-8-
<PAGE>
5.11 MODIFICATION AND AMENDMENT OF OPTION.
------------------------------------
Subject to the requirements of Section 422 of the Code with respect to
incentive stock options and to the terms and conditions and within the
limitations of the Plan, including, without limitation, Section 9.1 hereof,
the Plan Administrator may modify or amend outstanding options granted
under the Plan. The modification or amendment of an outstanding option
shall not, without the consent of the Optionee, impair or diminish any of
his or her rights or any of the obligations of the Company under such
option. Except as otherwise provided herein, no outstanding option shall
be terminated without the consent of the Optionee. Unless the Optionee
agrees otherwise, any changes or adjustments made to outstanding incentive
stock options granted under the Plan shall be made in such a manner so as
not to constitute a "modification" as defined in Section 424(h) of the Code
and so as not to cause any incentive stock option issued hereunder to fail
to continue to qualify as an incentive stock option as defined in Section
422(b) of the Code.
5.12 LIMITATION ON VALUE FOR INCENTIVE STOCK OPTIONS.
-----------------------------------------------
As to all incentive stock options granted under the terms of the Plan,
to the extent that the aggregate fair market value (determined at the time
of the grant of the incentive stock option) of the shares of Common Stock
with respect to which incentive stock options are exercisable for the first
time by the Optionee during any calendar year (under the Plan and all other
incentive stock option plans of the Company, an Affiliate thereof or a
predecessor corporation) exceeds $100,000, such options shall be treated as
nonqualified stock options. The foregoing sentence shall not apply, and
the limitation shall be that provided by the Code or the Internal Revenue
Service, as the case may be, if such annual limit is changed or eliminated
by (a) amendment of the Code or (b) issuance by the Internal Revenue
Service of (i) a Revenue ruling, (ii) a Private Letter ruling to any of the
Company, any Optionee, or any legatee, personal representative, or
distributee of any Optionee, or (iii) regulations.
5.13 VALUATION OF COMMON STOCK RECEIVED UPON EXERCISE.
------------------------------------------------
The value of Common Stock received by the Optionee from an exercise
under the third paragraph of Section 5.4 hereof shall equal the sales price
received for such shares.
-9-
<PAGE>
6. GREATER THAN TEN PERCENT STOCKHOLDERS.
-------------------------------------
6.1 EXERCISE PRICE AND TERM OF INCENTIVE STOCK OPTIONS.
--------------------------------------------------
If incentive stock options are granted under the Plan to employees
who, at the time of such grant, own greater than ten percent of the total
combined voting power of all classes of stock of the Company or any
Affiliate thereof, the term of such incentive stock options shall not
exceed five years and the exercise price shall be not less than 110% of the
fair market value of the Common Stock at the time of grant of the incentive
stock option. This provision shall control notwithstanding any contrary
terms contained in an option agreement or any other document. The term and
exercise price limitations of this provision shall be amended to conform to
any change required by a change in the Code or by ruling or pronouncement
of the Internal Revenue Service.
6.2 ATTRIBUTION RULE.
----------------
For purposes of subsection 6.1, in determining stock ownership, an
employee shall be deemed to own the stock owned, directly or indirectly, by
or for his or her brothers, sisters, spouse, ancestors, and lineal
descendants. Stock owned, directly or indirectly, by or for a corporation,
partnership estate, or trust shall be deemed to be owned proportionately by
or for its stockholders, partners, or beneficiaries. If an employee or a
person related to the employee owns an unexercised option or warrant to
purchase stock of the Company, the stock subject to that portion of the
option or warrant which is unexercised shall not be counted in determining
stock ownership. For purposes of this Section 6, stock owned by an
employee shall include all stock owned by him or her which is actually
issued and outstanding immediately before the grant of the incentive stock
option to the employee.
7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
------------------------------------------
The aggregate number and class of shares for which options may be granted
under the Plan, the number and class of shares covered by each outstanding
option, and the exercise price per share thereof (but not the total price), and
each such option, shall all be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock of the Company resulting
from a split or consolidation of shares or any like capital adjustment, or the
payment of any stock dividend.
-10-
<PAGE>
7.1. EFFECT OF LIQUIDATION, REORGANIZATION, OR CHANGE IN CONTROL.
-----------------------------------------------------------
7.1.1 CASH, STOCK, OR OTHER PROPERTY FOR STOCK.
----------------------------------------
Except as provided in subsection 7.1.2 hereof, upon a merger
(other than a merger of the Company in which the holders of Common
Stock immediately prior to the merger have the same proportionate
ownership of common stock in the surviving corporation immediately
after the merger), consolidation, acquisition of property or stock,
separation, reorganization (other than mere reincorporation or
creation of a holding company), or liquidation of the Company (each,
an "event"), as a result of which the stockholders of the Company
receive cash, stock, or other property in exchange for, or in
connection with, their shares of Common Stock, any option granted
hereunder shall terminate, but the time during which such options may
be exercised shall be accelerated as follows: the Optionee shall have
the right immediately prior to any such event to exercise such
Optionee's option in whole or in part whether or not the vesting
requirements set forth in the option agreement have been satisfied.
7.1.2 CONVERSION OF OPTIONS ON STOCK FOR EXCHANGE STOCK.
-------------------------------------------------
If the stockholders of the Company receive capital stock of
another corporation ("Exchange Stock") in exchange for their shares of
Common Stock in any transaction involving a merger (other than a
merger of the Company in which the holders of Common Stock immediately
prior to the merger have the same proportionate ownership of common
stock in the surviving corporation immediately after the merger),
consolidation, acquisition of property or stock, separation, or
reorganization (other than mere reincorporation or creation of a
holding company), all options granted hereunder shall be converted
into options to purchase shares of Exchange Stock unless the Company
and corporation issuing the Exchange Stock, in their sole discretion,
determine that any or all such options granted hereunder shall not be
converted into options to purchase shares of Exchange Stock but
instead shall terminate in accordance with the provisions of
subsection 7.1.1 hereof. The amount and price of converted options
shall be determined by adjusting the amount and price of the options
granted hereunder in the same proportion as used for determining the
number of shares of Exchange Stock the holders of the Common Stock
receive in such merger, consolidation, acquisition, separation, or
reorganization. Unless the Board determines otherwise, the converted
options shall be fully
-11-
<PAGE>
vested whether or not the vesting requirements
set forth in the option agreement have been satisfied.
7.2 FRACTIONAL SHARES.
-----------------
In the event of any adjustment in the number of shares covered by an
option, any fractional shares resulting from such adjustment shall be
disregarded and each such option shall cover only the number of full shares
resulting from such adjustment.
7.3 DETERMINATION OF BOARD TO BE FINAL.
----------------------------------
Except as otherwise required for the Plan to qualify for the exemption
afforded by Rule 16b-3 under the Exchange Act, all adjustments under this
Section 7 shall be made by the Board, and its determination as to what
adjustments shall be made, and the extent thereof, shall be final, binding,
and conclusive. Unless an Optionee agrees otherwise, any change or
adjustment to an incentive stock option shall be made in such a manner so
as not to constitute a "modification" as defined in Section 425(h) of the
Code and so as not to cause the incentive stock option issued hereunder to
fail to continue to qualify as an incentive stock option as defined in
Section 422(b) of the Code.
8. SECURITIES LAW COMPLIANCE.
-------------------------
Shares shall not be issued with respect to an option granted under the Plan
unless the exercise of such option and the issuance and delivery of such shares
pursuant thereto shall comply with all relevant provisions of law, including,
without limitation, any applicable state securities laws, the Securities Act of
1933, as amended (the "Act"), the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance, including, without
limitation, the availability of an exemption from registration for the issuance
and sale of any shares hereunder. Inability of the Company to obtain from any
regulatory body having jurisdiction, the authority deemed by the Company's
counsel to be necessary for the lawful issuance and sale of any shares hereunder
or the unavailability of an exemption from registration for the issuance and
sale of any shares hereunder shall relieve the Company of any liability in
respect of the nonissuance or sale of such shares as to which such requisite
authority shall not have been obtained.
As a condition to the exercise of an option, if, in the opinion of counsel
for the Company, assurances are required by any relevant provision of the
aforementioned laws, the Company may require the Optionee to give written
assurances satisfactory to the Company at the time of any such exercise (a) as
to the Optionee's knowledge
-12-
<PAGE>
and experience in financial and business matters (and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters) and that such Optionee is capable
of evaluating, either alone or with the purchaser representative, the merits and
risks of exercising the option or (b) that the shares are being purchased only
for investment and without any present intention to sell or distribute such
shares. The foregoing requirements shall be inoperative if the issuance of the
shares upon the exercise of the option has been registered under a then
currently effective registration statement under the Act.
At the option of the Company, a stop-transfer order against any shares may
be placed on the official stock books and records of the Company, and a legend
indicating that the stock may not be pledged, sold, or otherwise transferred
unless an opinion of counsel is provided (concurred in by counsel for the
Company) stating that such transfer is not in violation of any applicable law or
regulation, may be stamped on stock certificates in order to assure exemption
from registration. The Plan Administrator may also require such other action or
agreement by the Optionees as may from time to time be necessary to comply with
the federal and state securities laws. NONE OF THE ABOVE SHALL BE CONSTRUED TO
IMPLY AN OBLIGATION ON THE PART OF THE COMPANY TO UNDERTAKE REGISTRATION OF THE
OPTIONS OR STOCK HEREUNDER.
Should any of the Company's capital stock of the same class as the stock
subject to options granted hereunder be listed on a national securities exchange
or on the NASDAQ National Market, all stock issued hereunder if not previously
listed on such exchange or market shall, if required by the rules of such
exchange or market, be authorized by that exchange or market for listing thereon
prior to the issuance thereof.
9. USE OF PROCEEDS.
---------------
The proceeds received by the Company from the sale of shares pursuant to
the exercise of options granted hereunder shall constitute general funds of the
Company.
10. AMENDMENT AND TERMINATION.
-------------------------
10.1 BOARD ACTION.
------------
The Board may at any time suspend, amend, or terminate the Plan,
provided, that no amendment shall be made without stockholder approval
within 12 months before or after adoption of the Plan if such approval is
necessary to comply with any applicable tax or regulatory requirement,
including any such approval as may be necessary to satisfy the requirements
for exemptive relief under Rule 16b-3 of the Exchange Act or any successor
-13-
<PAGE>
provision. Rights and obligations under any option granted before
amendment of the Plan shall not be altered or impaired by any amendment of
the Plan unless the Company requests the consent of the person to whom the
option was granted and such person consents in writing thereto.
10.2 AUTOMATIC TERMINATION.
---------------------
Unless sooner terminated by the Board, the Plan shall terminate ten
years from the earlier of (a) the date on which the Plan is adopted by the
Board or (b) the date on which the Plan is approved by the stockholders of
the Company. No option may be granted after such termination or during any
suspension of the Plan. The amendment or termination of the Plan shall
not, without the consent of the option holder, alter or impair any rights
or obligations under any option theretofore granted under the Plan.
11. EFFECTIVENESS OF THE PLAN.
-------------------------
The Plan shall become effective upon adoption by the Board so long as it is
approved by the holders of a majority of the Company's outstanding shares of
voting capital stock at any time within 12 months before or after the adoption
of the Plan by the Board.
-14-
<PAGE>
AMENDMENT NO. 1
TO
NITINOL MEDICAL TECHNOLOGIES, INC.
1996 STOCK OPTION PLAN
Section 3 of the 1996 Stock Option Plan be and hereby is amended by adding
the following subparagraph (b):
b. Per-Participant Limit. Subject to adjustment under Section 7, the
----------------------
maximum number of shares of Common Stock with respect to which options may be
granted to any participant under the Plan shall be 150,000 shares over the
remaining eight-year life of the Plan. The per-Participant limit described in
this Section 3(b) shall be construed and applied consistently with Section
162(m) of the Code.
Adopted by the Board of Directors on
March 10, 1998
Being considered by the Stockholders
at the June 3, 1998 Annual Meeting
<PAGE>
NITINOL MEDICAL TECHNOLOGIES, INC.
1998 STOCK INCENTIVE PLAN
-------------------------
1. Purpose
-------
The purpose of this 1998 Stock Incentive Plan (the "Plan") of Nitinol
Medical Technologies, Inc., a Delaware corporation (the "Company"), is to
advance the interests of the Company's stockholders by enhancing the Company's
ability to attract, retain and motivate persons who make (or are expected to
make) important contributions to the Company by providing such persons with
equity ownership opportunities and performance-based incentives and thereby
better aligning the interests of such persons with those of the Company's
stockholders. Except where the context otherwise requires, the term "Company"
shall include any present or future subsidiary corporations of Nitinol Medical
Technologies, Inc. as defined in Section 424(f) of the Internal Revenue Code of
1986, as amended, and any regulations promulgated thereunder (the "Code").
2. Eligibility
-----------
All of the Company's employees, officers, directors, consultants and
advisors (and any individuals who have accepted an offer for employment) are
eligible to be granted options, restricted stock awards, or other stock-based
awards (each, an "Award") under the Plan. Each person who has been granted an
Award under the Plan shall be deemed a "Participant".
3. Administration, Delegation
--------------------------
(a) Administration by Board of Directors. The Plan will be administered by
------------------------------------
the Board of Directors of the Company (the "Board"). The Board shall have
authority to grant Awards and to adopt, amend and repeal such administrative
rules, guidelines and practices relating to the Plan as it shall deem advisable.
The Board may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem expedient to carry the Plan into effect and it shall be the sole and final
judge of such expediency. All decisions by the Board shall be made in the
Board's sole discretion and shall be final and binding on all persons having or
claiming any interest in the Plan or in any Award. No director or person acting
pursuant to the authority delegated by the Board shall be liable for any action
or determination relating to or under the Plan made in good faith.
(b) Delegation to Executive Officers. To the extent permitted by
--------------------------------
applicable law, the Board may delegate to one or more executive officers of the
Company the power to make Awards and exercise such other powers under the Plan
as the Board
<PAGE>
may determine, provided that the Board shall fix the maximum number
of shares subject to Awards and the maximum number of shares for any one
Participant to be made by such executive officers.
(c) Appointment of Committees. To the extent permitted by applicable law,
-------------------------
the Board may delegate any or all of its powers under the Plan to one or more
committees or subcommittees of the Board (a "Committee"). All references in the
Plan to the "Board" shall mean the Board or a Committee of the Board or the
executive officer referred to in Section 3(b) to the extent that the Board's
powers or authority under the Plan have been delegated to such Committee or
executive officer.
4. Stock Available for Awards
--------------------------
(a) Number of Shares. Subject to adjustment under Section 8, Awards may be
----------------
made under the Plan for up to 800,000 shares of common stock, $0.001 par value
per share, of the Company (the "Common Stock"). If any Award expires or is
terminated, surrendered or canceled without having been fully exercised or is
forfeited in whole or in part or results in any Common Stock not being issued,
the unused Common Stock covered by such Award shall again be available for the
grant of Awards under the Plan, subject, however, in the case of Incentive Stock
Options (as hereinafter defined), to any limitation required under the Code.
Shares issued under the Plan may consist in whole or in part of authorized but
unissued shares or treasury shares.
(b) Per-Participant Limit. Subject to adjustment under Section 8, the
---------------------
maximum number of shares of Common Stock with respect to which Awards may be
granted to any Participant under the Plan shall be 200,000 shares over the
ten-year life of the Plan. The per-Participant limit described in this Section
4(b) shall be construed and applied consistently with Section 162(m) of the
Code.
5. Stock Options
-------------
(a) General. The Board may grant options to purchase Common Stock (each,
-------
an "Option") and determine the number of shares of Common Stock to be covered by
each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive
Stock Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option".
2
<PAGE>
(b) Incentive Stock Options. An Option that the Board intends to be an
-----------------------
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company and shall be
subject to and shall be construed consistently with the requirements of Section
422 of the Code. The Company shall have no liability to a Participant, or any
other party, if an Option (or any part thereof) which is intended to be an
Incentive Stock Option is not an Incentive Stock Option.
(c) Exercise Price. The Board shall establish the exercise price at the
--------------
time each Option is granted and specify it in the applicable option agreement.
(d) Duration of Options. Each Option shall be exercisable at such times
-------------------
and subject to such terms and conditions as the Board may specify in the
applicable option agreement; provided, however, that no Option will be granted
for a term in excess of 10 years.
(e) Exercise of Option. Options may be exercised by delivery to the
------------------
Company of a written notice of exercise signed by the proper person or by any
other form of notice (including electronic notice) approved by the Board
together with payment in full as specified in Section 5(f) for the number of
shares for which the Option is exercised.
(f) Payment Upon Exercise. Common Stock purchased upon the exercise of an
----------------------
Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the Company;
(2) except as the Board may, in its sole discretion, otherwise provide
in an option agreement, (i) delivery of an irrevocable and unconditional
undertaking by a creditworthy broker to deliver promptly to the Company
sufficient funds to pay the exercise price, (ii) delivery by the Participant to
the Company of a copy of irrevocable and unconditional instructions to a
creditworthy broker to deliver promptly to the Company cash or a check
sufficient to pay the exercise price, or (iii) delivery of shares of Common
Stock owned by the Participant valued at their fair market value as determined
by (or in a manner approved by) the Board in good faith ("Fair Market Value"),
which Common Stock was owned by the Participant at least six months prior to
such delivery;
(3) to the extent permitted by the Board, in its sole discretion (i)
by delivery of a promissory note of the Participant to the Company on terms
determined by the Board, or (ii) by payment of such other lawful consideration
as the Board may determine; or
(4) any combination of the above permitted forms of payment.
3
<PAGE>
6. Restricted Stock
----------------
(a) Grants. The Board may grant Awards entitling recipients to acquire
------
shares of Common Stock, subject to the right of the Company to repurchase all or
part of such shares at their issue price or other stated or formula price (or to
require forfeiture of such shares if issued at no cost) from the recipient in
the event that conditions specified by the Board in the applicable Award are not
satisfied prior to the end of the applicable restriction period or periods
established by the Board for such Award (each, "Restricted Stock Award").
(b) Terms and Conditions. The Board shall determine the terms and
--------------------
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any. Any stock certificates
issued in respect of a Restricted Stock Award shall be registered in the name of
the Participant and, unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the Company (or
its designee). At the expiration of the applicable restriction periods, the
Company (or such designee) shall deliver the certificates no longer subject to
such restrictions to the Participant or if the Participant has died, to the
beneficiary designated, in a manner determined by the Board, by a Participant to
receive amounts due or exercise rights of the Participant in the event of the
Participant's death (the "Designated Beneficiary"). In the absence of an
effective designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
7. Other Stock-Based Awards
------------------------
The Board shall have the right to grant other Awards based upon the Common
Stock having such terms and conditions as the Board may determine, including the
grant of shares based upon certain conditions, the grant of securities
convertible into Common Stock and the grant of stock appreciation rights.
8. Adjustments for Changes in Common Stock and Certain Other Events
----------------------------------------------------------------
(a) Changes in Capitalization. In the event of any stock split, reverse
-------------------------
stock split, stock dividend, recapitalization, combination of shares,
reclassification of shares, spin-off or other similar change in capitalization
or event, or any distribution to holders of Common Stock other than a normal
cash dividend, (i) the number and class of securities available under this Plan,
(ii) the per-Participant limit set forth in Section 4(b), (iii) the number and
class of securities and exercise price per share subject to each outstanding
Option, (iv) the repurchase price per share subject to each outstanding
Restricted Stock Award, and (v) the terms of each other outstanding Award shall
be appropriately adjusted by the Company (or substituted Awards may be made, if
applicable) to the extent the Board shall determine, in good faith, that such an
adjustment (or substitution) is necessary and appropriate. If this Section 8(a)
4
<PAGE>
applies and Section 8(c) also applies to any event, Section 8(c) shall be
applicable to such event, and this Section 8(a) shall not be applicable.
(b) Liquidation or Dissolution. In the event of a proposed liquidation or
--------------------------
dissolution of the Company, the Board shall upon written notice to the
Participants provide that all then unexercised Options will (i) become
exercisable in full as of a specified time at least 10 business days prior to
the effective date of such liquidation or dissolution and (ii) terminate
effective upon such liquidation or dissolution, except to the extent exercised
before such effective date. The Board may specify the effect of a liquidation
or dissolution on any Restricted Stock Award or other Award granted under the
Plan at the time of the grant of such Award.
(c) Acquisition Events
------------------
(1) Definition. An "Acquisition Event" shall mean: (a) any merger or
----------
consolidation of the Company with or into another entity as a result of which
the Common Stock is converted into or exchanged for the right to receive cash,
securities or other property or (b) any exchange of shares of the Company for
cash, securities or other property pursuant to a statutory share exchange
transaction.
(2) Consequences of an Acquisition Event on Options. Upon the
------------------------------------------------
occurrence of an Acquisition Event, or the execution by the Company of any
agreement with respect to an Acquisition Event, the Board shall provide that all
outstanding Options shall be assumed, or equivalent options shall be
substituted, by the acquiring or succeeding corporation (or an affiliate
thereof), provided that any options substituted for Incentive Stock Options
shall satisfy, in the determination of the Board, the requirements of Section
424(a) of the Code. Notwithstanding the foregoing, if the acquiring or
succeeding corporation (or an affiliate thereof) does not agree to assume, or
substitute for, such Options, then the Board shall, upon written notice to the
Participants, provide that all then unexercised Options will become exercisable
in full as of a specified time (the "Acceleration Time") prior to the
Acquisition Event and will terminate immediately prior to the consummation of
such Acquisition Event, except to the extent exercised by the Participants
before the consummation of such Acquisition Event; provided, however, that in
the event of an Acquisition Event under the terms of which holders of Common
Stock will receive upon consummation thereof a cash payment for each share of
Common Stock surrendered pursuant to such Acquisition Event (the "Acquisition
Price"), then the Board may instead provide that all outstanding Options shall
terminate upon consummation of such Acquisition Event and that each Participant
shall receive, in exchange therefor, a cash payment equal to the amount (if any)
by which (A) the Acquisition Price multiplied by the number of shares of Common
Stock subject to such outstanding Options (whether or not then exercisable),
exceeds (B) the aggregate exercise price of such Options.
5
<PAGE>
(3) Consequences of an Acquisition Event on Restricted Stock Awards.
---------------------------------------------------------------
Upon the occurrence of an Acquisition Event, the repurchase and other rights of
the Company under each outstanding Restricted Stock Award shall inure to the
benefit of the Company's successor and shall apply to the cash, securities or
other property which the Common Stock was converted into or exchanged for
pursuant to such Acquisition Event in the same manner and to the same extent as
they applied to the Common Stock subject to such Restricted Stock Award.
(4) Consequences of an Acquisition Event on Other Awards. The Board
----------------------------------------------------
shall specify the effect of an Acquisition Event on any other Award granted
under the Plan at the time of the grant of such Award.
9. General Provisions Applicable to Awards
---------------------------------------
(a) Transferability of Awards. Except as the Board may otherwise determine
-------------------------
or provide in an Award, Awards shall not be sold, assigned, transferred, pledged
or otherwise encumbered by the person to whom they are granted, either
voluntarily or by operation of law, except by will or the laws of descent and
distribution, and, during the life of the Participant, shall be exercisable only
by the Participant. References to a Participant, to the extent relevant in the
context, shall include references to authorized transferees.
(b) Documentation. Each Award shall be evidenced by a written instrument
-------------
in such form as the Board shall determine. Each Award may contain terms and
conditions in addition to those set forth in the Plan.
(c) Board Discretion. Except as otherwise provided by the Plan, each Award
----------------
may be made alone or in addition or in relation to any other Award. The terms
of each Award need not be identical, and the Board need not treat Participants
uniformly.
(d) Termination of Status. The Board shall determine the effect on an
---------------------
Award of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.
(e) Withholding. Each Participant shall pay to the Company, or make
-----------
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Awards to such Participant no later than the date
of the event creating the tax liability. Except as the Board may otherwise
provide in an Award, Participants may satisfy such tax obligations in whole or
in part by delivery of shares of Common Stock, including shares retained from
the Award creating the
6
<PAGE>
tax obligation, valued at their Fair Market Value. The Company may, to the
extent permitted by law, deduct any such tax obligations from any payment of any
kind otherwise due to a Participant.
(f) Amendment of Award. The Board may amend, modify or terminate any
------------------
outstanding Award, including but not limited to, substituting therefor another
Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.
(g) Conditions on Delivery of Stock. The Company will not be obligated to
-------------------------------
deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.
(h) Acceleration. The Board may at any time provide that any Options shall
------------
become immediately exercisable in full or in part, that any Restricted Stock
Awards shall be free of restrictions in full or in part or that any other Awards
may become exercisable in full or in part or free of some or all restrictions or
conditions, or otherwise realizable in full or in part, as the case may be.
10. Miscellaneous
-------------
(a) No Right To Employment or Other Status. No person shall have any claim
--------------------------------------
or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.
(b) No Rights As Stockholder. Subject to the provisions of the applicable
------------------------
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed with
respect to an Award until becoming the record holder of such shares.
Notwithstanding the foregoing, in the event the Company effects a split of the
7
<PAGE>
Common Stock by means of a stock dividend and the exercise price of and the
number of shares subject to such Option are adjusted as of the date of the
distribution of the dividend (rather than as of the record date for such
dividend), then an optionee who exercises an Option between the record date and
the distribution date for such stock dividend shall be entitled to receive, on
the distribution date, the stock dividend with respect to the shares of Common
Stock acquired upon such Option exercise, notwithstanding the fact that such
shares were not outstanding as of the close of business on the record date for
such stock dividend.
(c) Effective Date and Term of Plan. The Plan shall become effective on
-------------------------------
the date on which it is adopted by the Company's stockholders. No Awards shall
be granted under the Plan after the completion of ten years from the date the
Plan is approved by the Company's stockholders, but Awards previously granted
may extend beyond that date.
(d) Amendment of Plan. The Board may amend, suspend or terminate the Plan
-----------------
or any portion thereof at any time, provided that to the extent required by
Section 162(m), no Award granted to a Participant designated as subject to
Section 162(m) by the Board after the date of such amendment shall become
exercisable, realizable or vested, as applicable to such Award (to the extent
that such amendment to the Plan was required to grant such Award to a particular
Participant), unless and until such amendment shall have been approved by the
Company's stockholders as required by Section 162(m) (including the vote
required under Section 162(m)).
(e) Governing Law. The provisions of the Plan and all Awards made
-------------
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.
8
<PAGE>
NITINOL MEDICAL TECHNOLOGIES, INC.
ANNUAL MEETING OF STOCKHOLDERS -- JUNE 3, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, revoking all prior proxies, hereby appoints Thomas M.
Tully, Theodore I. Pincus and Steven D. Singer, and each of them, with power of
substitution and revocation, as Proxies to represent and vote as designated
hereon all the shares of stock of NITINOL MEDICAL TECHNOLOGIES, INC. (the
"Company") which the undersigned would be entitled to vote if personally
present at the Annual Meeting of Stockholders of the Company to be held at the
Company's offices at 27 Wormwood Street, Boston, Massachusetts 02210-1625, on
Wednesday, June 3, 1998 at 9:30 a.m., Boston, Massachusetts time, and at any
adjournment thereof.
PLEASE FILL IN, DATE, SIGN AND MAIL THIS PROXY
IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE.
(continued and to be signed on the reverse side) SEE REVERSE SIDE
<PAGE>
\/ Please Detach and Mail in the Envelope Provided \/
A [X] Please mark your votes as in this
example.
FOR all the nominees WITHHOLD authority
listed at right (except to vote for all
as marked to the nominees listed at
contrary below) right
PROPOSAL 1 -
Election of [ ] [ ]
Directors:
Nominees:
INSTRUCTION: TO WITHHOLD AUTHORITY TO Thomas M. Tully
VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE Morris Simon, M.D.
A LINE THROUGH THAT NOMINEE'S NAME AT C. Leonard Gordon
RIGHT. Michael C. Brooks
R. John Fletcher
Jeffrey R. Jay, M.D.
Robert A. Van Tassel, M.D.
FOR AGAINST ABSTAIN
PROPOSAL 2 - To approve the Company's Second Amended
and Restated Certificate of Incorporation,
which eliminates all references to the [ ] [ ] [ ]
Company's to the to the Company's
convertible preferred stock and
redeemable preferred stock as described
in the proxy statement.
PROPOSAL 3 - To approve (i) an amendment to the
Company's 1996 Stock Option Plan as
described in the proxy statement and [ ] [ ] [ ]
(ii) the continuance of such plan, as
amended.
PROPOSAL 4 - To approve the Company's 1998 Stock
Incentive Plan and the reservation of
800,000 shares of Common Stock for [ ] [ ] [ ]
issuance thereunder.
PROPOSAL 5 - To ratify the appointment of Arthur
Andersen LLP as the Company's independent
auditors for the current year. [ ] [ ] [ ]
The Board of Directors recommends a vote FOR the election of the nominees and
FOR proposals 2, 3, 4 and 5.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE
NOMINEES AND FOR PROPOSALS 2, 3, 4 and 5.
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.
SIGNATURE OF STOCKHOLDER Date: , 1998
------------------------------ ------------
Note: Please sign exactly as name appears on this proxy, indicating, where
proper, official position or representative capacity. If the stock is registered
in the names of two or more persons, each should sign. When signing as an
executor, administrator, trustee, guardian or attorney, please give full title
of such. If a corporation, please sign in full corporate name by an authorized
officer. If a partnership, please sign in full partnership name by an authorized
person.
