<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
Thoratec Laboratories Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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<PAGE> 2
THORATEC LABORATORIES CORPORATION
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 14, 1999
------------------------
TO THE SHAREHOLDERS OF THORATEC LABORATORIES CORPORATION
NOTICE IS HEREBY GIVEN, that an Annual Meeting of Shareholders of Thoratec
Laboratories Corporation, a California corporation ("Thoratec" or the
"Company"), will be held on Friday, May 14, 1999 at 9:30 a.m., Pacific time, at
the Company's headquarters at 6035 Stoneridge Drive, Pleasanton, California
94588 for the following purposes:
1. To elect directors to serve for the ensuing year and until their
successors are elected.
2. To approve an amendment to Thoratec's 1997 Stock Option Plan.
3. To approve amendments to Thoratec's 1996 Nonemployee Directors Stock
Option Plan.
4. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on April 7, 1999, are
entitled to notice of and to vote at the meeting and any adjournments thereof.
All shareholders are cordially invited to attend the meeting in person. Any
shareholder attending the meeting may vote in person even if such shareholder
previously signed and returned a Proxy.
FOR THE BOARD OF DIRECTORS
D. Keith Grossman
Chief Executive Officer and President
Pleasanton, California
April 13, 1999
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
ASSURE REPRESENTATION OF YOUR SHARES.
<PAGE> 3
THORATEC LABORATORIES CORPORATION
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
The enclosed Proxy is solicited on behalf of the Board of Directors (the
"Board") of Thoratec Laboratories Corporation ("Thoratec" or the "Company") for
use at the Company's Annual Meeting of Shareholders (the "Annual Meeting") to be
held Friday, May 14, 1999 at 9:30 a.m., Pacific time, or at any adjournment or
postponement thereof, for the purposes set forth herein and in the accompanying
Notice of Annual Meeting of Shareholders. The Annual Meeting will be held at the
Company's headquarters, 6035 Stoneridge Drive, Pleasanton, California 94588. The
telephone number at that address is (925) 847-8600.
These proxy solicitation materials were mailed on or about April 13, 1999
to all shareholders entitled to vote at the Annual Meeting.
INFORMATION CONCERNING SOLICITATION AND VOTING
RECORD DATE AND SHARES OUTSTANDING
Shareholders of record at the close of business on April 7, 1999 (the
"Record Date") are entitled to notice of, and to vote at, the Annual Meeting. At
the Record Date, 20,433,812 shares of the Company's common stock (the "Common
Stock") were issued, outstanding and entitled to vote at the Annual Meeting.
REVOCABILITY OF PROXIES
Any Proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company a written notice of revocation or a duly executed Proxy bearing a later
date or by attending the Annual Meeting and voting in person.
VOTING AND SOLICITATION
Every shareholder voting for the election of directors may exercise
cumulative voting rights and give one candidate a number of votes equal to the
number of directors to be elected multiplied by the number of votes to which the
shareholder's shares are entitled, or distribute such shareholder's votes on the
same principle among as many candidates as the shareholder may select, provided
that votes cannot be cast for more than eight candidates. However, no
shareholder shall be entitled to cumulate votes unless the candidate's name has
been placed in nomination prior to the voting and the shareholder, or any other
shareholder, has given notice at the meeting prior to the voting of the
intention to cumulate votes. On all other matters each share is entitled to one
vote on each proposal or item that comes before the Annual Meeting.
The Company intends to include abstentions and broker non-votes as present
or represented for purposes of establishing a quorum for the transaction of
business. However, abstentions are counted as votes against a proposal for
purposes of determining whether or not a proposal has been approved, whereas
broker non-votes are not counted for purposes of determining whether a proposal
has been approved.
Solicitation of proxies may be made by directors, officers and other
employees of the Company by personal interview, telephone, facsimile or other
method. No additional compensation will be paid for any such services. Costs of
solicitation, including preparation, assembly, printing and mailing of this
proxy statement, the proxy and any other information furnished to the
shareholders, will be borne by the Company. The Company may reimburse the
reasonable charges and expenses of brokerage houses or other nominees or
fiduciaries for forwarding proxy materials to, and obtaining authority to
execute proxies from, beneficial owners for whose account they hold shares of
Common Stock.
<PAGE> 4
PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
Eight directors are to be elected at the Annual Meeting. Unless otherwise
instructed, the proxy holders will vote the proxies received by them for the
eight nominees named below. All of the nominees named below are presently
directors of the Company. In the event that any nominee is unable or declines to
serve as a director at the time of the Annual Meeting, the proxies will be voted
for any nominee who shall be designated by the Board to fill the vacancy. In the
event that additional persons are nominated for election as directors, the proxy
holders intend to vote all proxies received by them in such a manner in
accordance with cumulative voting as will ensure the election of as many of the
nominees listed below as possible. In such event, the specific nominees for whom
such votes will be cumulated will be determined by the proxy holders. The term
of office for each person elected as a director will continue until the next
Annual Meeting of Shareholders or until his successor has been elected and
qualified. It is not expected that any nominee will be unable or will decline to
serve as a director.
The name of and certain other information regarding each nominee is set
forth in the table below.
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE POSITION WITH THE COMPANY SINCE
--------------- --- ------------------------- --------
<S> <C> <C> <C>
J. Donald Hill(1)...................... 62 Director and Chairman of the Board 1976
D. Keith Grossman...................... 39 Director, President and Chief Executive 1996
Officer
Christy W. Bell(2)..................... 76 Director 1988
Howard E. Chase(2)..................... 62 Director 1986
J. Daniel Cole......................... 52 Director 1997
William M. Hitchcock(2)................ 59 Director 1996
George W. Holbrook, Jr.(1)............. 67 Director 1995
Daniel M. Mulvena(1)................... 50 Director 1997
</TABLE>
- ---------------
(1) Member of Compensation and Option Committee
(2) Member of Audit Committee
There is no family relationship between any of the directors or executive
officers of the Company.
J. Donald Hill, M.D. has been a director of the Company since its inception
in March 1976 and is a significant shareholder of the Company. In January 1995,
Dr. Hill became Chairman of the Board of Directors. Dr. Hill is Chairman of the
Department of Cardiac Surgery at California Pacific Medical Center in San
Francisco where he has been a practicing cardiovascular surgeon since 1966.
D. Keith Grossman joined the Company as President and Chief Executive
Officer in January 1996. He was elected to the Board of Directors in February
1996. Prior to joining Thoratec, Mr. Grossman was a Division President of Major
Pharmaceuticals, Inc., from June 1992 to September 1995, at which time it was
sold. From July 1988 to June 1992, Mr. Grossman served as the Vice President of
Sales and Marketing for Calcitek, Inc., a manufacturer of implantable medical
devices, and division of Sulzer Medica USA Inc. (formerly Intermedics, Inc.).
Prior to 1988, Mr. Grossman held various other sales and marketing management
positions within the McGaw Laboratories Division of American Hospital Supply
Corporation.
Christy W. Bell became a director of the Company in April 1988 and is a
significant shareholder of the Company. Mr. Bell is President and CEO of
Electro-Petroleum Inc. ("EPI"), Electro-Pyrolysis Inc., and Arc Technologies
Inc. and a managing member of Temblor Petroleum, Co. LLC. Prior to joining EPI,
Mr. Bell had been Chairman and Chief Executive Officer of Chem Clear, located in
Wayne, Pennsylvania, until February 1988, when the Company was sold. Mr. Bell
serves as a member of the Board of Clean Harbors, Inc.
2
<PAGE> 5
Howard E. Chase became a director of the Company in November 1986. Mr.
Chase served as President and CEO of Trident Rowan Group, Inc. ("TRGI") from
September 1995 to March 1998 and Chairman of the Board of TRGI since March 1998.
In addition, in April 1999, Mr. Chase was appointed as President of Matrix
Global Investments, Inc. From 1984 to August 1995 Mr. Chase was a partner in the
law firm of Morrison Cohen Singer & Weinstein in New York City. He acted as an
advisor and as special counsel to the Company from 1979 to 1995.
J. Daniel Cole became a director of the Company in July 1997. Mr. Cole is a
general partner of the Spray Venture Fund of Boston. Mr. Cole was President and
Chief Operating Officer of SciMed Life Systems Corporation from April 1993 to
March 1995, and Senior Vice President and Group President of Boston Scientific
Corporation's vascular business from March 1995 to March 1997. He has also held
a number of senior executive positions at Baxter Healthcare Corporation,
including President of its Edwards Less Invasive Surgery Division and its
Critical Care Division. Mr. Cole also serves as a member of the Board of
Directors of Cambridge Heart, Inc. and SurVivaLink.
William M. Hitchcock became a director of the Company in September 1996. In
December 1994 Mr. Hitchcock became President and director of Avalon Financial,
Inc. From May 1992 to December 1995, Mr. Hitchcock was President of Plains
Resources International Inc., a wholly owned subsidiary of Plains Resources Inc.
Mr. Hitchcock also serves as a member of the Board of Directors of Plains
Resources Inc. and Oshman's Sporting Goods, Inc.
George W. Holbrook, Jr. became a director of the Company in July 1995.
Since 1984 Mr. Holbrook has been the Managing Partner of Bradley Resources
Company, a private investment partnership. Mr. Holbrook is also a director of
Merrill Lynch Institutional Fund and several associated funds.
Daniel M. Mulvena became a director of the Company in May 1997. Mr. Mulvena
is the founder and owner of Commodore Associates, a consulting company. Mr.
Mulvena was Group Vice President Cardiac/cardiology and a member of the
operating committee for Boston Scientific Corporation from February 1992 to May
1995, and prior thereto was the President and Chief Executive Officer and
Chairman of Lithox Systems, Inc. Prior to that, Mr. Mulvena held a number of
executive positions, including President of the Implants Division and President
of the Cardiosurgery Division, at C.R. Bard, Inc. Mr. Mulvena also serves as a
member of the Board of Directors of EchoCath, Inc., Magna-Lab Inc. and Zoll
Medical Corporation.
BOARD MEETINGS AND COMMITTEES
The Board held a total of 10 meetings during the fiscal year ended January
2, 1999. No director attended fewer than 75 percent of the aggregate of all
meetings of the Board and of the committees upon which such director served.
During fiscal year 1998, the Audit Committee consisted of Messrs. Bell,
Chase, and Hitchcock, with Mr. Chase serving as Chairman. The principal
functions of the Audit Committee are to recommend engagement of the Company's
independent auditors, to consult with the Company's auditors concerning the
scope of the audit and to review with them the results of their examination, to
review and approve any material accounting policy changes affecting the
Company's operating results and to review the Company's financial control
procedures and personnel. The Audit Committee held one meeting during fiscal
year 1998.
The Compensation and Option Committee currently consists of Messrs.
Holbrook and Mulvena, and Dr. Hill, with Mr. Mulvena serving as Chairman. The
Compensation and Option Committee reviews and recommends to the Board
compensation and benefits for the Company's executive officers and management.
The Compensation and Option Committee held three meetings during fiscal year
1998.
The Board does not have a nominating committee.
BOARD COMPENSATION
Directors receive reimbursement for travel and other expenses directly
related to their activities as directors. Outside directors are paid $2,500 per
meeting held in person and $500 per quarter for committee meetings. In addition,
with prior approval of the Chairman, consulting fees of $1,500 per day for the
first full
3
<PAGE> 6
day and $1,000 per day thereafter may be paid. Beginning in 1996, outside
directors are eligible to participate in the Company's 1996 Nonemployee
Directors Stock Option Plan. The terms of that plan, as amended, are described
below under "Proposal Three-Approval of Amendments to the 1996 Nonemployee
Directors Stock Option Plan." For fiscal year 1998 Dr. Hill and Messrs. Bell,
Chase, Cole, Hitchcock, Holbrook and Mulvena received compensation of $12,250,
$9,250, $9,250, $10,250, $9,250, $10,250, and $12,250, respectively. Each
director was granted options in the 1996 Directors Stock Option Plan with
underlying securities of 5,000 shares at $8.875/share on May 18, 1998 and
options in the 1993 Stock Option Plan with underlying securities of 7,500 shares
at $6.375/share on October 25, 1998.
MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 12, 1999 (i) by each of the
Company's directors, (ii) by each Named Executive Officer, (iii) by all
directors and executive officers as a group, and (iv) by each person who is
known by the Company to own beneficially more than 5% of the Company's Common
Stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF SHARES
NAME AND ADDRESS(1) BENEFICIALLY OWNED(2) BENEFICIALLY OWNED(2)
------------------- --------------------- ---------------------
<S> <C> <C>
COBE Laboratories, Inc. ................................. 3,708,077 18.2%
1185 Oak Street
Lakewood, CO 80215
Peter R. Kellogg......................................... 2,062,100 10.1
Spear, Leeds & Kellogg
120 Broadway
New York, NY 10271
State of Wisconsin Investment Board...................... 1,549,800 7.6
P.O. Box 7842
Madison, WI 53702
J. Donald Hill(3)........................................ 1,414,453 6.9
George W. Holbrook, Jr.(4)............................... 1,202,054 5.9
Bradley Resources Company(4)............................. 1,181,221 5.8
P.O. Box 1938
Palm City, FL 34991-6939
James R. McGoogan(4)..................................... 1,181,221 5.8
Bradley Resources Company
P.O. Box 1938
Palm City, FL 34991-6939
Richard V. Traister(4)................................... 1,181,221 5.8
Bradley Resources Company
P.O. Box 1938
Palm City, FL 34991-6939
Sulzer Medica USA Inc. .................................. 1,074,074 5.3
3 East Greenway Plaza, Suite 1600
Houston, TX 77046
Christy W. Bell(5)....................................... 635,877 3.1
William M. Hitchcock(6).................................. 374,573 1.8
D. Keith Grossman(7)..................................... 165,333 *
Howard E. Chase(8)....................................... 103,055 *
Cheryl D. Hess(9)........................................ 84,204 *
David J. Farrar(10)...................................... 78,189 *
J. Daniel Cole(11)....................................... 62,500 *
Donald A. Middlebrook(12)................................ 51,000 *
Thomas E. Burnett, Jr.(13)............................... 50,000 *
Daniel M. Mulvena(14).................................... 22,500 *
Directors and Executive Officers as a Group (13
persons)(15)........................................... 4,283,738 20.3%
</TABLE>
4
<PAGE> 7
- ---------------
* Less than one percent
(1) Except as set forth herein, the address of the persons set forth above is
the address of the Company appearing elsewhere in this proxy statement.
(2) Applicable percentage ownership for each shareholder is based on 20,428,179
shares of Common Stock outstanding as of March 12, 1999, together with
applicable options for such shareholder. Beneficial ownership is determined
in accordance with the rules of the Securities and Exchange Commission, and
includes voting and investment power with respect to the shares. Beneficial
ownership also includes shares of stock subject to options and warrants
exercisable or convertible within 60 days of March 12, 1999. Shares of
Common Stock subject to outstanding options are deemed outstanding for
computing the percentage of ownership of the person holding such options,
but are not deemed outstanding for computing the percentage ownership of
any other person. Except pursuant to applicable community property laws or
as indicated in the footnotes to this table, to the Company's knowledge,
each shareholder identified in the table possesses sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by such shareholder.
(3) Includes 103,055 shares issuable upon exercise of options exercisable
within 60 days of March 12, 1999.
(4) Bradley Resources Company is an investment partnership which owns 1,181,221
shares. George W. Holbrook, Jr., a director of the Company, is a general
partner of Bradley Resources Company and is deemed to share beneficial
ownership of such shares with Messrs. James R. McGoogan and Richard V.
Traister, general partners of Bradley Resources Company. Includes, in Mr.
Holbrook's number only, 20,833 shares issuable upon exercise of options
within 60 days of March 12, 1999.
(5) Includes 64,389 shares issuable upon exercise of options exercisable within
60 days of March 12, 1999.
(6) Includes 20,833 shares issuable upon exercise of options exercisable within
60 days of March 12, 1999.
(7) Includes 158,333 shares issuable upon exercise of options exercisable
within 60 days of March 12, 1999.
(8) Includes 103,055 shares issuable upon exercise of options exercisable
within 60 days of March 12, 1999.
(9) Includes 20,000 shares issuable upon exercise of options exercisable within
60 days of March 12, 1999.
(10) Includes 62,967 shares issuable upon exercise of options exercisable within
60 days of March 12, 1999.
(11) Includes 22,500 shares issuable upon exercise of options exercisable within
60 days of March 12, 1999.
(12) Includes 50,000 shares issuable upon exercise of options exercisable within
60 days of March 12, 1999.
(13) Includes 50,000 shares issuable upon exercise of options exercisable within
60 days of March 12, 1999.
(14) Includes 22,500 shares issuable upon exercise of options exercisable within
60 days of March 12, 1999.
(15) Includes 723,465 shares issuable upon exercise of options exercisable
within 60 days of March 12, 1999.
5
<PAGE> 8
EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning the
compensation received for services rendered to the Company during 1996, 1997 and
1998 fiscal years by the Chief Executive Officer of the Company and each of the
four additional most highly compensated executive officers (the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION(1) SECURITIES
------------------------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER OPTIONS(#)
--------------------------- ---- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
D. Keith Grossman(2)......................... 1998 $192,750 $131,070 $ 2,400 100,000
Chief Executive Officer, 1997 183,997 41,125 2,375 333,333
President and Director 1996 147,884 69,375 101,548 333,333
Thomas E. Burnett, Jr.(3).................... 1998 139,778 83,167 861 52,500
Vice President -- Sales 1997 131,298 30,188 767 40,000
and Marketing 1996 40,077 27,281 49,878 60,000
David J. Farrar(4)........................... 1998 136,856 73,287 2,400 52,500
Vice President -- Research 1997 130,649 28,000 2,290 40,000
and Development 1996 109,924 24,571 -- --
Cheryl D. Hess(4)............................ 1998 139,778 76,930 2,400 52,500
Chief Financial Officer, 1997 131,298 33,688 2,375 40,000
Vice President, Finance and Secretary 1996 111,923 36,375 -- --
Donald A. Middlebrook(5)..................... 1998 137,808 66,417 2,400 52,500
Vice President -- Regulatory 1997 131,298 32,375 68,462 40,000
Affairs/Quality Assurance 1996 39,423 15,000 52,052 60,000
</TABLE>
- ---------------
(1) In accordance with the rules of the Securities and Exchange Commission,
other annual compensation in the form of perquisites and other personal
benefits has been omitted where the aggregate amount of such perquisites and
other personal benefits constituted less than the lesser of $50,000 or 10%
of the total annual salary and bonus for the Named Executive Officer for the
fiscal year.
(2) All 333,333 options issued to Mr. Grossman in 1996 were canceled as part of
the issuance of 333,333 options in 1997. Not included in the 1997 number are
140,000 options issued to him in 1997 and canceled later in the year. Other
compensation in 1996 represents relocation expense and in 1997 and 1998
represents employer contribution to a 401(k) retirement plan.
(3) Mr. Burnett joined the Company in August 1996, at which time his annual base
salary was $125,000. Other compensation in 1996 represents a $40,000 signing
bonus and $9,878 for relocation expenses and in 1997 and 1998 represents
employer contribution to a 401(k) retirement plan.
(4) Other compensation in 1997 and 1998 represents employer contribution to a
401(k) retirement plan.
(5) Mr. Middlebrook joined the Company in September 1996, at which time his
annual base salary was $125,000. Other compensation in 1996 represents a
$10,000 signing bonus and $42,052 for relocation expenses. Other
compensation in 1997 represents a $10,000 signing bonus, $56,087 for
relocation expenses, and $2,375 employer contribution to a 401(k) retirement
plan. Other compensation in 1998 represents employer contribution to a
401(k) retirement plan.
6
<PAGE> 9
OPTION GRANTS
The following table provides information concerning grants of options to
purchase the Company's Common Stock made to each of the Named Executive Officers
during the year ended January 2, 1999. No stock appreciation rights were granted
to these individuals during such fiscal year.
OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZED
INDIVIDUAL GRANTS VALUE AT ASSUMED
-------------------------------------------------- ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(1)
OPTIONS EMPLOYEES PRICE EXPIRATION -------------------
NAME GRANTED IN 1998 ($/SH) DATE 5% 10%
---- ---------- ------------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
D. Keith Grossman................. 50,000 5.9% $6.000 02/24/08 $189,000 $478,000
50,000 5.9 6.375 10/23/08 200,000 508,000
Thomas E. Burnett, Jr. ........... 40,000 4.7 6.000 02/24/08 151,000 382,000
12,500 1.5 6.375 10/23/08 50,000 127,000
David J. Farrar................... 40,000 4.7 6.000 02/24/08 151,000 382,000
12,500 1.5 6.375 10/23/08 50,000 127,000
Cheryl D. Hess.................... 40,000 4.7 6.000 02/24/08 151,000 382,000
12,500 1.5 6.375 10/23/08 50,000 127,000
Donald A. Middlebrook............. 40,000 4.7 6.000 02/24/08 151,000 382,000
12,500 1.5 6.375 10/23/08 50,000 127,000
</TABLE>
- ---------------
(1) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The assumed
5% and 10% rates of stock price appreciation are mandated by rules of the
Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future Common Stock price.
OPTION EXERCISES AND HOLDINGS
The following table sets forth the certain information regarding the value
of exercised options and unexercised stock options held by each of the Named
Executive Officers as of January 2, 1999.
1998 OPTION EXERCISES AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR END(2) FISCAL YEAR END(3)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
D. Keith Grossman......... -- -- 145,833 287,500 $309,895 $492,188
Thomas E. Burnett, Jr. ... -- -- 40,000 112,500 17,500 106,875
David J. Farrar........... -- -- 52,967 90,589 227,083 148,071
Cheryl D. Hess............ 10,000 $41,250 10,000 82,500 17,500 106,875
Donald A. Middlebrook..... -- -- 40,000 112,500 17,500 106,875
</TABLE>
- ---------------
(1) Value realized is based on the fair market value of the Company's Common
Stock on the date of exercise (the closing sales price reported on the
Nasdaq National Market or other market on which the Company's Common Stock
traded on such date) minus the exercise price, and does not necessarily
indicate that the optionee sold such stock.
(2) Options vest over periods of four years from the date of the grant.
(3) Represents the difference between the option exercise price and the closing
price of the Company's Common Stock as reported on the Nasdaq National
Market at fiscal year end.
7
<PAGE> 10
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
During fiscal 1998, management compensation issues were reviewed by the
Compensation and Option Committee which consisted of Messrs. Holbrook and
Mulvena and Dr. Hill. The function of the Compensation and Option Committee is
to review and recommend management compensation to the Board. The Compensation
and Option Committee met three times in 1998.
The Company believes that its ability to achieve the objectives of
obtaining regulatory approval for and commercializing its circulatory support
and graft products, and becoming profitable, is dependent largely upon the
ability to recruit and retain qualified executives with substantive experience
in the development, regulatory approval, manufacture, marketing and sale of new
medical devices. The Company is competing for experienced executives within the
San Francisco Bay Area, where over 100 biotechnology/biomedical/ pharmaceutical
companies are located.
The Board has a policy designed to control the base salaries of its
executives while providing sufficient incentives to attract and retain qualified
personnel. In accordance with this policy, the Company strives to set executive
base salaries by considering relative contribution of the position to
achievement of the Company's goals and objectives, "market value" as defined by
salaries of executives within the Bay Area with comparable experience in similar
positions, and job-related responsibilities with respect to size of budget,
number of subordinates and scope of activities. In general, the Company strives
to set base salaries of new executives at market, which is defined as the
average base salary of incumbents in comparable positions, and uses its 1993,
1996 and 1997 Stock Option Plans to facilitate recruiting and to retain
qualified executives by providing long-term incentives. Typically, new
executives are granted stock options as part of their initial employment
package.
During 1993, the Internal Revenue Code of 1986 was amended to include a
provision that denies a deduction to publicly held corporations for compensation
paid to "covered employees" (defined as the chief executive officer and the next
four most highly compensated officers as of the end of the taxable year) to the
extent that compensation paid to any "covered employee" exceeds $1 million in
any taxable year of the corporation beginning after 1993. Certain
"performance-based" compensation qualified for an exemption from the limits on
deductions. It is the Company's policy to attempt to qualify compensation paid
to its top executives for deductibility in order to maximize the Company's
income tax deductions, to the extent that so qualifying the compensation is not
inconsistent with the Company's fundamental compensation policies. Based upon
the Internal Revenue Service's proposed regulations and compensation paid to the
Company's "covered employees" for the 1998 tax year, all compensation paid by
the Company in 1998 to such covered employees was deductible to the Company.
Stock Options. The Company has determined that stock options are an
important incentive for attracting and retaining qualified personnel, including
executive-level personnel.
Corporate Performance Criteria. Management presents to the Board a set of
corporate goals for a succeeding period, generally ranging from 12 to 18 months,
as part of the annual plan and budget process. These goals establish benchmarks
for assessing overall corporate performance. Given the dynamic nature of the new
medical device development process, progress toward the achievement of corporate
goals is reviewed with the Board periodically together with a description of any
change in circumstances that management believes may warrant an update to or
revisions of these goals. The principal corporate goals for 1998 were to achieve
revenue and net income targets, complete the second phase of the Company's
relocation into new corporate headquarters in Pleasanton, successfully launch a
new product in Europe, complete several clinical trials and regulatory
submissions, and finalizing a distribution agreement for the Company's graft
products.
Periodic Salary Adjustments. Generally, executive salaries are reviewed
annually, and salary adjustments may be awarded on the basis of increased
responsibilities of individual executives over a period of time or the
outstanding performance of individual executives as exhibited by consistently
high standards in the execution of established duties, as described by the Chief
Executive Officer to the Board. Company performance as a whole is a major
consideration in the Board's decision to award any salary increases and, to a
lesser extent, the Board also considers general economic conditions and trends.
The Board in their
8
<PAGE> 11
deliberations also considered a review of executive compensation performed by
outside consultants, and in July 1998 increased the base salaries of Messrs.
Burnett and Middlebrook, Dr. Farrar, and Ms. Hess 11.0%, 8.0%, 8.5% and 11.0%,
respectively. The annual review date was moved from July to January to match the
time frame of other elements of compensation, starting in fiscal 1999. The base
salaries of the Company executives were increased by 4 - 5% effective the first
day of fiscal 1999, based on performance and execution of duties.
Chief Executive Officer. Generally, the nonemployee members of the Board
meet with the Chief Executive Officer to discuss the performance of the other
executive officers and of the Company as a whole. The nonemployee members of the
Board then meet in the absence of the Chief Executive Officer to discuss the
performance of the Chief Executive Officer. In July 1998, Mr. Grossman's salary
was increased 7.8% based on the review of executive compensation performed by
outside consultants as mentioned above. Based on his leadership and achievements
of key strategic and regulatory objectives for the year, including a
distribution agreement for the graft products and the successful launch of the
TLC-II(TM) portable driver in Europe, Mr. Grossman's base salary was increased
5% effective the first day of fiscal 1999. Based on overachievement of some
objectives such as revenue and net income targets, combined with achievement of
other bonus-related objectives such as the corporate goals mentioned above, Mr.
Grossman was awarded a bonus of $131,070 for the fiscal year.
Summary. The Board believes that it has established a program for
compensation of the Company's executives which is fair and which aligns the
financial incentives for executives with the interests of the Company's
shareholders.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998, no executive officer of the Company served on the board of
directors or compensation committee of another company that had an executive
officer serve on the Company's Board of Directors or its Compensation and Option
Committee.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers, and
persons who own more than ten percent of a registered class of the Company's
equity securities, to file reports of ownership on Form 3 and changes in
ownership on Form 4 or 5 with the Securities and Exchange Commission and the
National Association of Securities Dealers. Such officers, directors and ten
percent shareholders are also required by Securities and Exchange Commission
rules to furnish the Company with copies of all Section 16(a) forms that they
file.
Based solely on its review of copies of such reports received or written
representations from certain reporting persons, the Company believes that,
during the fiscal year ended January 2, 1999, there has been no failure by any
of its officers, directors or ten percent shareholders to file on a timely basis
any reports required by Section 16(a).
STOCK PRICE PERFORMANCE GRAPH
The Securities and Exchange Commission requires that the Company include in
this proxy statement a line-graph representation comparing five-year, cumulative
shareholder returns for the Company's Common Stock with a broad-based market
index and either a nationally recognized industry standard or an index of peer
companies selected by the Company.
The following line graph illustrates a five-year comparison of the
cumulative total shareholder return on the Common Stock against the cumulative
total return of The Nasdaq Stock Market (U.S.) Index, the Hambrecht & Quist
Health Care Index and the Peer Group Index, assuming $100 invested in the Common
Stock and the three indexes on December 31, 1993.
In the past, the Company has compared the return on its Common Stock to the
Nasdaq Stock Market Index (U.S. Companies only) and the Hambrecht & Quist Health
Care Index. In this Proxy Statement and in
9
<PAGE> 12
the future, the Company intends to compare the return on its Common Stock to the
Nasdaq Stock Market Index (U.S. Companies only) and the Peer Group Index.
Thoratec is included in the Nasdaq Stock Market Index (U.S. Companies only) and
is similar in size and stage of commercialization as the other companies in the
Peer Group. The Company believes that the entities comprising the Peer Group are
more representative of the Company's current medical device operations in the
Medical Products Sector than those much larger entities that comprise the
Hambrecht & Quist Health Care Index. The Hambrecht & Quist Health Care Index
also includes entities in the Biotechnology, Pharmaceuticals and Healthcare
Services Sectors which were not representative of the Medical Products Sector.
The Peer Group Index consists of the following 17 Nasdaq companies:
Abiomed, Inc., Angeion Corporation, Arrow International, Inc., Atrion
Corporation, Bio-Vascular, Inc., Cardiotech International, Inc., CardioThoracic
Systems, Inc., Datascope Corp., Eclipse Surgical Technologies, Inc., Fusion
Medical Technologies, Inc., General Surgical Innovations, Inc., Gish Biomedical,
Inc., Heartport, Inc., Innerdyne, Inc., Possis Medical, Inc., Quest Medical,
Inc., and Thermo Cardiosystems Inc.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG THORATEC LABORATORIES CORPORATION
THE NASDAQ STOCK MARKET (U.S.) INDEX
THE HAMBRECHT & QUIST HEALTHCARE INDEX
AND THE PEER GROUP INDEX
<TABLE>
<CAPTION>
THORATEC LABORATORIES NASDAQ STOCK HAMBRECHT & QUIST
CORPORATION MARKET - US HEALTHCARE PEER GROUP
--------------------- ------------ ----------------- ----------
<S> <C> <C> <C> <C>
'12/93' 100 100 100 100
'12/94' 121 98 101 120
'12/95' 276 138 169 254
'12/96' 175 170 175 175
'12/97' 122 209 203 161
'12/98' 131 293 258 101
</TABLE>
- ---------------
* $100 invested on December 31, 1993 in stock or index including reinvestment of
dividends. Fiscal year ending December 31.
10
<PAGE> 13
PROPOSAL TWO
APPROVAL OF AN AMENDMENT TO THE 1997 STOCK OPTION PLAN
At the Annual Meeting, the shareholders are being asked to approve an
amendment to Thoratec's 1997 Stock Option Plan (the "1997 Option Plan").
DESCRIPTION OF THE 1997 OPTION PLAN
The purposes of the 1997 Option Plan are to: encourage selected employees,
directors and consultants to improve operations and increase profits of the
Company; encourage selected employees, directors and consultants to accept or
continue employment or association with the Company or its affiliates; and
increase the interest of selected employees, directors and consultants in the
Company's welfare through participation in the growth in value of the Common
Stock of the Company. The Company can grant either incentive stock options
("ISOs") or nonqualified stock options ("NQOs") under the 1997 Option Plan. Only
full-time employees of the Company, currently approximately 138 people, are
eligible to receive ISOs or NQOs. Consultants and directors are eligible to
receive only NQOs.
The proposed amendment to the 1997 Option Plan is to increase the numbers
of shares reserved for issuance under the 1997 Option Plan from 1,000,000 to
2,800,000.
Options granted expire 10 years after the date of grant, or earlier, in the
event of termination of the optionee's employment, consulting or director
relationship with the Company. The per share exercise price of ISOs may not be
less than 100% of the fair market value of the Common Stock on the date of
grant. The per share exercise price of NQOs may not be less than 85% of the fair
market value of the Common Stock on the date of grant. As of March 12, 1999, a
total of 1,000,000 shares of the Company's Common Stock have been reserved for
issuance under the 1997 Option Plan, options to purchase 943,962 shares have
been granted and are outstanding and options for 4,334 shares have been
exercised under this plan.
The consideration payable for, upon exercise of, or for tax payable in
connection with, an option grant may be paid in cash, by promissory note of the
participant, or by delivery of other property, including securities of the
Company, if authorized by the administrator of the 1997 Option Plan. The Company
will not receive any consideration upon the grant of any options. Options
generally may be exercised immediately, or may vest over four or five years,
depending upon the particular grant, and must generally be exercised within
three months after a participant's employment by, or consulting or director
relationship with, the Company terminates. If termination is due to the
participant's death, retirement or disability, the options may be exercised for
six months thereafter. Shares issued upon exercise of options may be subject to
a right of repurchase by the Company which generally lapses at the rate of 20%
per year.
The Board may amend, alter or discontinue the 1997 Option Plan or any
option at any time, except that the consent of a participant is required if the
participant's rights under an outstanding option would be impaired. In addition,
to the extent required for the 1997 Option Plan to satisfy the conditions of
Rule 16b-3 under the Exchange Act, or, with respect to provisions solely as they
relate to ISOs, to the extent required for the 1997 Option Plan to comply with
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), the
shareholders of the Company must approve any amendment, alteration or
discontinuance of the 1997 Option Plan that would (i) increase the total number
of shares reserved under the 1997 Option Plan, (ii) change the minimum price
terms for option exercise, (iii) change the class of employees, consultants and
directors eligible to participate in the 1997 Option Plan, (iv) extend the
maximum option exercise period, or (v) materially increase the benefits accruing
to participants under the 1997 Option Plan.
FEDERAL INCOME TAX CONSEQUENCES
See "Certain Federal Income Tax Consequences" below for a discussion of
federal income tax consequences relating to participation in the 1997 Option
Plan.
11
<PAGE> 14
PROPOSAL; BOARD RECOMMENDATION
Shareholders are being asked to approve the amendment to the 1997 Option
Plan. The affirmative vote of the holders of a majority of the outstanding
shares of the Company represented and voting at the Annual Meeting is required
for approval of the amendment to the 1997 Option Plan. The Board recommends a
vote "FOR APPROVAL" of the proposal.
12
<PAGE> 15
PROPOSAL THREE
APPROVAL OF AMENDMENTS TO THE 1996 NONEMPLOYEE DIRECTORS
STOCK OPTION PLAN
At the Annual Meeting, the shareholders are being asked to approve
amendments to Thoratec's 1996 Nonemployee Directors Stock Option Plan (the
"Directors Option Plan").
DESCRIPTION OF THE AMENDMENTS TO DIRECTORS OPTION PLAN
The Board has approved, subject to shareholder approval, amendments to the
Directors Option Plan. The Directors Option Plan provides for the automatic
granting of nonqualified stock options to directors of the Company who are not
employees of the Company or any parent or subsidiary of the Company and who have
not been an employee of the Company or any parent or subsidiary of the Company
in the previous 12 months ("Eligible Outside Directors"). The Directors Option
Plan currently provides that each person who is newly elected or appointed as an
Eligible Outside Director on or after the meeting of shareholders in 1997 will
be granted an option to purchase 10,000 shares of Common Stock on the effective
date of such initial election or appointment (the "Initial Grant") and
thereafter, each Eligible Outside Director (including the existing outside
directors) generally will be granted an option to purchase 5,000 shares of
Common Stock on the date of the first meeting of the Board of Directors
following the annual shareholders meeting (the "Annual Grant"). The Annual Grant
will be made no later than June 15 of any year. Each option granted pursuant to
the Directors Option Plan currently expires ten years and two days after the
date of grant or earlier in the event of the termination of the director's
service on the Board. The Company currently has the right to repurchase at the
exercise price with respect to shares purchased upon exercise of options which
expires with respect to one-eighth of the number of shares covered by such
option six months after the date such option is granted and one-sixteenth of the
number of shares covered by such option at the end of each three-month period
thereafter. In the event of acquisition of the Company by a merger,
consolidation, sale of all or substantially all of the Company's assets or
acquisition of the Company's shares, such right of repurchase shall lapse with
respect to twice the number of shares still subject to the right of repurchase.
Proposed amendments to the Directors Option Plan include: (i) increase the
Initial Grant from 10,000 shares to 15,000 shares granted in four equal
installments, once when elected to the Board then quarterly thereafter; (ii)
increase the Annual Grant from 5,000 shares to 7,500 shares granted in four
equal installments starting after re-election to the Board; (iii) change the
vesting so that the Initial Grant and the Annual Grant vest immediately upon
grant; (iv) shorten the term of the options from ten years to five years; (v)
provide the administrator with the discretion to impose any repurchase right in
favor of the Company on any optionee; and (vi) increase the numbers of shares
reserved for issuance under the Directors Option Plan from 150,000 to 350,000.
If approved, the foregoing proposed changes would take effect immediately after
the Annual Meeting.
DESCRIPTION OF THE DIRECTORS OPTION PLAN
As of March 12, 1999, a total of 150,000 shares of the Company's Common
Stock have been reserved for issuance under the Directors Option Plan, options
to purchase 96,665 shares have been granted, and none of which has as yet been
exercised. The Company currently has seven nonemployee directors who are
eligible to participate in the Directors Option Plan, all of whom have been
nominated for election at the Annual Meeting. The exercise price of the options
in all cases will be equal to the fair market value of Common Stock on the grant
date. Each option granted under the Directors Option Plan is exercisable in full
six months after the date of grant. The Board may waive the directors fees in
any given year and have the exercise price of options granted under the
Directors Option Plan reduced by the amount of the fees so waived.
The consideration payable in connection with any option (including any
related taxes) may be paid by promissory note of the nonemployee director or by
delivery of shares of Common Stock of the Company if such method of payment is
approved by the administrator of the Directors Option Plan. Options generally
terminate three months after a nonemployee director ceases to be, for any
reason, a director of the Company,
13
<PAGE> 16
but if a nonemployee director ceases to be a director due to death, disability
or retirement, the option may be exercised for twelve months after the
termination.
The Board may amend, alter, or discontinue the Directors Option Plan or any
option at anytime, except that the consent of a participant is required if the
participant's existing rights under an outstanding option would be impaired. In
addition, to the extent required under applicable tax and securities laws and
regulations, the shareholders of the Company must approve any amendment,
alteration, or discontinuance of the Directors Option Plan that would increase
the total number of shares reserved under the Directors Option Plan and in
addition, the provisions of the plan governing who is granted options, the
number of shares covered by each option, the exercise price, and the period of
exercisability and the timing of option grants may not be amended more than once
every six months, other than for changes to comport with the Code or the
Employee Retirement Income Security Act of 1974.
The following table shows, based on the current composition of the Board
and assuming approval of the amendments; the number of options which will be
granted in 1999 and each year thereafter to the listed groups under the
Directors Option Plan until there are no longer shares reserved for issuance or
until the Directors Option Plan is terminated.
<TABLE>
<CAPTION>
NUMBER OF OPTIONS
GRANTED ANNUALLY(1)
--------------------
1999 THEREAFTER
------ ----------
<S> <C> <C>
All executive officers as a group........................ 0 0
All directors who are not executive officers as a
group.................................................. 52,500 52,500
All employees (other than executive) as a group.......... 0 0
</TABLE>
- ---------------
(1) All options granted at fair market value as of the date of grant.
The Company believes it important that directors have meaningful equity
ownership in Thoratec. The reason for creating a nondiscretionary option plan
for nonemployee directors is so that outside directors may have the opportunity
for such equity ownership and the Company believes the automatic granting of
options is an effective method of providing equity ownership.
FEDERAL INCOME TAX CONSEQUENCES
See "Certain Federal Income Tax Consequences" below for a discussion of
federal income tax consequences relating to participation in the Directors
Option Plan.
PROPOSAL; BOARD RECOMMENDATION
Shareholders are being asked to approve the amendments to the Directors
Option Plan. The affirmative vote of the holders of a majority of the
outstanding shares of the Company represented and voting at the Annual Meeting
is required for approval of the amendments to the Directors Option Plan. The
Board recommends a vote "FOR APPROVAL" of the proposal.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES IS BASED UPON
EXISTING STATUTES, REGULATIONS AND INTERPRETATIONS THEREOF. THE APPLICABLE RULES
ARE COMPLEX, AND INCOME TAX CONSEQUENCES MAY VARY DEPENDING UPON THE PARTICULAR
CIRCUMSTANCES OF EACH PLAN PARTICIPANT. THIS PROXY STATEMENT DESCRIBES FEDERAL
INCOME TAX CONSEQUENCES OF GENERAL APPLICABILITY BUT DOES NOT PURPORT TO
DESCRIBE PARTICULAR CONSEQUENCES TO EACH INDIVIDUAL PLAN PARTICIPANT OR FOREIGN,
STATE OR LOCAL INCOME TAX CONSEQUENCES, WHICH MAY DIFFER FROM UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES.
14
<PAGE> 17
INCENTIVE STOCK OPTIONS
Award; Exercise. ISOs are intended to constitute "incentive stock options"
within the meaning of Section 422 of the Code. ISOs may be granted only to
employees of the Company (including directors who are also employees). An
optionee does not recognize taxable income upon either the grant or exercise of
an ISO. However, the excess of the fair market value of the shares purchased
upon exercise over the option exercise price (the "Option Spread") is includable
in the optionee's "alternative minimum taxable income" ("AMTI") for purposes of
the alternative minimum tax ("AMT"). The Option Spread is generally measured on
the date of exercise and is includable in the AMTI in the year of exercise.
Special rules regarding the time of AMTI inclusion may apply for shares subject
to a repurchase right or other "substantial risk of forfeiture" (including, in
the case of each person subject to the reporting requirements of Section 16 of
the Exchange Act, limitations on resale of shares imposed under Section 16 (b)
of the Exchange Act).
Sale of Option Shares. If an optionee holds the shares purchased under an
ISO for at least two years from the date the ISO was granted and for at least
one year from the date the ISO was exercised, any gain from a sale of the shares
other than the Company is taxable as long-term capital gain. Under these
circumstances, the Company would not be entitled to a tax deduction at the time
the ISO is exercised or at the time the stock is sold. If an optionee were to
dispose of stock acquired pursuant to an ISO before the end of the required
holding periods (a "Disqualifying Disposition"), the amount by which the market
value of the stock at the time the ISO is exercised exceeds the exercise price
(or, if less, the amount of gain realized on the sale) is taxable as ordinary
income, the Company is entitled to a corresponding tax deduction. Such income is
subject to information reporting requirements and may become subject to income
and employment tax withholding. Gain from a Disqualifying Disposition in excess
of the amount required to be recognized as ordinary income is capital gain.
Optionees are required to notify the Company immediately prior to making a
Disqualifying Disposition. If the stock is sold to the Company rather than to a
third party, the sale may not produce a capital gain or loss but may constitute
a redemption taxable as a dividend unless the redemption is "not essentially
equivalent to a dividend" within the meaning of the Code. The timing and amount
of income from a Disqualifying Disposition and the beginning of the optionee's
holding period for determining whether capital gain or loss is long- or
short-term may be affected if option stock is acquired subject to a repurchase
right or other "substantial risk of forfeiture" (including in the case of each
person subject to the reporting requirements of Section 16 of the Exchange Act,
limitations on resale of shares imposed under Section 16(b) of the Exchange
Act).
Exercise with Stock. If an optionee pays for ISO shares with shares of the
Company acquired under an ISO or a qualified employee stock purchase plan
("statutory option stock"), the tender of shares is a Disqualifying Disposition
of the statutory option stock if the above-described (or other applicable)
holding periods respecting those shares have not been satisfied. If the holding
periods with respect to the statutory option stock are satisfied, or the shares
were not acquired under a statutory stock option of the Company, then any
appreciation in value of the surrendered shares is not taxable upon surrender.
Special basis and holding period rules apply where previously owned
non-statutory option stock is used to exercise an ISO.
NONQUALIFIED STOCK OPTIONS
Award; Exercise. An optionee is not taxable upon the award of a NQO.
Federal income tax consequences upon exercise will depend upon whether the
shares thereby acquired are subject to a "substantial risk of forfeiture." If
the shares are not subject to a substantial risk of forfeiture, or if they are
so restricted and the optionee files an election under Section 83(b) of the Code
(a "Section 83(b) Election") with respect to the shares, the optionee will have
ordinary income at the time of exercise measured by the Option Spread on the
exercise date. The optionee's tax basis in the shares will be the fair market
value of the shares on the date of exercise, and the holding period for purposes
of determining whether capital gain or loss upon sale is long- or short-term
also will begin on or immediately after that date. If the shares are subject to
a substantial risk of forfeiture and no Section 83(b) Election is filed, the
optionee will not be taxable upon exercise, but instead will have ordinary
income on the date the restrictions lapse, in an amount equal to the difference
between the amount paid for the shares under the NQO and their fair market value
as of the date of lapse; in addition, the optionee's holding period will begin
on the date of the lapse.
15
<PAGE> 18
Whether or not the shares are subject to a substantial risk of forfeiture,
the amount of ordinary income taxable to an optionee who is an employee at the
time of grant constitutes "supplemental wages" subject to withholding of income
and employment taxes by the Company, and the Company receives a corresponding
income tax deduction.
Sale of Option Shares. Upon sale, other than to the Company, of shares
acquired under a NQO, an optionee generally will recognize capital gain or loss
to the extent of the difference between the sale price and the optionee's tax
basis in the shares, which will be long-term gain or loss if the employee's
holding period in the shares is more than one year. If stock is sold to the
Company, rather than to a third party, the sale may not produce capital gain or
loss. A sale of shares to the Company will constitute a redemption of such
shares, which could be taxable as a dividend unless the redemption is "not
essentially equivalent to a dividend" within the meaning of the Code.
Exercise with Stock. If an optionee tenders Common Stock to pay all or part
of the exercise price of a NQO, the optionee will not have a taxable gain or
deductible loss on the surrendered shares. Instead, shares acquired upon
exercise that are equal in value to the fair market value of the shares
surrendered in payment are treated as if they had been substituted for the
surrendered shares, taking as their basis and holding period the basis and
holding period that the optionee had in the surrendered shares. The additional
shares are treated as newly acquired with a zero basis.
If the surrendered shares are statutory option stock as described above
under "Incentive Stock Options", with respect to which the applicable holding
period requirements for favorable income tax treatment have not expired, then
the newly acquired shares substituted for the statutory option shares should
remain subject to the federal income tax rules governing the surrendered shares,
but the surrender should not constitute a Disqualifying Disposition of the
surrendered stock.
INDEPENDENT AUDITORS
The Board has selected Deloitte & Touche LLP as independent auditors to
audit the financial statements of the Company for the 1999 fiscal year. Deloitte
& Touche LLP has been engaged as the Company's auditors since the Company's
inception in 1976. Representatives of Deloitte & Touche LLP are expected to be
present at the Annual Meeting and will have an opportunity to make a statement
if they desire to do so. The representatives of Deloitte & Touche LLP also will
be available to respond to questions raised during the meeting.
SHAREHOLDER PROPOSAL
Proposals of shareholders of the Company which are intended to be presented
at the Company's 2000 meeting of shareholders must be received by the Secretary
of the Company no later than December 17, 1999, in order to be included in the
proxy soliciting material relating to that meeting.
OTHER MATTERS
The Company knows of no other matters to be submitted at the Annual
Meeting. If any other matters properly come before the Annual Meeting, it is the
intention of the persons named in the enclosed proxy to vote the shares they
represent as the Board may recommend.
THE BOARD OF DIRECTORS
Dated: April 13, 1999
16
<PAGE> 19
ANNEX A
1996 NONEMPLOYEE DIRECTORS STOCK OPTION PLAN
OF
THORATEC LABORATORIES CORPORATION
1. PURPOSES OF THE PLAN
The purposes of the 1996 Nonemployee Directors Stock Option Plan
of Thoratec Laboratories Corporation, a California corporation, are to:
(a) Encourage Nonemployee Directors to improve operations and
increase profits of the Company;
(b) Encourage Nonemployee Directors to accept or continue their
association with the Company; and
(c) Increase the interest of Nonemployee Directors in the
Company's welfare through participation in the growth in value of the Common
Stock of the Company.
Options granted hereunder shall be "Nonstatutory Options", and
shall not include "incentive stock options" intended to satisfy the requirements
of Section 422 of the Internal Revenue Code of 1986, as amended.
2. DEFINITIONS
As used herein, the following definitions shall apply:
(a) "Administrator" shall mean the entity, either the Board or
the Committee, responsible for administering this Plan, as provided in Section
3.
(b) "Board" shall mean the Board of Directors of the Company, as
constituted from time to time.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(d) "Committee" shall mean the committee, if any, appointed by
the Board in accordance with Section 5(a) to administer this Plan.
(e) "Common Stock" shall mean the Common Stock of the Company.
-1-
<PAGE> 20
(f) "Company" shall mean Thoratec Laboratories Corporation, a
California corporation.
(g) "Director Fee" shall mean the cash amount, if any, a
Nonemployee Director shall be entitled to receive for serving as a director of
the Company in any fiscal year.
(h) "Fair Market Value" shall mean, as of the date in question,
the last transaction price quoted by the NASDAQ National Market System on the
date of grant; provided, however, that if the Common Stock is not traded on such
market system or the foregoing shall otherwise be inappropriate, then the Fair
Market Value shall be determined by the Administrator in good faith at its sole
discretion and on such basis as it shall deem appropriate. Such determination
shall be conclusive and binding on all persons.
(i) "Nonemployee Director" shall mean any person who is a member
of the Board but is not an employee of the Company or any Parent or Subsidiary
of the Company and has not been an employee of the Company or any Parent or
Subsidiary of the Company at any time during the preceding twelve (12) months.
Service as a director does not in itself constitute employment for purposes of
this definition.
(j) "Option" shall mean a stock option granted pursuant to this
Plan. Each Option shall be a nonstatutory option not intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.
(k) "Option Agreement" shall mean the written agreement described
in Section 6 evidencing the grant of an Option to a Nonemployee Director and
containing the terms, conditions and restrictions pertaining to such Option.
(l) "Option Shares" shall mean the Shares subject to an Option
granted under this Plan.
(m) "Optionee" shall mean a Nonemployee Director who holds an
Option.
(n) "Plan" shall mean this Thoratec Laboratories Corporation
Nonemployee Directors Stock Option Plan, as it may be amended from time to time.
(o) "Related Option" shall have the meaning set forth in Section
8.7.
(p) "Rule 16b-3" shall have the meaning set forth in Section
5(a).
-2-
<PAGE> 21
(q) "Section" unless the context clearly indicates otherwise,
shall refer to a Section of this Plan.
(r) "Share" shall mean a share of Common Stock, as adjusted in
accordance with Section 8.1.
(s) "Subsidiary" shall mean a "subsidiary corporation" of the
Company, whether now or hereafter existing, within the meaning of Section 424(f)
of the Code, but only for so long as it is a "subsidiary corporation".
3. ELIGIBLE PERSONS
Every person who at the date of grant of an Option is a
Nonemployee Director is eligible to receive Options under this Plan.
4. STOCK SUBJECT TO THIS PLAN
Subject to Section 8.1 of this Plan, the maximum aggregate number
of Shares which may be issued on exercise of Options granted pursuant to this
Plan is 350,000 Shares. The Shares covered by the portion of any grant under the
Plan which expires unexercised shall become available again for grants under the
Plan.
5. ADMINISTRATION
(a) This Plan shall be administered by the Board, or by a
committee (the "Committee") of at least two (2) Board members to which
administration of the Plan is delegated (in either case, the "Administrator"),
in accordance with the requirements of Rule 16b-3 promulgated by the Securities
and Exchange Commission ("Rule 16b-3"), or any successor rule thereto.
(b) Subject to the other provisions of this Plan, the
Administrator shall have the authority, in its sole discretion: (i) to determine
the Fair Market Value of the Shares subject to Option; (ii) to interpret this
Plan; (iii) to prescribe, amend and rescind rules and regulations relating to
this Plan; (iv) to defer (with the consent of the Optionee) or accelerate the
exercise date of any Option; (v) to authorize any person to execute on behalf of
the Company any instrument evidencing the grant of an Option; and (vi) to make
all other determinations deemed necessary or advisable for the administration of
this Plan. The Administrator may delegate nondiscretionary administrative duties
to such employees of the Company as it deems proper.
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(c) All questions of interpretation, implementation and
application of this Plan shall be determined by the Administrator. Such
determination shall be final and binding on all persons.
6. GRANT OF OPTIONS
(a) Grant for initial election or appointment to Board. Subject
to the terms and conditions of this Plan, if any person who is not an officer or
employee of the Company is first elected or appointed as a member of the Board,
then the Company shall grant to such Nonemployee Director Options to purchase
Shares as follows:
i) If such Nonemployee Director is first elected or
appointed as a member of the Board on or after the Company's annual meeting of
shareholders held in 1996 but before the annual meeting of shareholders held in
1997, then on the effective date of such appointment or election, the Company
shall grant to such Nonemployee Director an Option to purchase 3,333 Shares at
an exercise price equal to the Fair Market Value of such Shares on the date of
such Option grant.
ii) If such Nonemployee Director is first elected or
appointed as a member of the Board on or after the Company's annual meeting of
shareholders held in 1997 but before the annual meeting held in 1999, then on
the effective date of such appointment or election, the Company shall grant to
such Nonemployee Director an Option to purchase 10,000 Shares at an exercise
price equal to the Fair Market Value of such Shares on the date of such Option
grant.
iii) If such Nonemployee Director is first elected or
appointed as a member of the Board on or after the Company's annual meeting of
shareholders held in 1999, then on the effective date of such appointment or
election, the Company shall grant to such Nonemployee Director an Option to
purchase 3,750 Shares at an exercise price equal to the Fair Market Value of
such Shares on the date of such Option grant. In addition, on each of the
earlier of (1) the date of the three succeeding Board meetings after such
election or appointment and (2) August 31, November 30, February 28 or May 31 of
the relevant year following such election or appointment, the Company shall
grant to such Nonemployee Director an additional Option to purchase 3,750 Shares
at an exercise price equal to the Fair Market Value of such Shares on the date
of such Option grant, such that the total Options granted for the first full
year after such Nonemployee Director is first elected or appointed as a member
of the Board is for 15,000 Shares.
(b) Grant for re-election to Board. Subject to the terms and
conditions of this Plan, on the date of the first meeting of the Board
immediately following each
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<PAGE> 23
annual meeting of shareholders of the Company (even if held on the same day as
the meeting of shareholders) the Company shall grant to each Nonemployee
Director then in office Options as follows; provided, however, that
notwithstanding anything in this subsection (b) to the contrary, a Director
shall not receive an Option pursuant to this subsection (b) if such Director has
been first elected or appointed as a member of the Board within six months
before the date on which an Option would be granted hereunder.
i) For meetings held prior to the Company's annual
meeting of shareholders held in 1997, the Company shall grant to each
Nonemployee Director then in office an Option to purchase 1,667 Shares at an
exercise price equal to the Fair Market Value of such Shares on the date of such
Option grant.
ii) For meetings held on or after the Company's annual
meeting of shareholders held in 1997 but before the annual meeting of
shareholders held in 1999, the Company shall grant to each Nonemployee Director
then in office an Option to purchase 5,000 Shares at an exercise price equal to
the Fair Market Value of such Shares on the date of such Option grant. Provided,
however, that if in any relevant year an annual meeting of shareholders is not
held by June 15, then on June 15 of any such year the Company shall grant to
each Nonemployee Director then in office an Option to purchase 5,000 Shares at
an exercise price equal to the Fair Market Value of such Shares on June 15 and
the Company shall not thereafter grant any Options pursuant to this subsection
(b) in any such year.
iii) For meetings held on or after the Company's annual
meeting of shareholders held in 1999, the Company shall grant to each
Nonemployee Director then in office an Option to purchase 1,875 Shares at an
exercise price equal to the Fair Market Value of such Shares on the date of such
Option grant. Provided, however, that if in any relevant year an annual meeting
of shareholders is not held by June 15, then on June 15 of any such year the
Company shall grant to each Nonemployee Director then in office an Option to
purchase 1,875 Shares at an exercise price equal to the Fair Market Value of
such Shares on June 15. In addition, on each of the earlier of (1) the date of
the three succeeding Board meetings after such annual meeting and (2) August 31,
November 30, February 28 or May 31 of the relevant year following such annual
meeting, the Company shall grant to such Nonemployee Director an additional
Option to purchase 1,875 Shares at an exercise price equal to the Fair Market
Value of such Shares on the date of such Option grant, such that the total
Options granted for each full year of service is for 7,500 Shares.
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<PAGE> 24
(c) No Options shall be granted under this Plan after ten (10)
years from the date of adoption of this Plan by the Board. Each Option shall be
evidenced by a written Option Agreement, in form satisfactory to the Company,
executed by the Company and the Nonemployee Director to whom such Option is
granted; provided, however, that the failure by the Company, the Nonemployee
Director or both to execute such an agreement shall not invalidate the granting
of an Option.
7. DIRECTOR FEE ELECTION
Upon election by the Board, all or any part of the Director Fees
can be waived in any given year, and the Director Fees waived may be applied by
the Board to reduce the exercise price of Options granted to the Nonemployee
Directors pursuant to Sections 6(a) and 6(b). The amount of Director Fees waived
may vary from year to year. By way of example, if the Board elects pursuant to
this Section to waive an aggregate of $6,000 of Director Fees which would
otherwise be payable to three Nonemployee Directors ($2,000 of fees for each),
an amount of $6,000 ($2,000 each) shall be applied by the Board to reduce the
exercise price of Options granted pursuant to Section 6(b), so that if each of
the three Nonemployee Directors in this example are granted Options for 1,000
shares exercisable at $5.00 each, the $2,000 could be applied to reduce the
exercise price of these options to $3.00 per share ($2,000, 1,000 shares divided
by $2.00 per share reduction in exercise price).
8. TERMS AND CONDITIONS OF OPTIONS
Each Option granted under this Plan shall be subject to the terms
and conditions set forth in this Section 8.
8.1. Changes in Capital Structure. Subject to Section 8.2, if the
Common Stock is changed by reason of a stock split, reverse stock split, stock
dividend or recapitalization, or converted into or exchanged for other
securities as a result of a merger, consolidation or reorganization, appropriate
adjustments shall be made in: (a) the number and class of shares of Common Stock
subject to this Plan and each Option outstanding under this Plan; and (b) the
exercise price of each outstanding Option; provided, however, that the Company
shall not be required to issue fractional shares as a result of any such
adjustments. Each such adjustment shall be subject to approval by the
Administrator in its sole discretion.
8.2. Time of Option Exercise. Subject to the other provisions of
this Plan, each Option granted pursuant to this Plan prior to the Company's
annual meeting of shareholders held in 1999 shall be for a term of ten (10)
years and two (2) days and each
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Option granted pursuant to this Plan on or after the Company's annual meeting of
shareholders held in 1999 shall be for a term of five (5) years. Each Option
granted under Section 6 of this Plan prior to the Company's annual meeting of
shareholders held in 1999 shall be exercisable in full six months after the date
of grant. Each Option granted under Section 6 of this Plan after the Company's
annual meeting of shareholders held in 1999 shall be exercisable in full on the
date of grant. At the discretion of the Administrator, the Company shall have a
right of repurchase at the option exercise price with respect to shares
purchased upon exercise of Options granted pursuant to Section 6. For Options
granted before the Company's annual meeting of shareholders held in 1999, such
right of repurchase shall expire with respect to 12 1/2% of the number of Shares
covered by such Option six months after the date such Option is granted and
shall expire with respect to 6 1/4% of the number of shares covered by such
Option at the end of each three-month period thereafter. For Options granted
after the Company's annual meeting of shareholders held in 1999, such right of
repurchase shall expire at the rate determined by the Administrator.
8.3. Corporate Transactions. In connection with an acquisition of
the Company affected by a merger, consolidation, sale of all or substantially
all of the Company's assets, acquisition of shares, or any like occurrence in
which the Company is involved, the right of repurchase specified in Section 8.2
shall lapse with respect to twice the number of shares then subject to such
right of repurchase. The Administrator shall have the authority, in its sole
discretion, to determine the time prior to consummation of such transaction when
such right of repurchase shall so lapse.
8.4. Limitation on Other Grants. The Administrator shall have no
discretion to grant Options under this Plan other than as set forth in Sections
6(a) and 6(b).
8.5. Nonassignability of Option Rights. No Option granted under
this Plan shall be assignable or otherwise transferable by the Optionee, except
by will or the laws of descent and distribution, or pursuant to a qualified
domestic relations order as defined by the Code. During the life of an Optionee,
an Option shall be exercisable only by the Optionee.
8.6. Payment. Except as provided below, payment in full, in cash,
shall be made for all Option Shares purchased at the time written notice of
exercise of an Option is given to the Company, and proceeds of any payment shall
constitute general funds of the Company. Payment may also be made pursuant to a
cashless exercise/sale procedure. At the time an Option is granted or exercised,
the Administrator, in the
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exercise of its absolute discretion, may authorize any one or more of the
following additional methods of payment: (a) acceptance of the Optionee's full
recourse promissory note for all or part of the Option price, less any par value
per share, which must be paid in cash, payable on such terms and bearing such
interest rate as determined by the Administrator (but in no event less than the
minimum interest rate specified under the Code at which no additional interest
on debt instruments of such type would be imputed), which promissory note may be
either secured or unsecured in such manner as the Administrator shall approve
(including, without limitation, by a security interest in the Shares); (b)
delivery by the Optionee of Common Stock already owned by the Optionee for all
or part of the Option price, provided the Fair Market Value of such Common Stock
is equal on the date of exercise to the Option price, or such portion thereof as
the Optionee is authorized to pay by delivery of such stock; provided, however,
that if an Optionee has exercised any portion of any option granted by the
Company by delivery of Common Stock, the Optionee may not, within six (6) months
following such exercise, exercise any Option granted under this Plan by delivery
of Common Stock; and (c) any other consideration and method of payment to the
extent permitted under the California Corporations Code.
8.7. Termination as Director. Unless determined otherwise by the
Administrator in its absolute discretion, to the extent not already expired or
exercised, an Option shall terminate at the earlier of: (a) the expiration of
the term of the Option; or (b) three (3) months after the last day served by the
Optionee as a director of the Company; provided, that an Option shall be
exercisable after the date of termination of service as a director only to the
extent exercisable on the date of termination; and provided further, that if
termination of service as a director is due to the Optionee's death or
"disability" (as determined in accordance with Section 22(e)(3) of the Code),
the Optionee, or the Optionee's personal representative (or any other person who
acquires the Option from the Optionee by will or the applicable laws of descent
and distribution), may at any time within twelve (12) months after the
termination of service as a director (or such lesser period as is specified in
the Option Agreement but in no event after the expiration of the term of the
Option), exercise the rights to the extent they were exercisable on the date of
the termination.
8.8. Withholding and Employment Taxes. At the time of exercise of
an Option (or at such later time(s) as the Company may prescribe), the Optionee
shall remit to the Company in cash all applicable federal and state withholding
and employment taxes. If authorized by the Administrator in its sole discretion,
an Optionee shall be permitted to elect, by means of a form of election to be
prescribed by the Administrator, to have shares of Common Stock which are
acquired upon exercise of the Option
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<PAGE> 27
withheld by the Company or to tender to the Company other shares of Common Stock
or other securities of the Company owned by the Optionee on the date of
determination of the amount of tax to be withheld as a result of the exercise of
such Option (the "Tax Date") to pay the amount of tax that is required by law to
be withheld by the Company as a result of the exercise of such Option. Any
securities so withheld or tendered shall be valued by the Company as of the Tax
Date.
8.9. Option Term. Each Option granted hereunder prior to the
Company's annual meeting of Shareholders held in 1999 shall expire ten (10)
years and two (2) days after the date of grant. Each Option granted hereunder
after the Company's annual meeting of Shareholders held in 1999 shall expire
five (5) years after the date of grant.
9. MANNER OF EXERCISE
(a) An Optionee wishing to exercise an Option shall give written
notice to the Company at its principal executive office, to the attention of the
officer of the Company designated by the Administrator, accompanied by payment
of the exercise price as provided in Section 8.6 and, if required, by payment of
any federal or state withholding or employment taxes required to be withheld by
virtue of exercise of the Option. The date the Company receives written notice
of an exercise hereunder accompanied by payment of the exercise price and any
required federal or state withholding or employment taxes will be considered as
the date such Option was exercised. Unless otherwise provided by the
Administrator, options may be exercised only twice in any calendar year.
(b) Promptly after the date an Option is exercised, the Company
shall, without stock issue or transfer taxes to the optionee or other person
entitled to exercise the Option, deliver to the Optionee or such other person a
certificate or certificates for the requisite number of shares of Common Stock.
An Optionee or transferee of an Optionee shall not have any privileges as a
stockholder with respect to any Common Stock covered by the Option until the
date of issuance of a stock certificate.
10. NO RIGHT TO DIRECTORSHIP
Neither this Plan nor any Option granted hereunder shall confer
upon any Optionee any right with respect to continuation of the Optionee's
membership on the Board or shall interfere in any way with provisions in the
Company's Articles of Incorporation and By-Laws relating to the election,
appointment, terms of office, and removal of members of the Board.
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11. FINANCIAL INFORMATION
The Company shall provide to each Optionee during the period such
optionee holds an outstanding Option a copy of the financial statements of the
Company as prepared either by the Company or independent certified public
accountants of the Company. Such financial statements shall be delivered as soon
as practicable following the end of the Company's fiscal year during the period
Options are outstanding.
12. LEGAL REQUIREMENTS
The Company shall not be obligated to offer or sell any Shares
upon exercise of any Option unless the Shares are at that time effectively
registered or exempt from registration under the federal securities laws and the
offer and sale of the Shares are otherwise in compliance with all applicable
securities laws and the regulations of any stock exchange on which the Company's
securities may then be listed. The Company shall have no obligation to register
the Shares covered by this Plan under the federal securities laws or take any
other steps as may be necessary to enable the Shares covered by this Plan to be
offered and sold under federal or other securities laws. Upon exercising all or
any portion of an Option, an Optionee may be required to furnish representations
or undertakings deemed appropriate by the Company to enable the offer and sale
of the Shares or subsequent transfers of any interest in the Shares to comply
with applicable securities laws. Certificates evidencing Shares acquired upon
exercise of Options shall bear any legend required by, or useful for purposes of
compliance with, applicable securities laws, this Plan or the Option Agreements.
13. AMENDMENTS TO PLAN
The Board may amend this Plan at any time. Without the consent of
an optionee, no amendment may adversely affect outstanding Options. No amendment
shall require shareholder approval unless:
(a) shareholder approval is required to meet the exemptions
provided by Rule 16b-3, or any successor rule thereto; or
(b) the Board otherwise concludes that shareholder approval is
advisable.
14. SHAREHOLDER APPROVAL; TERM
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This Plan shall become effective upon adoption by the Board of
Directors; provided, however, that no Option shall be exercisable unless and
until written consent of holders of a majority of the outstanding shares of
capital stock of the Company, or approval by holders of a majority of shares of
capital stock of the Company present, or represented, and entitled to vote at a
validly called shareholders' meeting (or such greater number as may be required
by law or applicable governmental regulations or orders) is obtained within
twelve (12) months after adoption by the Board. This Plan shall terminate ten
(10) years after adoption by the Board unless terminated earlier by the Board.
The Board may terminate this Plan at any time without shareholder approval. No
Options shall be granted after termination of this Plan, but termination shall
not affect rights and obligations under then outstanding Options.
Adopted by the Board of Directors on February 21, 1996
Approved by the Shareholders on June 3, 1996
Amended by the Board of Directors on November 20, 1996
Amended by the shareholders on May 16, 1997 and by the Board of
Directors on March 12, 1997.
Amended by the Board of Directors on February 19, 1999.
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ANNEX B
1997 STOCK OPTION PLAN
OF
THORATEC LABORATORIES CORPORATION
1. PURPOSES OF THE PLAN
The purposes of the 1997 Stock Option Plan (the "Plan") of Thoratec
Laboratories Corporation, a California corporation (the "Company"), are to:
(a) Encourage selected directors, employees and consultants to improve
operations and increase profits of the Company;
(b) Encourage selected directors, employees and consultants to accept or
continue employment or association with the Company or its Affiliates; and
(c) Increase the interest of selected directors, employees and
consultants in the Company's welfare through participation in the growth in
value of the common stock of the Company (the "Common Stock").
Options granted under this Plan ("Options") may be "incentive stock
options" ("ISOs") intended to satisfy the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or "nonqualified
options" ("NQOs").
2. ELIGIBLE PERSONS
Every person who at the date of grant of an Option is a full-time
employee of the Company or of any Affiliate (as defined below) of the Company is
eligible to receive NQOs or ISOs under this Plan. Every person who at the date
of grant is a consultant or non-employee director to the Company or any
Affiliate (as defined below) of the Company is eligible to receive NQOs under
this Plan. The term "Affiliate" as used in the Plan means a parent or subsidiary
corporation as defined in the applicable provisions (currently Sections 424(e)
and (f), respectively) of the Code. The term "employee" includes an officer or
director who is an employee, of the Company. The term "consultant" includes
persons employed by, or otherwise affiliated with, a consultant.
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3. STOCK SUBJECT TO THIS PLAN
Subject to the provisions of Section 6.1.1 of the Plan, the total number
of shares of stock which may be issued under options granted pursuant to this
Plan shall not exceed 2,800,000 shares of Common Stock. The shares covered by
the portion of any grant under the Plan which expires unexercised shall become
available again for grants under the Plan.
4. ADMINISTRATION
(a) This Plan shall be administered by the Board of Directors of the
Company (the "Board") or, either in its entirety or only insofar as required
pursuant to Section 4(b) hereof, by a committee (the "Committee") of at least
two Board members to which administration of the Plan, or of any portion of the
Plan, is delegated (in either case, the "Administrator").
(b) From and after such time as the Company registers a class of equity
securities under Section 12 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), it is intended that this Plan shall be administered in
accordance with the requirements of Rule 16b-3 promulgated by the Securities and
Exchange Commission ("Rule 16b-3"), or any successor rule thereto.
(c) Subject to the other provisions of this Plan, the Administrator
shall have the authority, in its discretion: (i) to grant Options; (ii) to
determine the fair market value of the Common Stock subject to Options; (iii) to
determine the exercise price of Options granted; (iv) to determine the persons
to whom, and the time or times at which, Options shall be granted, and the
number of shares subject to each Option; (v) to interpret this Plan; (vi) to
prescribe, amend, and rescind rules and regulations relating to this Plan; (vii)
to determine the terms and provisions of each Option granted (which need not be
identical), including but not limited to, the time or times at which Options
shall be exercisable; (viii) with the consent of the optionee, to modify or
amend any Option; (ix) to defer (with the consent of the optionee) the exercise
date of any Option; (x) to authorize any person to execute on behalf of the
Company any instrument evidencing the grant of an Option; and (xi) to make all
other determinations deemed necessary or advisable for the administration of
this Plan. The Administrator may delegate nondiscretionary administrative duties
to such employees of the Company as it deems proper.
(d) All questions of interpretation, implementation, and application of
this Plan shall be determined by the Administrator. Such determinations shall be
final and binding on all persons.
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(e) With respect to persons subject to Section 16 of the Exchange Act,
if any, transactions under this Plan are intended to comply with the applicable
conditions of Rule 16b-3, or any successor rule thereto. To the extent any
provision of this Plan or action by the Administrator fails to so comply, it
shall be deemed null and void, to the extent permitted by law and deemed
advisable by the Administrator. Notwithstanding the above, it shall be the
responsibility of such persons, not of the Company or the Administrator, to
comply with the requirements of Section 16 of the Exchange Act; and neither the
Company nor the Administrator shall be liable if this Plan or any transaction
under this Plan fails to comply with the applicable conditions of Rule 16b-3 or
any successor rule thereto, or if any such person incurs any liability under
Section 16 of the Exchange Act.
5. GRANTING OF OPTIONS; OPTION AGREEMENT
(a) No Options shall be granted under this Plan after ten years from the
date of adoption of this Plan by the Board.
(b) Each Option shall be evidenced by a written stock option agreement,
in form satisfactory to the Company, executed by the Company and the person to
whom such Option is granted; provided, however, that the failure by the Company,
the optionee, or both to execute such an agreement shall not invalidate the
granting of an Option, although the exercise of each option shall be subject to
Section 6.1.3.
(c) The stock option agreement shall specify whether each Option it
evidences is a NQO or an ISO.
(d) Subject to Section 6.3.3 with respect to ISOs, the Administrator may
approve the grant of Options under this Plan to persons who are expected to
become directors, employees or consultants of the Company, but are not
directors, employees or consultants at the date of approval.
6. TERMS AND CONDITIONS OF OPTIONS
Each Option granted under this Plan shall be subject to the terms and
conditions set forth in Section 6.1. NQOs shall be also subject to the terms and
conditions set forth in Section 6.2, but not those set forth in Section 6.3.
ISOs shall also be subject to the terms and conditions set forth in Section 6.3,
but not those set forth in Section 6.2.
6.1 Terms and Conditions to Which All Options Are Subject. All
Options granted under this Plan shall be subject to the following terms and
conditions:
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<PAGE> 33
6.1.1 Changes in Capital Structure. Subject to
Section 6.1.2, if the stock of the Company is changed by reason of a stock
split, reverse stock split, stock dividend, or recapitalization, combination or
reclassification, appropriate adjustments shall be made by the Board in (a) the
number and class of shares of stock subject to this Plan and each Option
outstanding under this Plan, and (b) the exercise price of each outstanding
Option; provided, however, that the Company shall not be required to issue
fractional shares as a result of any such adjustments. Each such adjustment
shall be subject to approval by the Board in its sole discretion.
6.1.2 Corporate Transactions. In the event of
the proposed dissolution or liquidation of the Company, the Administrator shall
notify each optionee at least 30 days prior to such proposed action. To the
extent not previously exercised, all Options will terminate immediately prior to
the consummation of such proposed action. In the event of a merger or
consolidation of the Company with or into another corporation or entity in which
the Company does not survive, or in the event of a sale of all or substantially
all of the assets of the Company in which the shareholders of the Company
receive securities of the acquiring entity or an affiliate thereof, all Options
shall be assumed or equivalent options shall be substituted by the successor
corporation (or other entity) or a parent or subsidiary of such successor
corporation (or other entity). In the event that such successor does not agree
to assume the Options or to substitute equivalent options therefor, unless the
Administrator shall determine otherwise, the Options will expire upon such
event.
6.1.3 Time of Option Exercise. Subject to
Section 5, Options granted under this Plan shall be exercisable (a) immediately
as of the effective date of the stock option agreement granting the Option, or
(b) in accordance with a schedule related to the date of the grant of the
Option, the date of first employment, or such other date as may be set by the
Administrator (in any case, the "Vesting Base Date") and specified in the
written stock option agreement relating to such Option; provided, however, that
the right to exercise an Option must vest at the rate of at least 20% per year
over five years from the date the option was granted. In any case, no Option
shall be exercisable until a written stock option agreement in form satisfactory
to the Company is executed by the Company and the optionee.
6.1.4 Option Grant Date. Except in the case of
advance approvals described in Section 5(d), the date of grant of an Option
under this Plan shall be the date as of which the Administrator approves the
grant.
6.1.5 Nonassignability of Option Rights. No
Option granted under this Plan shall be assignable or otherwise transferable by
the optionee
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<PAGE> 34
except by will or by the laws of descent and distribution. During the life of
the optionee, an Option shall be exercisable only by the optionee.
6.1.6 Payment. Except as provided below,
payment in full, in cash, shall be made for all stock purchased at the time
written notice of exercise of an Option is given to the Company, and proceeds of
any payment shall constitute general funds of the Company. At the time an Option
is granted or exercised, the Administrator, in the exercise of its absolute
discretion after considering any tax or accounting consequences, may authorize
any one or more of the following additional methods of payment:
(a) Acceptance of the optionee's full
recourse promissory note for all or part of the Option price, payable on such
terms and bearing such interest rate as determined by the Administrator (but in
no event less than the minimum interest rate specified under the Code at which
no additional interest would be imputed), which promissory note may be either
secured or unsecured in such manner as the Administrator shall approve
(including, without limitation, by a security interest in the shares of the
Company); and
(b) Delivery by the optionee of Common
Stock already owned by the optionee for all or part of the Option price,
provided the value (determined as set forth in Section 6.1.11) of such Common
Stock is equal on the date of exercise to the Option price, or such portion
thereof as the optionee is authorized to pay by delivery of such stock;
provided, however, that if an optionee has exercised any portion of any Option
granted by the Company by delivery of Common Stock, the optionee may not, within
six months following such exercise, exercise any Option granted under this Plan
by delivery of Common Stock without the consent of the Administrator.
6.1.7 Termination of Employment. Except as
otherwise approved by the Administrator in its absolute discretion, if for any
reason other than death or permanent and total disability, an optionee ceases to
be employed by the Company or any of its Affiliates (such event being called a
"Termination"), Options held at the date of Termination (to the extent then
exercisable) may be exercised in whole or in part at any time within three
months of the date of such Termination, (but in no event after the Expiration
Date); provided, that if such exercise of the Option would result in liability
for the optionee under Section 16(b) of the Exchange Act, such Option shall
terminate at such later date as is fixed by the Administrator (but in no event
after the Expiration Date). If an optionee dies or becomes permanently and
totally disabled (within the meaning of Section 22(e)(3) of the Code) while
employed by
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<PAGE> 35
the Company or an Affiliate or within the period that the Option remains
exercisable after Termination, Options then held (to the extent then
exercisable) may be exercised, in whole or in part, by the optionee, by the
optionee's personal representative or by the person to whom the Option is
transferred by devise or the laws of descent and distribution, at any time
within six months after the death or six months after the permanent and total
disability of the optionee (but in no event after the Expiration Date). For
purposes of this Section 6.1.7, "employment" includes service as a director or
consultant. For purposes of this Section 6.1.7, an optionee's employment shall
not be deemed to terminate by reason of sick leave, military leave or other
leave of absence approved by the Administrator, if the period of any such leave
does not exceed 90 days or, if longer, if the optionee's right to reemployment
by the Company or any Affiliate is guaranteed either contractually or by
statute.
6.1.8 Repurchase of Stock. At the option of the
Administrator, the stock to be delivered pursuant to the exercise of any Option
granted to a director, employee or consultant under this Plan may be subject to
a right of repurchase in favor of the Company with respect to any director,
employee or consultant whose director, employment, or consulting relationship
with the Company is terminated. Such right of repurchase shall be at the Option
exercise price and (i) shall lapse at the rate of at least 20% per year over
five years from the date the Option is granted (without regard to the date it
becomes exercisable), and must be exercised for cash or cancellation of purchase
money indebtedness within 90 days of such termination and (ii) if the right is
assignable by the Company, the assignee must pay the Company upon assignment of
the right (unless the assignee is a 100% owned subsidiary of the Company or is
an Affiliate) cash equal to the difference between the Option exercise price and
the value (determined as set forth in Section 6.1.11) of the stock to be
purchased if the Option exercise price is less than such value. Shares
repurchased by the Company pursuant to the Company's right of repurchase are not
again available for grant under the Plan.
Determination of the number of shares subject to any such right
of repurchase shall be made as of the date the director's director relationship
with, employee's employment by, or consultant's consulting relationship with,
the Company terminates, not as of the date that any Option granted to such
director, employee or consultant is thereafter exercised.
6.1.9 Withholding and Employment Taxes. At the
time of exercise of an Option or at such other time as the amount of such
obligations becomes determinable (the "Tax Date"), the optionee shall remit to
the Company in cash all applicable federal and state withholding and employment
taxes. If authorized by the
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<PAGE> 36
Administrator in its sole discretion after considering any tax or accounting
consequences, an optionee may elect to (i) deliver a promissory note on such
terms as the Administrator deems appropriate, (ii) tender to the Company
previously owned shares of Stock or other securities of the Company, or (iii)
have shares of Common Stock which are acquired upon exercise of the Option
withheld by the Company to pay some or all of the amount of tax that is required
by law to be withheld by the Company as a result of the exercise of such Option.
Any limitations may be waived (or additional limitations may be
imposed) by the Administrator, in its sole discretion, if the Administrator
determines that limitations are not required (or that such additional
limitations are required) in order that the transaction shall be exempt from
Section 16(b) of the Exchange Act pursuant to Rule 16b-3, or any successor rule
thereto. In addition, any limitations may be waived by the Administrator, in its
sole discretion, if the Administrator determines that Rule 16b-3, or any
successor rule thereto, is not applicable to the exercise of the Option by the
optionee or for any other reason.
Any securities tendered or withheld in accordance with this
Section 6.1.9 shall be valued by the Company as of the Tax Date.
6.1.10 Other Provisions. Each Option granted
under this Plan may contain such other terms, provisions, and conditions not
inconsistent with this Plan as may be determined by the Administrator, and each
ISO granted under this Plan shall include such provisions and conditions as are
necessary to qualify the Option as an "incentive stock option" within the
meaning of Section 422 of the Code.
6.1.11 Determination of Value. For purposes of
the Plan, the value of Common Stock or other securities of the Company shall be
determined as follows:
(a) If the stock of the Company is
listed on any established stock exchange or a national market system, including
without limitation the National Market System of the National Association of
Securities Dealers, Inc. Automated Quotation System, its fair market value shall
be the closing sales price for such stock or the closing bid if no sales were
reported, as quoted on such system or exchange (or the largest such exchange)
for the date the value is to be determined (or if there are no sales for such
date, then for the last preceding business day on which there were sales), as
reported in The Wall Street Journal or similar publication.
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<PAGE> 37
(b) If the stock of the Company is
regularly quoted by a recognized securities dealer but selling prices are not
reported, its fair market value shall be the mean between the high bid and low
asked prices for the stock on the date the value is to be determined (or if
there are no quoted prices for the date of grant, then for the last preceding
business day on which there were quoted prices).
(c) In the absence of an established
market for the stock, the fair market value thereof shall be determined in good
faith by the Administrator, with reference to the Company's net worth,
prospective earning power, dividend-paying capacity, and other relevant factors,
including the goodwill of the Company, the economic outlook in the Company's
industry, the Company's position in the industry and its management, and the
values of stock of other corporations in the same or a similar line of business.
6.1.12 Option Term. Subject to Section 6.3.4,
no Option shall be exercisable more than ten years after the date of grant, or
such lesser period of time as is set forth in the stock option agreement (the
end of the maximum exercise period stated in the stock option agreement is
referred to in this Plan as the "Expiration Date").
6.1.13 Exercise Price. The exercise price of
any Option granted to any person who owns, directly or by attribution under the
Code currently Section 424(d), stock possessing more than ten percent of the
total combined voting power of all classes of stock of the Company or of any
Affiliate (a "Ten Percent Stockholder") shall in no event be less than 110% of
the fair market value (determined in accordance with Section 6.1.11) of the
stock covered by the Option at the time the Option is granted.
6.2 Terms and Conditions to Which Only NQOs Are Subject. Options
granted under this Plan which are designated as NQOs shall be subject to the
following terms and conditions:
6.2.1 Exercise Price. Except as set forth in
Section 6.1.13, the exercise price of a NQO shall be not less than 85% of the
fair market value (determined in accordance with Section 6.1.11) of the stock
subject to the Option on the date of grant.
6.3 Terms and Conditions to Which Only ISOs Are Subject. Options
granted under this Plan which are designated as ISOs shall be subject to the
following terms and conditions:
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<PAGE> 38
6.3.1 Exercise Price. Except as set forth in
Section 6.1.13, the exercise price of an ISO shall be determined in accordance
with the applicable provisions of the Code and shall in no event be less than
the fair market value (determined in accordance with Section 6.1.11) of the
stock covered by the Option at the time the Option is granted.
6.3.2 Disqualifying Dispositions. If stock
acquired by exercise of an ISO granted pursuant to this Plan is disposed of in a
"disqualifying disposition" within the meaning of Section 422 of the Code, the
holder of the stock immediately before the disposition shall promptly notify the
Company in writing of the date and terms of the disposition and shall provide
such other information regarding the Option as the Company may reasonably
require.
6.3.3 Grant Date. If an ISO is granted in
anticipation of employment as provided in Section 5(d), the Option shall be
deemed granted, without further approval, on the date the grantee assumes the
director, employment or consultancy relationship forming the basis for such
grant, and, in addition, satisfies all requirements of this Plan for Options
granted on that date.
6.3.4 Term. Notwithstanding Section 6.1.12, no
ISO granted to any Ten Percent Stockholder shall be exercisable more than five
years after the date of grant.
7. MANNER OF EXERCISE
(a) An optionee wishing to exercise an Option shall
give written notice to the Company at its principal executive office, to the
attention of the officer of the Company designated by the Administrator,
accompanied by payment of the exercise price as provided in Section 6.1.6. The
date the Company receives written notice of an exercise hereunder accompanied by
payment of the exercise price will be considered as the date such Option was
exercised.
(b) Promptly after receipt of written notice of exercise
of an Option, the Company shall, without stock issue or transfer taxes to the
optionee or other person entitled to exercise the Option, deliver to the
optionee or such other person a certificate or certificates for the requisite
number of shares of stock. An optionee or permitted transferee of an optionee
shall not have any privileges as a shareholder with respect to any shares of
stock covered by the Option until the date of issuance (as evidenced by the
appropriate entry on the books of the Company or a duly authorized transfer
agent) of such shares.
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<PAGE> 39
8. RELATIONSHIP OF PARTICIPANT
Neither the adoption of this Plan nor the grant of any
Option hereunder shall (i) confer upon any employee any right to continued
employment nor shall it interfere in any way with the right of the Company or an
Affiliate to terminate the employment of any employee at any time; or (ii)
confer upon any consultant any right to a continued consultancy relationship nor
shall it interfere in any way with the right of the Company or an Affiliate to
terminate the consultancy relationship of any consultant at any time; or (ii)
confer upon any participant any right with respect to continuation of the
participant's membership on the Board or shall interfere in any way with
provisions in the Company's Articles of Incorporation and Bylaws relating to the
election, appointment, terms of office, and removal of members of the Board.
9. FINANCIAL INFORMATION
The Company shall provide to each optionee during the
period such optionee holds an outstanding Option, and to each holder of Common
Stock acquired upon exercise of Options granted under the Plan for so long as
such person is a holder of such Common Stock, a balance sheet and income
statement of the Company at least annually as prepared either by the Company or
independent certified public accountants of the Company. Such financial
statements shall be delivered as soon as practicable following the end of the
Company's fiscal year.
10. CONDITIONS UPON ISSUANCE OF SHARES
Shares of Common Stock shall not be issued pursuant to
the exercise of an Option 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, the Securities Act of 1933, as
amended (the "Securities Act").
11. NONEXCLUSIVITY OF THE PLAN
The adoption of the Plan shall not be construed as
creating any limitations on the power of the Company to adopt such other
incentive arrangements as it may deem desirable, including, without limitation,
the granting of stock options other than under the Plan.
12. AMENDMENTS TO PLAN
The Board may at any time amend, alter, suspend or
discontinue this Plan or any Option. Without the consent of an optionee, no
amendment, alteration,
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<PAGE> 40
suspension or discontinuance may adversely affect outstanding Options except to
conform this Plan and ISOs granted under this Plan to the requirements of
federal or other tax laws relating to incentive stock options. No amendment,
alteration, suspension or discontinuance shall require shareholder approval
unless (a) shareholder approval is required to preserve incentive stock option
treatment for federal income tax purposes, (b) for so long as the Company has a
class of equity securities registered under Section 12 of the Exchange Act,
shareholder approval is required to meet the exceptions provided by Rule 16b-3,
or any successor rule thereto, or (c) the Board otherwise concludes that
shareholder approval is advisable.
13. EFFECTIVE DATE OF PLAN
This Plan shall become effective upon adoption by the
Board, provided, however, that no Option shall be exercisable unless and until
written consent of the shareholders of the Company, or approval of shareholders
of the Company voting at a validly called shareholders' meeting, is obtained
within 12 months after adoption by the Board. If such shareholder approval is
not obtained within such time, Options granted hereunder shall terminate and be
of no force and effect from and after expiration of such 12 month period.
Options may be granted and exercised under this Plan only after there has been
compliance with all applicable federal and state securities laws.
Plan adopted by the Board of Directors on March 12, 1997.
Plan approved by Shareholders on May 16, 1997.
Amended by the Board of Directors on February 19, 1999.
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<PAGE> 41
[X] Please mark your votes as in this example
1. ELECTION OF DIRECTORS
FOR
ALL NOMINEES WITHHOLD
LISTED AT RIGHT (EXCEPT AUTHORITY TO VOTE
AS INDICATED BELOW) (AS TO ALL NOMINEES)
[ ] [ ]
TO ELECT AS DIRECTORS:
Christy W. Bell, Howard E. Chase, J. Daniel Cole, D. Keith Grossman,
J. Donald Hill, William M. Hitchcock, George W. Holbrook, Jr., and
Daniel M. Mulvena
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
WRITE THAT NOMINEE'S NAME ON THE LINE BELOW:
---------------------------------------------------------
2. AMENDMENT TO THE 1997 STOCK OPTION PLAN
With respect to the proposal to approve the amendment to Thoratec's
1997 Stock Option Plan:
FOR APPROVAL AGAINST APPROVAL ABSTAIN
[ ] [ ] [ ]
3. AMENDMENTS TO THE 1996 NONEMPLOYEE DIRECTOR'S STOCK OPTION PLAN
With respect to the proposal to approve the amendments to Thoratec's
1996 Nonemployee Directors Stock Option Plan:
FOR APPROVAL AGAINST APPROVAL ABSTAIN
[ ] [ ] [ ]
THIS PROXY WILL BE VOTED AS SPECIFIED OR, IF NO CHOICE IS SPECIFIED, WILL BE
VOTED FOR EACH OF THE PROPOSALS SPECIFIED HEREIN.
THIS PROXY MAY BE REVOKED BY THE UNDERSIGNED BY ANY OF THE MEANS DESCRIBED IN
THE ACCOMPANYING PROXY STATEMENT AT ANY TIME PRIOR TO THE TIME IT IS VOTED.
Shares of Common Stock
- ---------------
SIGNATURE(S) DATED
-------------------------------------------- ----------------
Printed name of Shareholder
---------------------------------------------------
Title (If Shareholder is not an individual)
-----------------------------------
PLEASE SIGN EXACTLY BELOW AS YOUR NAME APPEARS ON THE STOCK RECORDS OF THE
COMPANY IF ACTING AS AN ATTORNEY, EXECUTOR, TRUSTEE, OR IN OTHER REPRESENTATIVE
CAPACITY, SIGN NAME AND TITLE. IF SHARES ARE HELD JOINTLY, EACH HOLDER SHOULD
SIGN.
<PAGE> 42
THORATEC LABORATORIES CORPORATION
THIS PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 14, 1999
The undersigned, revoking all prior proxies, hereby appoint(s) D. Keith
Grossman and Cheryl D. Hess, and each of them, each with the power of
substitution and revocation, to represent the undersigned, with all powers
which the undersigned would possess if personally present, and to vote as set
forth below all shares of stock of THORATEC LABORATORIES CORPORATION (the
"Company") which the undersigned would be entitled to vote if personally present
at the Annual Meeting of Shareholders of the Company to be held at the
Company's headquarters at 6035 Stoneridge Drive, Pleasanton, California 94588,
on Friday, May 14, 1999 at 9:30 a.m., and at any postponements or adjournments
of that meeting, and in their discretion to vote upon any other business that
may properly come before the meeting.
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SEE REVERSE
SIDE
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