<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
[X] FILED BY REGISTRANT
[ ] FILED BY PARTY OTHER THAN THE REGISTRANT
(Check the appropriate box):
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to
Section 240.14a-11(c) or Section 240.14a-12
_________________________________
BIO-VASCULAR, INC.
(Exact name of registrant as specified in its charter)
_________________________________
M. Karen Gilles
Chief Financial Officer and Secretary
Bio-Vascular, Inc.
2575 University Avenue
St. Paul, MN 55114-1024
(Name of Person(s) Filing Proxy Statement)
______________________________
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-
6(i)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a6(i)(4) and
0-11.
(1) TITLE OF EACH CLASS OF SECURITIES TO WHICH TRANSACTION
APPLIES:
(2) AGGREGATE NUMBER OF SECURITIES TO WHICH TRANSACTION APPLIES:
(3) PER UNIT PRICE OR OTHER UNDERLYING VALUE OF TRANSACTION
COMPUTED PURSUANT TO EXCHANGE ACT RULE 0-11:
(4) Proposed maximum aggregate value of transaction:
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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<PAGE>
BIO-VASCULAR, INC.
2575 University Avenue
St. Paul, Minnesota 55114-1024 USA
________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 14, 1996
________
The Annual Meeting of Shareholders of Bio-Vascular, Inc. (the "Company")
will be held at 3:45 p.m., local time, on Thursday, March 14, 1996, at the
Minneapolis Marriott City Center Hotel, 30 South 7th Street, Minneapolis,
Minnesota for the following purposes as described in more detail in the
accompanying Proxy Statement:
1. To consider and act upon a proposal to set the number of members of the
Board of Directors at five (5);
2. To elect five (5) directors to hold office until the next Annual Meeting
of Shareholders or until their successors are duly elected and qualified;
3. To consider and act upon a proposal to adopt the Company's 1995 Stock
Incentive Plan;
4. To consider and act upon a proposal to adopt the Company's Employee Stock
Purchase Plan; and
5. To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
Only shareholders of record at the close of business on January 19, 1996,
are entitled to notice of and to vote at the Annual Meeting or any adjournments
thereof.
All shareholders are invited to attend the Annual Meeting in person. If
you are unable to do so, please be sure you are represented at the Annual
Meeting by promptly completing and returning the accompanying proxy. Any
shareholder who executes and returns a proxy may revoke it at any time prior to
the voting of the proxies by giving written notice to the Secretary of the
Company, by executing a later-dated proxy, or by attending the Annual Meeting
and giving written notice to the Secretary of the Company.
BY ORDER OF THE BOARD OF DIRECTORS
M. Karen Gilles
VICE PRESIDENT OF FINANCE, CHIEF FINANCIAL
OFFICER AND CORPORATE SECRETARY
Dated: February 12, 1996
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE SIGN AND DATE THE PROXY
FORM EXACTLY AS YOUR NAME(s) APPEARS ON IT AND RETURN IT IN THE ENCLOSED
ENVELOPE.
<PAGE>
BIO-VASCULAR, INC.
2575 University Avenue
St. Paul, Minnesota 55114-1024 USA
_________________________
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD
MARCH 14, 1996
_________________________
INTRODUCTION
The Annual Meeting of Shareholders of Bio-Vascular, Inc. (the "Company")
will be held at 3:45 p.m., local time, on Thursday, March 14, 1996, at the
Minneapolis Marriott City Center Hotel, Minneapolis, Minnesota, or at any
adjournment thereof (the "Annual Meeting"), for the purposes set forth in the
Notice of Meeting.
A proxy card is enclosed for your use. You are solicited on behalf of the
Board of Directors to SIGN AND RETURN THE PROXY CARD IN THE ACCOMPANYING
ENVELOPE. No postage is required if mailed within the United States. The cost
of soliciting proxies, including the preparation, assembly and mailing of the
proxies and soliciting material, as well as the cost of forwarding such material
to the beneficial owners of the Company's common stock (the "Common Stock"),
will be borne by the Company. Directors, officers and regular employees of the
Company may, without compensation other than their regular compensation, solicit
proxies by telephone, telegraph or personal conversation. The Company may
reimburse brokerage firms and others for expenses in forwarding proxy material
to the beneficial owners of Common Stock.
Any shareholder giving a proxy may revoke it any time prior to its use at
the Annual Meeting either by giving written notice of such revocation to the
Secretary of the Company, by filing a duly executed proxy bearing a later date
with the Secretary of the Company, or by appearing at the Annual Meeting and
filing written notice of revocation with the Secretary of the Company prior to
use of the proxy. Proxies will be voted as specified by shareholders. Proxies
that are signed by shareholders but that lack any such specification will be
voted in favor of the proposals set forth in the Notice of Meeting and in favor
of the election as directors of the nominees listed in this Proxy Statement.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL OF THE
PROPOSALS SET FORTH IN THE NOTICE OF MEETING.
The Company expects that this Proxy Statement, the Proxy and Notice of
Meeting will first be mailed to shareholders on or about February 12, 1996.
<PAGE>
VOTING OF SHARES
Only holders of record of the Common Stock at the close of business on
January 19, 1996 will be entitled to vote at the Annual Meeting. On January 19,
1996, the Company had 9,389,558 outstanding shares of Common Stock, each such
share entitling the holder thereof to one vote on each matter to be voted on at
the Annual Meeting. The holders of 33-1/3% of the shares entitled to vote and
represented in person or by proxy at the Annual Meeting will constitute a quorum
for the transaction of business at the Annual Meeting. In general, shares of
Common Stock represented by a properly signed and returned proxy card will be
counted as shares present and entitled to vote at the meeting for purposes of
determining a quorum, without regard to whether the card reflects abstentions
(or is left blank) or reflects a "broker non-vote" on a matter (i.e., a card
returned by a broker because voting instructions have not been received and the
broker has no discretionary authority to vote). Holders of shares of Common
Stock are not entitled to cumulate voting rights.
The election of a nominee for director and the approval of each of the
other proposals described in this Proxy Statement require the approval of a
majority of the shares present and entitled to vote in person or by proxy on
that matter (and at least a majority of the minimum number of votes necessary
for a quorum to transact business at the Annual Meeting). Shares represented by
a proxy card voted as abstaining on any of the proposals will be treated as
shares present and entitled to vote that were not cast in favor of a particular
matter, and thus will be counted as votes against the matter. Shares
represented by a proxy card indicating any broker non-vote on a matter will be
treated as shares not entitled to vote on that matter, and thus will not be
counted in determining whether that matter has been approved.
PRINCIPAL SHAREHOLDERS AND BENEFICIAL
OWNERSHIP OF MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Common Stock as of December 7, 1995 unless otherwise noted, (a)
by each shareholder who is known by the Company to own beneficially more than 5%
of the outstanding Common Stock, (b) by each director, (c) by each executive
officer named in the Summary Compensation Table below, and (d) by all executive
officers and directors as a group. Unless otherwise noted, each of the
shareholders listed in the table or included within a group listed in the table
possesses sole voting and investment power with respect to the shares indicated.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE
BENEFICIAL OWNER BENEFICIALLY OWNED(1) OWNERSHIP(1)
---------------- --------------------- ------------
<S> <C> <C>
Perkins Capital Management, Inc. (2) 730,700 7.8%
730 East Lake Street
Wayzata, MN 55391-1769
John T. Karcanes (3) 62,500 *
Vincent Argiro, Ph.D. (4) 509,789 5.4%
505 North 4th Street
Fairfield, IA 52556
</TABLE>
2
<PAGE>
<TABLE>
<S> <C> <C>
James F. Lyons (5) 202,250 2.1%
Richard W. Perkins (6) 163,750 1.7%
Lawrence Perlman (7) 30,000 *
Edward E. Strickland (8) 188,000 2.0%
M. Karen Gilles (9) 51,447 *
Kemal Schankereli (10) 32,981 *
Frank H. Stephenson (11) 15,125 *
All executive officers and directors
as a group (12 persons) (12) 1,316,240 13.4%
</TABLE>
___________________________________
*Less than 1%.
(1) Shares not outstanding but deemed beneficially owned by virtue of the
right of a person or member of a group to acquire them within 60 days are
treated as outstanding only when determining the amount and percent owned
by such person or group.
(2) Based upon a Schedule 13G filed as of December 15, 1995 with the
Securities and Exchange Commission. Excludes shares beneficially owned by
Richard W. Perkins, a director of the Company and the controlling
shareholder of Perkins Capital Management, Inc., a registered investment
advisor ("PCM"). Of the 730,700 shares held for the account of clients of
PCM, for which beneficial ownership has been disclaimed by PCM (the "PCM
Shares"), PCM has sole investment power with regard to all such shares and
sole voting power over 4,000 of such shares.
(3) Includes 50,000 shares Mr. Karcanes has the right to acquire within 60
days upon the exercise of options.
(4) Includes 7,000 shares Dr. Argiro has the right to acquire within 60 days
upon the exercise of options.
(5) Includes 133,000 shares Mr. Lyons has the right to acquire within 60 days
upon the exercise of options.
(6) Includes 5,000 shares held by the Perkins Foundation, 79,500 shares held
by various trusts of which Mr. Perkins is the sole trustee, and 56,250
shares held by Quest Venture Partners, of which Mr. Perkins is a 40%
partner. Also includes 18,000 shares Mr. Perkins has the right to acquire
within 60 days upon the exercise or options. Excludes the 730,700 PCM
Shares. Mr. Perkins disclaims beneficial ownership of the PCM Shares.
3
<PAGE>
(7) Includes 20,000 shares that Mr. Perlman has the right to acquire within 60
days upon the exercise of options.
(8) Includes 58,000 shares Mr. Strickland has the right to acquire within 60
days upon the exercise of options.
(9) Includes 36,887 shares Ms. Gilles has the right to acquire within 60 days
upon the exercise of options.
(10) Includes 24,789 shares Mr. Schankereli has the right to acquire within 60
days upon the exercise of options.
(11) Includes 12,211 shares Mr. Stephenson has the right to acquire within 60
days upon the exercise of options.
(12) Includes 402,166 shares which may be acquired within 60 days upon the
exercise of options.
PROPOSAL TO SET THE NUMBER OF DIRECTORS AT FIVE
The Bylaws of the Company provide that the Board of Directors (the
"Board") shall consist of one or more members, with the number of directors
designated by the shareholders at each regular meeting of the shareholders,
subject to the authority of the shareholders to increase or decrease the number
of directors and the authority of the Board to increase the number of directors
between regular meetings of the shareholders.
The number of directors is currently set at six (6). Dr. Vincent Argiro,
a current director of the Company, has chosen not to stand for re-election at
the Annual Meeting. Based on Dr. Argiro's decision not to stand for
re-election, the Board recommends that the number of directors be set at five
(5).
The Board recommends that the shareholders vote FOR the proposal to set
the number of directors at five. The affirmative vote of the holders of a
majority of the shares of Common Stock present and entitled to vote in person or
by proxy on this matter at the Annual Meeting, and at least a majority of the
minimum number of votes necessary for a quorum, is necessary for approval.
Unless otherwise specified, the proxies will be voted to set the number of
directors at five.
The Board has nominated five individuals for election to the Board at the
Annual Meeting. See "Election of Directors" below. If the proposal to set the
number of directors at five is not approved at the Annual Meeting, the number of
directors will remain at six, and the Board in its discretion will have the
authority to select an additional nominee to be elected at the Annual Meeting or
to fill this vacancy following the Annual Meeting by appointing a director to
serve until his or her successor is elected by the shareholders at the next
annual or special meeting of the shareholders.
4
<PAGE>
ELECTION OF DIRECTORS
NOMINATION
The Board has nominated the five individuals named below to serve as
directors of the Company until the next annual meeting of shareholders or until
their respective successors have been elected and qualified. All of the
nominees are members of the current Board.
The election of each nominee requires the affirmative vote of a majority
of the shares of the Common Stock present and entitled to vote in person or by
proxy for the election of directors at the Annual Meeting, and at least a
majority of the minimum number of votes necessary for a quorum to transact
business. The Board recommends a vote FOR the election of each of the
nominees listed below. In the absence of other instructions, the proxies will
be voted FOR the election of the nominees named below. If prior to the Annual
Meeting the Board should learn that any nominee will be unable to serve by
reason of death, incapacity or other unexpected occurrence, the proxies that
otherwise would have been voted for such nominee will be voted for such
substitute nominee as selected by the Board. Alternatively, the proxies, at the
Board's discretion, may be voted for such fewer number of nominees as results
from such death, incapacity or other unexpected occurrence. The Board has no
reason to believe that any of the nominees will be unable to serve.
INFORMATION ABOUT NOMINEES
The following information has been furnished to the Company, as of
December 7, 1995, by the persons who have been nominated by the Board to serve
as directors for the ensuing year.
<TABLE>
<CAPTION>
Director
Name Age Title Since
---- --- ----- ________
<S> <C> <C> <C>
John T. Karcanes 49 President, Chief Executive Officer and Director 1994
James F. Lyons 65 Chairman of the Board and Director 1990
Richard W. Perkins 64 Director 1987
Edward E. Strickland 68 Director 1988
Lawrence Perlman 57 Director 1994
</TABLE>
OTHER INFORMATION ABOUT NOMINEES
JOHN T. KARCANES. Mr. Karcanes has served as President and a director
of the Company since April 1994 and as Chief Executive Officer since November
1994. From April 1994 to November 1994, Mr. Karcanes served as Chief Operating
Officer of the Company. From June 1992 to April 1994, Mr. Karcanes acted as an
independent consultant and an interim executive officer, working primarily with
early-stage technology companies. From 1987 to June 1992, Mr. Karcanes served
as President and Chief Executive Officer of Crossfield Lightspeed, Inc., a
technology company serving the publishing industry. Mr. Karcanes served as
President of Palladian Software, Inc., a software development company, from 1984
to 1986, and from 1981 to 1984, he served in a number of executive positions in
international operations and sales and marketing with Cullinet
5
<PAGE>
Software, Inc., a database and application software company, and Computer
Pictures Corporation, a software company specializing in executive information
systems.
JAMES F. LYONS. Mr. Lyons has served on the Board of the Company since
1990 and has been Chairman since November 1991. Mr. Lyons served as the
Company's Chief Executive Officer from September 1993 through October 1994.
From 1977 through 1990, Mr. Lyons served as President and Chief Executive
Officer of Bio-Medicus, Inc., a manufacturer of bio-medical products. Mr. Lyons
has been employed in the health care industry for more than 30 years. Mr. Lyons
also serves on he Board of Directors of AVECOR Cardiovascular Inc., ATS Medical,
Inc., Spine-Tech, Inc. and Quantech Ltd.
RICHARD W. PERKINS. Mr. Perkins has served on the Board of the Company
since 1987. He has served as President, Chief Executive Officer and a director
of Perkins Capital Management, Inc., an investment management firm, since 1984.
Mr. Perkins also serves on the Board of Directors of LifeCore Biomedical, Inc.,
Children's Broadcasting Corporation, CNS, Inc., Nortech Systems, Inc., Garment
Graphics, Inc., Discus Acquisition Corporation, Eagle Pacific Industries, Inc.
and Quantech Ltd.
EDWARD E. STRICKLAND. Mr. Strickland has served on the Board of the
Company since 1988. Mr. Strickland has been an independent financial consultant
since 1986. Mr. Strickland serves on the Board of Directors of Communications
Systems, Inc., Hector Communications, Inc., AVECOR Cardiovascular Inc., Quantech
Ltd. and as Chairman of the Board of Reuter Manufacturing, Inc., formerly Green
Isle Environmental Services, Inc.
LAWRENCE PERLMAN. Mr. Perlman has served on the Board of the Company
since December 1994. He currently serves as Chairman of the Board, President
and Chief Executive Officer of Ceridian Corporation, an information services and
defense electronics company ("Ceridian"). He was named Chairman of the Board of
Ceridian in November 1992, and has been President and Chief Executive Officer of
Ceridian since 1990. He also serves on the Board of Directors of Inter-Regional
Financial Group, Inc., Kmart Corporation, Seagate Technology, Inc., The Valspar
Corporation and Computer Network Technology Corporation. Mr. Perlman is also a
member of the National Advisory Board of the Chemical Banking Corporation.
INFORMATION ABOUT THE BOARD AND ITS COMMITTEES
The Board met five times during the fiscal year ended October 31, 1995.
Each of the directors attended at least 75% of the meetings of the Board and all
such committees on which such director served during the 1995 fiscal year. The
committees of the Board and their chairmen, during the 1995 fiscal year (unless
otherwise noted), are listed below:
<TABLE>
<CAPTION>
Audit Compensation Nominating
----- ------------ ----------
<S> <C> <C>
Lawrence Perlman (Chairman) Richard W. Perkins (Chairman) James F. Lyons (Chairman)
James F. Lyons Edward E. Strickland Richard W. Perkins
Edward E. Strickland
Lawrence Perlman
</TABLE>
In May 1991, the Board established an Audit Committee, a Compensation
Committee, and a Nominating Committee. The Audit Committee is responsible for
the selection of the auditors and the review of the auditor's engagement letter.
The Audit Committee receives the auditor's report and may recommend changes in
the accounting systems of the Company, if so warranted.
6
<PAGE>
The Compensation Committee's function is to determine compensation for the
officers of the Company, to provide for management continuity and to administer
the Company's stock-based compensation plans. See "Compensation Committee
Report on Executive Compensation" below for a more detailed discussion of the
function of the Compensation Committee.
The Nominating Committee is responsible for the selection and nomination
of qualified candidates to serve on the Board. While the Nominating Committee
will consider nominees recommended by the Company's shareholders, it has neither
actively solicited nominations nor established any procedures for this purpose.
During the 1995 fiscal year, the Audit Committee and the Compensation
Committee each met three times, and the Nominating Committee met one time.
DIRECTORS' COMPENSATION.
Upon election to the Board and as compensation for their services as
directors, each non-employee director receives options under the Bio-Vascular,
Inc. 1992 Directors' Stock Option Plan (the "Director Plan") to purchase 18,000
shares of Common Stock. These options vest in equal one-third increments on
each successive October 31 beginning one year after the date of grant and are
exercisable at a price equal to the fair market value of one share of Common
Stock on the date of grant. On the third and sixth anniversaries of each
non-employee director's election to the Board, such non-employee director will
receive options under the Director Plan to purchase 21,000 and 24,000 shares of
Common Stock, respectively, vesting in one-third increments on each successive
October 31 following the date of grant at an exercise price equal to the fair
market value on the date of grant. Options granted under the Director Plan have
a term of eight years and are exercisable for a period of five years after
vesting, but only while the recipient remains a director of the Company.
Mr. Perlman did not receive an automatic grant of options under the
Director Plan upon his election to the Board. Upon his election to the Board on
December 1, 1994, Mr. Perlman received a non-plan option to purchase 60,000
shares of Common Stock at an exercise price equal to the fair market value on
the date of grant. The options granted to Mr. Perlman become exercisable in one
third increments on each of the first three anniversaries of the date of grant,
with each such increment expiring three years from the date such options became
exercisable.
The Board currently meets periodically throughout the year and at the
annual meeting of the Company's shareholders. Directors receive compensation of
$500 per month for being a member of the Board and $500 for each Board meeting
attended. In addition, all members of the Board are reimbursed for out of
pocket expenses in connection with attending a Board meeting. Committee members
do not receive any additional compensation by reason of their service on such
committee(s).
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION.
The following table sets forth the cash and non-cash compensation paid or
earned during the fiscal years ending October 31, 1995, 1994 and 1993 by the
Chief Executive Officer of the
7
<PAGE>
Company and the three other most highly compensated executive officers of the
Company whose salary and bonus exceeded $100,000 in the fiscal year ended
October 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------
ANNUAL VALUE OF SECURITIES
NAME AND COMPENSATION RESTRICTED STOCK UNDERLYING ALL OTHER
------------------------
PRINCIPAL POSITION YEAR SALARY($) BONUS($) AWARD($)(1) OPTIONS(#) COMPENSATION(2)
------------------ ---- --------- -------- ----------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
John T. Karcanes (3) 1995 $187,000 $98,000 - 0 - - 0 - ---
PRESIDENT AND 1994 95,641 43,750 (4) - 0 - 200,000 $39,221
CHIEF EXECUTIVE OFFICER 1993 --- --- --- --- ---
M. Karen Gilles 1995 $84,000 $20,000 $33,602 (5) 14,148 ---
VICE PRESIDENT OF FINANCE, 1994 61,468 13,800 36,578 - 0 - 5,500
CHIEF FINANCIAL OFFICER 1993 55,968 8,397 - 0 - - 0 - 6,000
AND CORPORATE SECRETARY
Kemal Schankereli 1995 $90,000 $20,000 $36,000 (6) 15,156 ---
VICE PRESIDENT OF 1994 75,000 10,500 42,116 14,000 4,400
RESEARCH AND DEVELOPMENT 1993 50,000 9,000 - 0 - 7,000 400
Frank H. Stephenson (7) 1995 $90,210 $30,000 $49,999 (8) 48,842 $10,462
VICE PRESIDENT OF 1994 --- --- --- --- ---
MARKETING AND SALES 1993 --- --- --- --- ---
</TABLE>
(1) Restricted stock grants are valued at the market price on the day of grant
regardless of whether such shares have vested. To date, the Company has
not paid dividends on its Common Stock, including shares of Common Stock
subject to restricted stock grants.
(2) "All Other Compensation" paid to Mr. Karcanes includes automobile and
relocation expense reimbursement. "All Other Compensation" paid to Mr.
Stephenson is comprised entirely of relocation expense reimbursement.
"All Other Compensation" paid to Ms. Gilles and Mr. Schankereli is
comprised entirely of automobile expense reimbursement.
(3) Mr. Karcanes was named as President and Chief Operating Officer of the
Company in April 1994. On November 1, 1994, Mr. Karcanes was named Chief
Executive Officer of the Company, relinquishing the title of Chief
Operating Officer.
(4) Mr. Karcanes was awarded 12,500 shares of unregistered stock in April
1994, which shares were fully vested on the date of grant. Upon the date
of grant, the market value of the shares was $43,750.
(5) As of October 31, 1995, Ms. Gilles had aggregate restricted stock holdings
(rights to restricted shares not yet vested) of 8,852 shares, valued at
$126,141 as of such date. Effective November 1, 1993, Ms. Gilles was
granted a restricted stock award in the amount of 10,641 shares, vesting
in three equal installments of 3,547 shares on each successive October 31
following the date of grant. Effective January 3, 1995, Ms. Gilles was
granted a restricted stock award in the amount of 7,074 shares, vesting in
two installments of 1,769 shares on October 31, 1995 and 1996 and two
installments of 1,768 shares on October 31, 1997 and 1998.
(6) As of October 31, 1995, Mr. Schankereli had aggregate restricted stock
holdings of 9,768 shares, valued at $139,194 as of such date. Effective
November 1, 1993, Mr. Schankereli was granted a restricted stock
8
<PAGE>
award in the amount of 12,252 shares, vesting in three equal installments
of 4,084 shares on each successive October 31 following the date of grant.
Effective January 3, 1995, Mr. Schankereli was granted a restricted stock
award in the amount of 7,579 shares, vesting in three installments of
1,895 shares on each successive October 31 following the date of grant,
with a final installment of 1,894 shares vesting on October 31, 1998.
(7) Mr. Stephenson was named as Vice President of Sales and Marketing of the
Company in December 1994.
(8) As of October 31, 1995, Mr. Stephenson had aggregate restricted stock
holdings of 6,316 shares, valued at $90,003 as of such date. Effective
January 3, 1995, Mr. Stephenson was granted a restricted stock award in
the amount of 2,105 shares, which shares were fully vested on the date of
grant. Effective January 3, 1995, Mr. Stephenson was granted a restricted
stock award in the amount of 8,421 shares, vesting in three installments
of 2,105 shares on each successive October 31 following the date of grant,
with a final installment of 2,106 shares vesting on October 31, 1998.
OPTION GRANTS AND EXERCISES.
The following tables provide information for the year ended October 31,
1995 as to individual grants and aggregate exercises of options to purchase
shares of the Common Stock by each of the executive officers named in the
Summary Compensation Table and the potential realizable value of the options
held by such persons at October 31, 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
--------------------------------- Potential Realization
Number of % of Total Value at Assumed Annual
Securities Options Rates of Stock Price
Underlying Granted to Exercise Appreciation
Options Employees or Base Expira- for Option Term(1)
Granted (2) in Fiscal Price tion -----------------------
Name (#) Year ($/Sh) Date 5% 10%
---- ------ ---- ------ ---- -------- --------
<S> <C> <C> <C> <C> <C> <C>
John T. Karcanes - 0 - --- --- --- --- ---
M. Karen Gilles 14,148 4.4% $4.75 10/31/03 $ 36,163 $ 88,632
Kemal Schankereli 15,156 4.7% 4.75 10/31/03 38,739 94,947
Frank H. Stephenson 32,000 9.8% 4.75 10/31/05 105,757 274,486
16,842 5.2% 4.75 10/31/03 43,049 105,509
</TABLE>
____________________
(1) Potential realizable value is calculated based on an assumption that the
price of the Company's Common Stock will appreciate at the assumed annual
rates shown (5% and 10%), compounded annually from the date of grant of
the option until the end of the option term. These assumed annual rates
are set by the Securities and Exchange Commission and therefore are not
intended to forecast possible future appreciation, if any, of the Common
Stock. Actual gains, if any, on stock option exercises are dependent on
the future performance of the Common Stock, overall market conditions and
the continued employment of the named executive by the Company. There can
be no assurance that the amounts reflected in this table will be realized.
9
<PAGE>
(2) All of the items reported in the above table reflect the grant of options
under the Company's 1988 Stock Option Plan (the "1988 Plan") in January
1995. To the extent not already exercisable, options under the 1988 Plan
become immediately exercisable in full upon any change in control of the
Company. Under the 1988 Plan, a "change in control" occurs when (i) any
person is or becomes the beneficial owner of securities of the Company
representing fifty percent (50%) or more of the combined voting power of
the Company's then outstanding securities; or (ii) the occurrence of a
transaction requiring shareholder approval and involving the sale of all
or substantially all of the assets of the Company or the merger of the
Company with or into another corporation. Generally, upon termination of
employment of an optionee under the 1988 Plan, options under the 1988 Plan
which are exercisable upon the date of termination will remain exercisable
for a period of time set forth in the 1988 Plan or the expiration of the
term of the options, whichever is earlier; provided, however, that if the
termination is for cause, options granted under the 1988 Plan may be
cancelled.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised
Options at
October 31, 1994
--------------------------------
Shares Acquired Value
Name on Exercise(#) (2)Realized($) Exercisable Unexercisable
---- --------------- --------------- ----------- -------------
<S> <C> <C> <C> <C>
John T. Karcanes - 0 - --- 50,000 150,000
M. Karen Gilles 5,000 $16,875 (3) 36,887 10,611
Kemal Schankereli - 0 - --- 24,789 11,367
Frank H. Stephenson - 0 - --- 12,211 36,631
<CAPTION>
Value of
Unexercised
In-the-Money Options at
October 31, 1995 (1)
------------------------------------------
Name Exercisable Unexercisable
---- ----------- -------------
<S> <C> <C>
John T. Karcanes $537,500 $1,612,500
M. Karen Gilles 361,989 100,805
Kemal Schankereli 266,121 107,987
Frank H. Stephenson 116,005 347,995
</TABLE>
____________________
(1) Based upon the market value of the underlying Common Stock at fiscal year
end, less the exercise price.
(2) The 1988 Plan provides that the exercise price of options must be paid in
cash, except that the Compensation Committee, in its sole discretion, may
allow payment by delivery of shares of Common Stock having an aggregate
fair market value equal to the exercise price or may allow the exercise
price to be financed by the Company upon such terms and conditions as the
Compensation Committee may determine.
(3) Reflects the value realized by Ms. Gilles upon the exercise of options to
purchase 5,000 shares of Common Stock at an exercise price of $2.375 per
share on November 11, 1994, based upon a closing bid price of $5.75 per
share of Common Stock on that date, as reported by Nasdaq.
10
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION.
OVERVIEW AND PHILOSOPHY. The Compensation Committee is currently
composed of two of the Company's outside directors. The Compensation
Committee's responsibilities are to:
* Review and recommend compensation policies and compensation levels
for the Company's executive officers to the Board;
* Review and recommend plans to provide management continuity to the
Board; and
* Administer the Company's 1988 Plan, 1990 Plan and 1992 Plan. The
Compensation Committee determines who will participate in such plans
and the extent and terms of such participation. The Compensation
Committee has determined not to issue any more awards under the 1990
Plan or the 1992 Plan.
In addition to the responsibilities listed above, it is intended that the
Compensation Committee will administer the Company's 1995 Stock Incentive Plan
and Employee Stock Purchase Plan, subject to shareholder approval of those plans
at the Annual Meeting. The 1995 Stock Incentive Plan is intended to replace the
1988 Plan, the 1990 Plan and the 1992 Plan. See "Proposal to Adopt the 1995
Stock Incentive Plan" and "Proposal to Adopt the Employee Stock Purchase Plan"
below.
The Compensation Committee's objectives in recommending executive
compensation policies and compensation levels for the Company's executive
officers are: (i) to attract and retain qualified executive officers; (ii) to
align the interests of those executive officers with those of the Company's
shareholders; and (iii) to encourage the development of a cohesive management
team. The Compensation Committee believes that base salaries need to be
moderately to aggressively competitive to attract and retain qualified executive
officers, that the executive officers need to be provided with stock ownership
opportunities to align their interests with those of the Company's shareholders
and that incentive compensation should be based primarily on the accomplishment
of Company performance in the interest of building a cohesive management team.
EXECUTIVE COMPENSATION PROGRAM COMPONENTS. The Company's executive
compensation program focuses on Company and individual performance as measured
against goals confirmed by the Compensation Committee. The Compensation
Committee places primary emphasis on Company performance rather than individual
performance in order to inspire the Company's executives to work as a team to
accomplish Company objectives. Components of the Company's executive officer
compensation program include base salary, annual cash incentive compensation,
stock option grants and restricted stock awards, as well as various benefits
which are presently available to all employees of the Company. Each component
of the executive officer compensation program is discussed in greater detail
below.
BASE SALARY. The Compensation Committee's recommendations regarding the
base salary of each of the Company's executive officers are based on a number of
factors, including the executive officer's experience and past performance, the
level of skill and responsibility required by the executive's position and his
or her qualifications for the position. The Compensation Committee also
considers competitive salary information gathered by outside consultants and
through comparative surveys pertaining specifically to the medical device
industry as well to companies of similar size in other industries, and,
therefore, the population of Companies for which
11
<PAGE>
competitive salary data is obtained is broader than the industry peer group
established to compare shareholder returns in the Performance Graph set forth
below. In general, the Compensation Committee seeks to set executive officer
base salary at moderately to aggressively competitive levels in relation to the
companies with which the Company competes for executives. Base salaries are
determined prior to the beginning of each fiscal year following a review of the
above factors by the Compensation Committee and may also be adjusted based on
Company performance and the executive officer's impact thereon, cost of living,
promotion or merit factors.
In fiscal 1995, each of the Company's executive officers other than Mr.
Stephenson received an increase in the base salary component of their
compensation following a review of the above factors. Mr. Stephenson was first
employed by the Company in fiscal 1995, and his base salary under his employment
agreement with the Company was determined upon a review of the above factors as
well as a determination as to the level of compensation believed to be necessary
to induce him to join the Company. See "Management Agreements -- Stephenson
Employment Agreement" below.
Mr. Karcanes base salary as the Company's Chief Executive Officer is set
pursuant to the terms of a letter agreement between Mr. Karcanes and the
Company. This agreement was initially entered into in April 1994, and provided
for an annual base salary of $175,000, plus automobile expense reimbursement of
$1,000 per month. This base salary amount was determined based on a review of
the above factors, and, in particular, Mr. Karcanes extensive experience as a
chief executive officer in the computer software industry and the Compensation
Committee's determination as to the amount and type of compensation necessary to
attract and retain a highly qualified chief executive officer such as Mr.
Karcanes in light of the intense competition for such persons among similar
companies. Because of the significant competition for such qualified
executives, the Compensation Committee seeks to set Mr. Karcanes' compensation
at a level which the Compensation Committee believes to be aggressively
competitive when compared with the comparative compensation data gathered by the
Compensation Committee. During fiscal 1994, Mr. Karcanes was paid an amount
equal to the annual salary specified in the agreement, prorated to the length of
his service during that period. In fiscal 1995, the terms of Mr. Karcanes
letter agreement with the Company were modified to eliminate the monthly
automobile expense reimbursement as a separate item of compensation and to
include the amount of the reimbursement in Mr. Karcanes' base salary. The
increase in Mr. Karcanes' base salary to $187,000 for fiscal 1995 is solely
attributable to the elimination of the automobile expense reimbursement as a
separate component of Mr. Karcanes' compensation. See "Management Agreements --
Karcanes Employment Agreement" below.
ANNUAL CASH INCENTIVE COMPENSATION. The Company's annual cash incentive
compensation program is designed to provide a direct financial incentive to the
Company's executive officers for the achievement of specific Company and
individual performance goals.
Under general guidelines established by the Compensation Committee, each
of the Company's executive officers are eligible to receive up to 20% of their
base salary in annual cash incentive compensation based on certain criteria
established by the Compensation Committee, with the exception of Mr. Karcanes
and Mr. Stephenson, whose annual cash incentive compensation is determined
according to the terms of these agreements with the Company. Under the terms of
his employment agreement with the Company, Mr. Stephenson is eligible to receive
up to 20% of his base salary in annual cash incentive compensation in the event
that certain criteria established by Mr. Karcanes and Mr. Stephenson are
fulfilled, which criteria are negotiated by Mr. Karcanes under
12
<PAGE>
the direction of the Compensation Committee and according to its general
guidelines for annual cash incentive compensation. See "Management Agreements -
Stephenson Employment Agreement" below. Of these 20% amounts, the Compensation
Committee's guidelines provide that 40% is based on achievement of internal
segment net revenue goals, 40% on the achievement of internal segment operating
income goals and the remaining 20% on a subjective evaluation by the
Compensation Committee of the individual executive officer's performance during
the period. At the Compensation Committee's discretion, the amount of annual
cash incentive compensation may be increased to more than 20% of an executive
officer's base salary in the event of performance by that executive above and
beyond what is normally called for by the executive's position. The
Compensation Committee may also pay a cash hiring bonus at the time an executive
officer joins the Company.
Each of the Company's executive officers received annual cash incentive
compensation is fiscal 1995 based on these factors. In addition, Ms. Gilles,
Mr. Nelson, Mr. Schankereli and Mr. Argiro received incentive compensation in
excess of 20% of their respective annual base salaries, to recognize what the
Compensation Committee believes to have been outstanding accomplishments during
fiscal 1995; Ms. Gilles for her efforts in connection with the successful
completion of a public offering of Common Stock, Mr. Nelson for his management
and oversight of the construction of and move to the Company's new facility, Mr.
Schankereli for significant accomplishments in research and development; and Dr.
Argiro for his management of the VoxelGeo project and the negotiation of the
Source Code License Agreement with CogniSeis Development, Inc.
Pursuant to the terms of his agreement with the Company, Mr. Karcanes is
eligible to receive up to 50% of his annual base salary in annual cash incentive
compensation, based upon the achievement of certain criteria mutually
established by the Board and Mr. Karcanes, which criteria are negotiated by the
Board through the Compensation Committee. See "Management Agreements --
Karcanes Employment Agreement" below. In fiscal 1994, Mr. Karcanes received
incentive compensation of $43,750 in the form of unregistered, immediately
vested shares of Common Stock, pursuant to the terms of his agreement with the
Company. In fiscal 1995, Mr. Karcanes was paid annual cash incentive
compensation of $98,000, based on the Compensation Committee's general
guidelines for annual cash incentive compensation, as described above. As in
the case of all of the Company's other officers, Mr. Karcanes is eligible to
receive annual cash incentive compensation in excess of his stated percentage in
the event of exceptional performance above and beyond what is required by virtue
of his position. In 1995, Mr. Karcanes was granted annual cash incentive
compensation in excess of 50% of his base salary in recognition of his
exceptional management of the Company during a period of explosive growth.
STOCK OPTION PROGRAM. By granting options to purchase Common Stock to
the executive officers of the Company, the Compensation Committee seeks to align
the long-term interests of the Company's executive officers with those of its
shareholders by creating a strong and direct nexus between executive
compensation and shareholder return and to enable executives to develop and
maintain a significant ownership position in the Company.
The 1988 Plan and the 1995 Plan authorize the Compensation Committee to
issue executive officers incentive stock options having an exercise price not
less than the fair market value of the Common Stock on the date of grant (or,
for an incentive option granted to a person holding more than 10% of the
Company's voting stock, at not less than 110% of fair market value), and
non-statutory options having an exercise price not less than 85% of the fair
market value of the Common Stock on the date of grant. Options granted under
the 1988 Plan and the 1995 Plan have
13
<PAGE>
a term fixed by the Compensation Committee at the time of grant, which term may
not exceed 10 years. All other terms of options granted under the 1988 Plan and
the 1995 Plan may be determined by the Compensation Committee and different
restrictions may be established with respect to different recipients of stock
options.
General guidelines established by the Compensation Committee provide for
the grant of up to a number of options to each executive officer having a value
equal to 20% of such executive officer's base salary on the date of grant,
calculated on the basis of the fair market value of the Common Stock underlying
the options on the date of grant. The Compensation Committee determines the
number of options and the terms and conditions of such options based on certain
factors, including the past performance of the executive officer, the executive
officer's potential impact on the achievement of the Company's objectives, past
grants or awards of stock-based compensation and on comparative compensation
data regarding option grants by companies within the medical device industry as
well as within a broader group of companies of comparable size and complexity.
Additionally, options may be granted to an executive officer as an incentive at
the time the executive officer joins the Company.
Each of the Company's executive officers other than Mr. Karcanes received
awards of stock options under the 1988 Plan during fiscal 1995 based on the
above factors. Mr. Stephenson received options under the 1988 Plan pursuant to
the terms of his employment agreement with the Company. See "Management
Agreements -- Stephenson Employment Agreement" below. The number of options
received by Mr. Stephenson were determined on the basis of the above factors as
well as a determination as to the nature and amount of total compensation
necessary to induce him to join the Company.
Upon the commencement of Mr. Karcanes' employment by the Company in April
of 1994 he was granted options to purchase 200,000 shares of the Company's
Common Stock. See "Management Agreements -- Karcanes Employment Agreement"
below. These options were granted on the basis of Mr. Karcanes extensive
experience and qualifications, the Compensation Committee's desire to induce Mr.
Karcanes to join the Company and its objectives of providing Mr. Karcanes with
an incentive to achieve stock performance and aligning his interests with those
of the Company's shareholders. No additional options were granted to Mr.
Karcanes in fiscal 1995 based on the Compensation Committee's belief that the
options granted to Mr. Karcanes in fiscal 1994 are currently adequate to achieve
each of these objectives, although the Compensation Committee may determine to
grant Mr. Karcanes additional stock-based compensation in the future.
RESTRICTED STOCK AWARDS. The Compensation Committee may also grant
stock-based compensation to the Company's executive officers in the form of
restricted stock awards. Under general guidelines established by the
Compensation Committee, executive officers of the Company are eligible to
receive awards of restricted stock having a value equal to up to 10% of their
base salary in a given year, divided by the market price of the Common Stock on
the date of grant. Although each award of restricted stock is subject to terms
and conditions established by the Compensation Committee, such awards generally
consist of four-year grants of the number of shares determined as provided
above, which vest in equal installments over the four year period conditioned on
the executive's continued employment by the Company. In determining whether to
grant shares of restricted stock to an executive officer of the Company, the
Compensation Committee evaluates the past performance of the executive officer,
the executive officer's potential impact on the achievement of the Company's
objectives and past grants or awards of stock-based
14
<PAGE>
compensation to the executive officer. Restricted stock may also be awarded by
the Compensation Committee upon the hiring of executive officers as an incentive
to join the Company.
During fiscal 1995, each of the Company's executive officers other than
Mr. Karcanes received grants of restricted stock based on these factors. Mr.
Stephenson received an award of restricted stock as a signing bonus pursuant to
the terms of his employment agreement with the Company. See "Management
Agreements -- Stephenson Employment Agreement" below. This award was based on a
review of the above factors and was also granted as an inducement for Mr.
Stephenson's decision to join the Company.
Mr. Karcanes did not receive an award of restricted stock in fiscal 1995
based on the Compensation Committee's belief that the stock options granted to
Mr. Karcanes upon his employment by the Company are currently sufficient to
provide him with a competitive compensation package and to align his interests
with those of the Company's shareholders, although the Compensation Committee
may determine to award restricted stock to Mr. Karcanes in the future.
BENEFITS. The Company provides medical, dental and life and disability
insurance benefits as well as a 401(k) retirement plan to the executive
officers. The same benefits are available to all Company employees. The amount
of perquisites, as determined in accordance with the rules of the Securities and
Exchange Commission relating to executive compensation, did not exceed 10% of
each executive officer's annual salary for fiscal 1995.
SECTION 162(m). Section 162(m) of the Internal Revenue Code of 1986,
as amended (the "Code"), limits the deductibility of certain compensation paid
to each of the chief executive officer and the four other most highly
compensated executives of a publicly held corporation to $1,000,000. In fiscal
1995, the Company did not pay "compensation" within the meaning of Section
162(m) to such executive officers in excess of $1,000,000 and does not believe
it will do so in the near future. Therefore, the Company does not have a policy
at this time regarding qualifying compensation paid to its executive officers
for deductibility under Section 162(m), but will formulate such a policy if
compensation levels ever approach $1 million.
Richard W. Perkins (Chairman)
Edward E. Strickland
Members of the Compensation Committee
MANAGEMENT AGREEMENTS.
The Company has entered into employment agreements with the following
executive officers named in the Summary Compensation Table.
KARCANES EMPLOYMENT AGREEMENT. Pursuant to a letter agreement dated
April 7, 1994, which became effective as of April 27, 1994, Mr. Karcanes and the
Company agreed to the terms of Mr. Karcanes' employment with the Company. The
agreement established a base salary for Mr. Karcanes of $175,000 per year.
Pursuant to the terms of the agreement, Mr. Karcanes also received a grant of
options to purchase 200,000 shares of the Common Stock at an exercise price
equal to the fair market value of the Common Stock on the date of grant (which
was $3.50 per share). The options have a term of seven years with 25% vesting
on each of the first four anniversaries of the date of grant. The agreement
also provided Mr. Karcanes with the right to
15
<PAGE>
receive an annual cash bonus equal to up to 50% of his base salary in the event
certain performance criteria mutually established by the Board and Mr. Karcanes
are fulfilled, a guaranteed bonus for 1994 of $43,750 payable in the form of
immediately vested shares of Common Stock, a car allowance of $1,000 per month
and reimbursement of certain relocation and moving expenses.
The terms of Mr. Karcanes employment by the Company have subsequently been
modified by oral agreement between Mr. Karcanes and the Company to combine the
base annual salary of $175,000 and the annual automobile expense reimbursement
of $12,000 into an annual base salary of $187,000.
STEPHENSON EMPLOYMENT AGREEMENT. Pursuant to a letter agreement dated
November 28, 1994, which became effective as of December 13, 1994, Mr.
Stephenson and the Company agreed to the terms of Mr. Stephenson's employment
with the Company. The agreement established a base salary for Mr. Stephenson of
$100,000 per year. Pursuant to the terms of the agreement, Mr. Stephenson also
received restricted stock having a value of $10,000, vesting in four equal
installments on each anniversary of the date of grant and conditioned on Mr.
Stephenson's continued employment by the Company, and a grant of options to
purchase 32,000 shares of Common Stock at an exercise price equal to the
reported low bid price on the date of grant (which was $4.75 per share). The
options have a term of seven years with 25% vesting on each of the first four
anniversaries of the date of grant. The agreement also provides Mr. Stephenson
with the right to receive an annual cash bonus equal to up to 20% of his base
salary, up to 20% of his base salary in stock options, and up to 10% of his base
salary in restricted stock in the event certain performance criteria established
by Mr. Karcanes and Mr. Stephenson are fulfilled, as well as reimbursement of
certain moving, travel and living expenses related to Mr. Stephenson's
relocation, which have been paid by the Company.
The terms of the letter agreement between the Company and Mr. Stephenson
were amended in January 1995 to provide for payment of a lump sum cash bonus of
$10,000 to Mr. Stephenson in January 1995, and to reflect that the options to
purchase 32,000 shares of Common Stock provided for in the initial agreement
were granted on January 2, 1995 and will vest in increments of 25% per year,
beginning on October 31, 1995.
CHANGE IN CONTROL AGREEMENTS. Each of the executive officers of the
Company named in the Summary Compensation Table has entered into a severance
agreement with the Company. These severance agreements provide for certain
payments in the event that within twelve months subsequent to a change in
control of the Company or, in certain circumstances, immediately prior to a
change in control of the Company, the officer's employment is terminated
involuntarily by the Company or by the executive officer due to a material
change of position or benefits of the executive officer (a "Qualifying
Termination"). As defined in these agreements, a "change in control" means:
(i) the sale, lease, exchange, or other transfer of all or substantially all of
the assets of the Company (in one transaction or in a series of related
transactions) to any third party; (ii) the approval by the shareholders of the
Company of any plan or proposal for the liquidation or dissolution of the
Company; or (iii) a change in control of a nature that would be required to be
reported (assuming such event has not been "previously reported") in response to
Item 1(a) of a Current Report on Form 8-K pursuant to Section 13 or 15(d) of the
Exchange Act, whether or not the Company is then subject to such reporting
requirement; provided that, without limitation, such a change in control will be
deemed to have occurred at such time as: (a) any third party is or becomes the
beneficial owner, directly or indirectly, of 50% or more of the combined voting
power of the Company's outstanding securities ordinarily having the right to
vote at elections of directors,
16
<PAGE>
or (b) individuals who constitute the Board on the date of the agreement (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board, provided that any individual becoming a director subsequent to the date
of the agreement whose election, or nomination for election, by the Company's
shareholders, was approved by a vote of at least a majority of the directors
comprising the Incumbent Board (either by a specific vote or by approval of the
proxy statement of the Company in which such individual is named as a nominee
for director without objection to such nomination) will, for purposes of this
clause (b), be deemed to be a member of the Incumbent Board.
Upon a Qualifying Termination, in addition to salary and benefits then due
and in addition to any other benefits due under the Company's compensation
plans, the terminated executive officer is entitled to: (a) a lump sum payment
equal to the product of the executive officer's highest monthly compensation for
the previous twelve month period multiplied by thirty-six (36); (b)
reimbursement for all legal fees and expenses incurred by the executive officer
as a result of such termination; and (c) for a thirty-six (36) month period
following such termination, life and health insurance benefits substantially
similar to those the executive officer was receiving at the time of termination.
The severance agreements for the named executive officers provide that in
the event that any payment or benefit received by the executive officer pursuant
to the severance agreement or any other payments the officer has the right to
receive from the Company in connection with a change in control of the Company
would not be deductible by the Company under Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"), such severance payments will be
reduced so that no portion of such payments is not deductible by reason of
Section 280G of the Code.
17
<PAGE>
PERFORMANCE GRAPH.
In accordance with the rules of the Securities and Exchange Commission,
the following performance graph compares performance of the Company's Common
Stock on the Nasdaq SmallCap Market prior to September 21, 1995, and on the
Nasdaq National Market thereafter, to an index for the Nasdaq Stock Market (U.S.
Companies) prepared by the Center for Research in Securities Prices and to a
self-determined peer group of eight companies identified at the bottom of the
graph. The graph compares the cumulative total stockholder return as of the end
of each of the Company's last five fiscal years on $100 invested at the
beginning of the period and assumes reinvestment of all dividends.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Date Company Index Market Index Peer Index
<S> <C> <C> <C>
10/31/90 100.000 100.000 100.000
11/30/90 117.291 109.542 100.301
12/31/90 120.763 114.287 96.923
01/31/91 149.422 126.956 101.073
02/28/91 172.023 139.167 127.554
03/28/91 211.165 148.480 129.555
04/30/91 203.404 149.420 130.830
05/31/91 292.985 156.279 130.993
06/28/91 308.578 146.760 105.268
07/31/91 347.023 155.448 112.998
08/30/91 327.165 163.174 129.932
09/30/91 362.641 163.771 135.648
10/31/91 335.049 169.202 129.671
11/29/91 264.097 163.528 131.866
12/31/91 358.699 183.494 132.943
01/31/92 421.767 194.224 149.418
02/28/92 413.884 198.625 144.161
03/31/92 362.641 189.251 134.919
04/30/92 307.456 181.135 120.453
05/29/92 295.631 183.489 116.656
06/30/92 331.107 176.315 102.240
07/31/92 323.223 182.560 105.388
08/31/92 291.690 176.981 101.981
09/30/92 268.039 183.559 111.572
10/30/92 299.573 190.790 103.085
11/30/92 331.107 205.968 122.433
12/31/92 236.505 213.552 125.442
01/29/93 228.621 219.631 126.435
02/26/93 197.087 211.439 117.035
03/31/93 212.854 217.558 125.323
04/30/93 197.087 208.274 106.017
05/28/93 157.670 220.716 113.282
06/30/93 137.961 221.735 106.987
07/30/93 130.078 222.001 106.923
<CAPTION>
18
<PAGE>
<S> <C> <C> <C>
08/31/93 137.961 233.473 108.316
09/30/93 189.204 240.426 101.193
10/29/93 228.621 245.837 96.865
11/30/93 220.738 238.518 99.065
12/31/93 197.087 245.165 90.354
01/31/94 224.680 252.596 97.666
02/28/94 197.087 250.295 96.668
03/31/94 224.680 234.882 87.957
04/29/94 228.621 231.835 80.143
05/31/94 220.738 232.415 74.590
06/30/94 181.320 223.942 76.383
07/29/94 204.971 228.533 82.856
08/31/94 264.097 243.095 88.731
09/30/94 300.558 242.476 93.170
10/31/94 346.874 247.201 91.439
11/30/94 346.874 238.977 87.585
12/30/94 315.340 239.709 103.977
01/31/95 338.990 241.041 106.822
02/28/95 378.408 253.734 101.504
03/31/95 374.466 261.128 114.169
04/28/95 441.476 269.506 127.168
05/31/95 512.427 276.560 129.356
06/30/95 867.185 298.520 143.681
07/31/95 819.884 320.043 154.378
08/31/95 898.719 326.634 168.324
09/29/95 1135.224 333.823 165.943
10/31/95 898.719 332.066 166.569
</TABLE>
Companies in Self-Determined Peer Group:
ATS Medical Inc. Minntech Corp.
Angeion Corporation Possis Medical, Inc.
Everest Medical Corp. Rehabilicare Inc.
Medivators Inc. Rochester Medical Corporation
19
<PAGE>
PROPOSAL TO ADOPT THE 1995 STOCK INCENTIVE PLAN
INTRODUCTION
On December 18, 1995, the Board of Directors of the Company adopted the
1995 Stock Incentive Plan (the "1995 Plan"), which is being submitted to the
Company's shareholders for their approval. The 1995 Plan is intended to replace
the 1988 Plan which was approved by the shareholders of the Company on March 29,
1988, as well as the 1990 Plan and the 1992 Plan. The 1995 Plan is not intended
to replace the Director Plan.
Although the 1988 Plan, the 1990 Plan and the 1992 Plan will continue to
exist until the stated termination date of such plans, no further grants may be
made under such plans, and any shares of the Company's Common Stock available
for issuance under such plans that either are not issued or are issued but
subsequently are forfeited, will become shares available for issuance under the
1995 Plan. Of the 850,000 shares of Common Stock reserved for issuance pursuant
to the 1988 Plan, 256,539 shares remained available for grants under the 1988
Plan as of January 19, 1996. At the time that the obligations of the 1990 Plan
and the 1992 Plan were assumed, the Company determined that it would not make
further grants under such plans, and, therefore, no shares are currently
reserved for issuance under the 1990 Plan or the 1992 Plan. Accordingly, no
shares will be contributed to the 1995 Plan from the 1990 Plan or the 1992 Plan
except for shares subject to grants under those plans which are subsequently
forfeited.
The purpose of the 1995 Plan is to advance the interests of the Company
and its shareholders by enabling the Company and its subsidiaries to attract and
retain persons of ability to perform services for the Company and its
subsidiaries by providing an incentive to such individuals through equity
participation in the Company and by rewarding such individuals who contribute to
the achievement by the Company of its economic objectives. The Board of
Directors has reserved a maximum of 410,000 shares of Common Stock for issuance
under the 1995 Plan in addition to those shares contributed to the 1995 Plan
from the 1988 Plan, the 1990 Plan and the 1992 Plan.
The major features of the 1995 Plan are summarized below, which summary is
qualified in its entirety by reference to the actual text of the 1995 Plan, a
copy of which may be obtained from the Company.
SUMMARY OF THE 1995 STOCK INCENTIVE PLAN
GENERAL. The 1995 Plan provides for awards to eligible recipients of:
(i) options to purchase Common Stock that qualify as "incentive stock options"
within the meaning of Section 422 of the Code ("Incentive Options"); (ii)
options to purchase Common Stock that do not qualify as Incentive Options
("Non-Statutory Options"); (iii) restricted stock awards ("Restricted Stock
Awards"); (iv) performance units ("Performance Units"); and (v) stock bonuses
("Stock Bonuses"). Incentive Options and Non-Statutory Options are referred to
as "Options," and Options, Restricted Stock Awards, Performance Units and Stock
Bonuses are collectively referred to as "Incentive Awards."
The 1995 Plan is administered by a committee of the Board of Directors
(the "Committee") consisting of not less than two members of the Board who are
"disinterested persons" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Committee selects
the participants to be granted Incentive Awards under the 1995 Plan
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(the "Participants"), determines the nature and extent of the Incentive Awards
granted to the Participants, the time or times when Incentive Awards will be
granted, the duration of each Incentive Award and the discretionary terms and
conditions of each grant not otherwise fixed under the 1995 Plan. In addition,
the Committee will have the authority under the 1995 Plan in its sole discretion
to pay the economic value of any Incentive Award in the form of cash, Common
Stock or any combination of both. The Company intends that the 1995 Plan will
be administered by the Compensation Committee of the Board of Directors.
Eligible recipients of Incentive Awards under the 1995 Plan include all
full-time or part-time employees of the Company or any subsidiary and any
non-employee directors, consultants and independent contractors of the Company
or any subsidiary. As of January 19, 1996, approximately 137 persons were
eligible to participate in the 1995 Plan. The Company intends that Incentive
Awards be granted under the 1995 Plan to those eligible persons who are
performing vital services in the management, operations and development of the
Company or a subsidiary and significantly contribute to the achievement of
long-term, corporate economic objectives.
The 1995 Plan will terminate on December 18, 2005, unless sooner
terminated by action of the Board of Directors. No Award will be granted after
termination of the 1995 Plan. Currently, a maximum of 410,000 shares of Common
Stock are reserved for issuance under the 1995 Plan, not including those shares
contributed to the 1995 Plan from the 1988 Plan, the 1990 Plan and the 1992
Plan. In the event of any reorganization, merger, recapitalization, stock
dividend, stock split or similar change in the corporate structure or shares of
the Company, appropriate adjustments will be made to the number and kind of
shares reserved under the 1995 Plan and under outstanding Incentive Awards and
to the exercise price of outstanding Options. The Board of Directors may amend
the 1995 Plan in any respect without stockholder approval, unless stockholder
approval is then required by federal securities or tax laws or the rules of any
stock exchange or Nasdaq. Except pursuant to testamentary will or the laws of
descent and distribution or as otherwise expressly permitted by the 1995 Plan,
no right or interest of any Participant in an Incentive Award prior to the
exercise or vesting of such Incentive Award will be assignable or transferable,
or subjected to any lien, during the lifetime of the Participant, provided that
a Participant may designate a beneficiary to receive an Incentive Award upon
such Participant's death.
OPTIONS. The exercise price for Non-Statutory Options may be not less
than 85% of the fair market value of the Common Stock on the date the
Non-Statutory Options are granted. Incentive Options may not be granted with an
exercise price that is less than 100% of the fair market value of the Common
Stock on the date the Incentive Options are granted, except that Incentive
Options granted to persons owning stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any subsidiary
may not be granted with an exercise price that is less than 110% of the fair
market value on the date of grant. In determining the fair market value of the
Company's Common Stock, the Committee will use the average of the high and low
sale prices of the Common Stock as reported on the Nasdaq National Market as of
the date of grant, or, if no shares were traded on such day, as of the next
preceding day on which there was such a trade.
Payment of an option exercise price will be made entirely in cash;
provided, however, that the Committee, in its sole discretion and upon terms and
conditions established by the Committee, may allow such payments to be made, in
whole or in part, by tender of a broker exercise notice, a promissory note or
previously acquired shares of Common Stock having an aggregate fair market value
on the date of exercise equal to the payment required, or by a combination of
such methods.
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The Committee may also, in its sole discretion and upon terms and conditions
established by the Committee, permit or require a Participant to satisfy, in
whole or in part, any withholding or employment-related tax obligation by tender
of a broker exercise notice, a promissory note or previously acquired shares, or
by a combination of such methods.
Options may not be transferred other than by will or the laws of descent
and distribution or to a beneficiary designated by the Participant as provided
in the 1995 Plan, and during the lifetime of a Participant may be exercised only
by the Participant. Options will become exercisable at such times and in such
installments as determined by the Committee and may be exercised in whole or in
part from time to time thereafter, subject to the terms and conditions set forth
in the 1995 Plan; provided, however, that no Option may be exercisable after 10
years from its date of grant. To the extent that any Incentive Option granted
under the 1995 Plan ceases for any reason to qualify as an "incentive stock
option" for purposes of the federal tax laws, such option will continue to be
outstanding for purposes of the 1995 Plan as a Non-Statutory Option.
RESTRICTED STOCK AWARDS. Restricted Stock Awards are grants to
Participants of shares of Common Stock that are subject to restrictions on
transferability and subject to the possibility of forfeiture under terms and
conditions set by the Committee. The Committee may impose such restrictions or
conditions, not inconsistent with the 1995 Plan, as the Committee may deem
appropriate, including, without limitation, that the Participant remain
continuously employed by the Company for a period of time or that the
Participant or the Company satisfy certain performance goals or criteria.
Unless provided otherwise by the Committee in the exercise of its sole
discretion, Participants holding Restricted Stock Awards will have voting and
liquidation rights with respect to the number of shares of Common Stock
underlying the Restricted Stock Awards as if the Participant were the holder of
such number of shares of Common Stock, but any dividends and distributions with
respect to such shares of unvested Common Stock will be subject to the same
restrictions as the shares.
PERFORMANCE UNITS. Performance Units are rights to receive a payment
from the Company in the form of stock, cash or a combination of both, upon the
achievement of established performance criteria. Such criteria may include
achievement by the Participant, the Company or a specified business unit or
subsidiary of predetermined performance goals approved by the Compensation
Committee at the time the Performance Units are awarded.
STOCK BONUSES. Stock Bonuses are awards of Common Stock granted to
Participants, subject to such terms and conditions as may be determined by the
Committee. Participants receiving Stock Bonuses will have all voting, dividend,
liquidation and other rights with respect to, and upon becoming the record
holder of, the shares of Common Stock issued as the Stock Bonus, but the
Committee may place such restrictions on the transfer or assignability of shares
received as a Stock Bonus as it may deem appropriate.
EFFECT OF TERMINATION OF EMPLOYMENT. If a Participant's employment or
other service with the Company and all subsidiaries is terminated by reason of
death, disability or retirement, all Options held by the Participant will
immediately become fully exercisable and remain exercisable for one year (three
months in the case of retirement) after such termination and all Restricted
Stock Awards held by the Participant will become fully vested. All Performance
Units and Stock Bonuses then held by a Participant will vest and/or continue to
vest as provided in the applicable award agreement following termination of the
Participant's employment due to death, disability or retirement.
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If a Participant's employment is terminated for a reason other than death,
disability or retirement, all rights of the Participant under the 1995 Plan and
any agreements evidencing an Incentive Award will immediately terminate without
notice of any kind, and no Options held by the Participant will thereafter be
exercisable, all Restricted Stock Awards held by the Participant that have not
vested will be terminated and forfeited and all Performance Units and Stock
Bonuses will vest and/or continue to vest in the manner provided in the
applicable award agreement; provided, however, that in the event the termination
is for a reason other than "cause" (as defined in the 1995 Plan), all Options
then held by the Participant will become exercisable and remain exercisable for
a period of three months after the termination.
CHANGE IN CONTROL OF THE COMPANY. Unless otherwise provided in an
agreement evidencing an Incentive Award, in the event of a "Change in Control"
of the Company (as defined below), all outstanding Options will become
immediately exercisable in full and will remain exercisable for the remainder of
their terms, all Restricted Stock Awards will become immediately and fully
vested and all Performance Units and Stock Bonuses will vest and/or continue to
vest according to the terms of the agreements evidencing such awards. In
addition, in the event of such a Change in Control, the Committee, in its sole
discretion, may provide that some or all Participants holding outstanding
Options will receive for each share of Common Stock subject to such Options cash
in an amount equal to the excess of the fair market value of such shares
immediately prior to the effective date of a Change in Control over the exercise
price per share of such Options.
For purposes of the 1995 Plan, a "Change in Control" of the Company will
be deemed to have occurred, among other things, upon (i) the sale or other
disposition of substantially all of the assets of the Company, (ii) the approval
by the Company's shareholders of a plan or proposal for the liquidation or
dissolution of the Company, (iii) a merger or consolidation to which the Company
is a party if the Company's shareholders immediately prior to the merger or
consolidation beneficially own, immediately after the merger or consolidation,
securities of the surviving corporation representing (a) more than 50%, but not
more than 80%, of the combined voting power of the surviving corporation's then
outstanding securities having the right to vote at elections of directors,
unless the transaction was approved in advance by the Incumbent Directors
(defined as the directors in office as of the effective date of the 1995 Plan or
any persons who subsequently become directors and whose election or nomination
was approved by at least a majority of Incumbent Directors), or (b) 50% or less
of the combined voting power of the surviving corporation's then outstanding
securities (regardless of any approval by the Incumbent Directors), (iv) any
person becoming, after the effective date of the 1995 Plan, the beneficial owner
of (a) 20% or more, but not 50% or more, of the combined voting power of the
Company's Common Stock, unless the transaction resulting in such ownership was
approved in advance by the Incumbent Directors, or (b) 50% or more of the
combined voting power of the Company's Common Stock (regardless of any approval
by the Incumbent Directors); (v) the Incumbent Directors cease for any reason to
constitute at least a majority of the Board; or (vi) any other change in control
of the Company of a nature that would be required to be reported pursuant to
Section 13 or 15(d) of the Exchange Act.
FEDERAL INCOME TAX CONSEQUENCES
The following description of federal income tax consequences is based on
current statutes, regulations and interpretations. The description does not
include foreign, state or local income tax consequences. In addition, the
description is not intended to address specific tax consequences
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applicable to directors, officers or greater than 10% stockholders of the
Company or to any individual Participant who receives an Incentive Award.
INCENTIVE OPTIONS. There will not be any federal income tax
consequences to either the Participant or the Company as a result of the grant
to an employee of an Incentive Option under the Stock Incentive Plan. The
exercise by a Participant of an Incentive Option also will not result in any
federal income tax consequences to the Company or the Participant, except that
(i) an amount equal to the excess of the fair market value of the shares
acquired upon exercise of the Incentive Option, determined at the time of
exercise, over the amount paid for the shares by the Participant will be
includable in the Participant's alternative minimum taxable income for purposes
of the alternative minimum tax, and (ii) the Participant may be subject to an
additional excise tax if any amounts are treated as excess parachute payments
(see explanation below). Special rules will apply if previously acquired shares
of Common Stock are permitted to be tendered in payment of an Option exercise
price.
If the Participant disposes of the Incentive Option shares acquired upon
exercise of the Incentive Option, the federal income tax consequences will
depend upon how long the Participant has held the shares. If the Participant
does not dispose of the shares within two years after the Incentive Option was
granted, nor within one year after the Participant exercised the Incentive
Option and the shares were transferred to the Participant, then the Participant
will recognize a long-term capital gain or loss. The amount of the long-term
capital gain or loss will be equal to the difference between (i) the amount the
Participant realized on disposition of the shares, and (ii) the option price at
which the Participant acquired the shares. The Company is not entitled to any
compensation expense deduction under these circumstances.
If the Participant does not satisfy both of the above holding period
requirements (a "disqualifying disposition"), then the Participant will be
required to report as ordinary income, in the year the Participant disposes of
the shares, the amount by which the lesser of (i) the fair market value of the
shares at the time of exercise of the Incentive Option, or (ii) the amount
realized on the disposition of the shares, exceeds the option price for the
shares. The Company will be entitled to a compensation expense deduction in an
amount equal to the ordinary income includable in the taxable income of the
Participant. This compensation income may be subject to withholding. The
remainder of the gain recognized on the disposition, if any, or any loss
recognized on the disposition, will be treated as long-term or short-term
capital gain or loss, depending on the holding period.
NON-STATUTORY OPTIONS. Neither the Participant nor the Company incurs
any federal income tax consequences as a result of the grant of a Non-Statutory
Option. Upon exercise of a Non-Statutory Option, a Participant will recognize
ordinary income, subject to withholding, on the date of exercise in an amount
equal to the difference between (i) the fair market value of the shares
purchased, determined on the date of exercise, and (ii) the consideration paid
for the shares. The Participant may be subject to an additional excise tax if
any amounts are treated as excess parachute payments (see explanation below).
Special rules will apply if previously acquired shares of Common Stock are
permitted to be tendered in payment of an Option exercise price.
At the time of a subsequent sale or disposition of any shares of Common
Stock obtained upon exercise of a Non-Statutory Option, any gain or loss will be
a capital gain or loss. Such capital gain or loss will be long-term capital
gain or loss if the sale or disposition occurs more than one
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year after the date of exercise and short-term capital gain or loss if the sale
or disposition occurs one year or less after the date of exercise.
In general, the Company will be entitled to a compensation expense
deduction in connection with the exercise of a Non-Statutory Option for any
amounts includable in the taxable income of the Participant as ordinary income,
provided the Company complies with any applicable withholding requirements.
RESTRICTED STOCK AWARDS. With respect to shares issued pursuant to a
Restricted Stock Award that are not subject to a substantial risk of forfeiture,
a Participant will include as ordinary income in the year of receipt an amount
equal to the fair market value of the shares received on the date of receipt.
With respect to shares that are subject to a substantial risk of forfeiture, a
Participant may file an election under Section 83(b) of the Code within 30 days
after the shares are received to include as ordinary income in the year of
receipt an amount equal to the fair market value of the shares received on the
date of receipt (determined as if the shares were not subject to any risk of
forfeiture). The Company will receive a corresponding tax deduction, provided
that proper withholding is made. If a Section 83(b) election is made, the
Participant will not recognize any additional income when the restrictions on
the shares issued in connection with the stock award lapse. At the time any
such shares are sold or disposed of, any gain or loss will be treated as
long-term or short-term capital gain or loss, depending on the holding period
from the date of receipt of the Restricted Stock Award.
A Participant who does not make a Section 83(b) election within 30 days of
the receipt of a Restricted Stock Award that is subject to a substantial risk of
forfeiture will recognize ordinary income at the time of the lapse of the
restrictions in an amount equal to the then fair market value of the shares.
The Company will receive a corresponding tax deduction, provided that proper
withholding is made. At the time of a subsequent sale or disposition of any
shares of Common Stock issued in connection with a Restricted Stock Award as to
which the restrictions have lapsed, any gain or loss will be treated as
long-term or short-term capital gain or loss, depending on the holding period
from the date the restrictions lapse.
PERFORMANCE UNITS. A Participant who receives a Performance Unit will
not recognize any taxable income at the time of the grant. Upon settlement of
the Performance Unit, the Participant will realize ordinary income in an amount
equal to the cash and the fair market value of any shares of Common Stock
received by the Participant. Provided that proper withholding is made, the
Company would be entitled to a compensation expense deduction for any amounts
includable by the Participants as ordinary income.
STOCK BONUSES. With respect to shares issued pursuant to a Stock
Bonus, a Participant will include as ordinary income in the year of receipt an
amount equal to the fair market value of the shares received as of the date of
receipt. The Company will receive a corresponding tax deduction, provided that
proper withholding is made. At the time of a subsequent sale or disposition of
any shares of Common Stock issued in connection with a Stock Bonus, any gain or
loss will be treated as long-term or short-term capital gain or loss, depending
on the holding period from the date the shares were received.
EXCISE TAX ON PARACHUTE PAYMENTS. The Code also imposes a 20% excise
tax on the recipient of "excess parachute payments," as defined in the Code and
denies tax deductibility to the Company on excess parachute payments.
Generally, parachute payments are payments in the nature of
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compensation to employees of a company who are officers, stockholders, or highly
compensated individuals, which payments are contingent upon a change in
ownership or effective control of the company, or in the ownership of a
substantial portion of the assets of the company. For example, acceleration of
the exercisability of Options, or the vesting of Restricted Stock Awards, upon a
change in control of the Company may constitute parachute payments, and in
certain cases, "excess parachute payments."
SECTION 162(m). Under Section 162(m) of the Code, the deductibility
of certain compensation paid to the chief executive officer and each of the four
other most highly compensated executives of publicly held companies is limited
to $1,000,000. Compensation for this purpose generally includes any items of
compensation expense described above in connection with Incentive Awards under
the 1995 Plan. However, certain types of compensation are excepted from this
limit, including compensation that qualifies as "performance-based
compensation." Under Section 162(m), any compensation expense resulting from
the exercise of Options under the 1995 Plan with exercise prices equal to (or
greater than) the fair market value of the Common Stock on the date of grant
should qualify as "performance-based compensation" excepted from the limit of
Section 162(m). However, compensation expense in connection with any other
Incentive Awards under the 1995 Plan will be subject to this limit.
INCENTIVE AWARDS UNDER THE 1995 PLAN
As of the date of this Proxy Statement, the Compensation Committee has not
approved any Incentive Awards under the 1995 Plan. Neither the number or types
of future Incentive Awards to be received by or allocated to particular
Participants or groups of Participants is presently determinable nor can the
Company determine the number or types of Incentive Awards that would have been
received by or allocated to particular Participants or groups of Participants
for the most recent completed fiscal year if the 1995 Plan had been in effect
during such period.
BOARD OF DIRECTORS RECOMMENDATION
The Board of Directors recommends that the shareholders vote FOR
approval and ratification of the 1995 Plan. The affirmative vote of the holders
of a majority of the shares of Common Stock present and entitled to vote in
person or by proxy on this matter at the Annual Meeting, and at least a majority
of the minimum number of votes necessary for a quorum, is necessary for
approval. Unless a contrary choice is specified, proxies solicited by the Board
of Directors will be voted FOR approval of the 1995 Plan.
PROPOSAL TO ADOPT THE EMPLOYEE STOCK PURCHASE PLAN
INTRODUCTION
On December 18, 1995, the Board of Directors of the Company adopted the
Employee Stock Purchase Plan (the "Purchase Plan"). The Purchase Plan provides
for the purchase of Common Stock by eligible employees of the Company and its
subsidiaries through payroll deductions. Under the Purchase Plan, the Company
conducts a series of continuous offerings (each, an "Offering") of its Common
Stock, each continuing for six months (the "Offering Period") and each beginning
on May 1, and November 1 of each year, as the case may be (the "Offering Date"),
and ending on October 31 and April 30 of each year (the "Termination Date"),
respectively. The
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first Offering under the Plan will have an Offering Date of May 1, 1996 and a
Termination Date of October 31, 1996. On each Offering Date, each eligible
participating employee (the "Participant") in the Purchase Plan will be granted,
by operation of the Purchase Plan, an option (an "Option") to purchase as many
full shares of Common Stock as can be purchased with payroll deductions
authorized by the Participant and credited to the Participant's account during
that Offering.
The purpose of the Purchase Plan is to advance the interests of the
Company and its shareholders by providing employees of the Company and its
subsidiaries with an opportunity to acquire an ownership interest in the Company
through the purchase of shares of Common Stock of the Company on favorable terms
through payroll deductions.
The major features of the Purchase Plan are summarized below, which
summary is qualified in its entirety by reference to the actual text of the
Purchase Plan, a copy of which may be obtained from the Company.
SUMMARY OF THE PURCHASE PLAN
GENERAL. Following May 1, 1996, any employee of the Company or any
subsidiary, including any officer, whose customary employment is for more than
20 hours per week and who has been employed continuously by the Company or a
subsidiary since such date or for at least one year prior to the Offering Date
of the relevant Offering, whichever period is shorter, will be eligible to
participate in that Offering. The maximum number of shares reserved for sale
under the Purchase Plan is 300,000 shares of Common Stock.
The number and type of shares of Common Stock subject to outstanding
Options and the exercise price of outstanding Options will be appropriately
adjusted in the event such Options are exercised after any Common Stock
dividend, split-up, recapitalization, merger, consolidation, combination or
exchange of Common Stock or the like. If the total number of shares that would
otherwise be subject to Options granted on an Offering Date exceeds the number
of shares then available under the Purchase Plan (after deduction of all shares
for which Options have been exercised or are then outstanding), the Company will
make a pro rata allocation of the shares remaining available for Option grants
in as uniform and equitable a manner as is practicable. If this occurs, the
Company will give written notice of such reduction of the number of shares
subject to the Option to each affected Participant and will return any excess
funds accumulated in each Participant's account as soon as practicable after the
Termination Date of such Offering.
The Purchase Plan will be administered by a committee of the Board of
Directors (the "Committee") consisting of not less than two members of the Board
who are "disinterested persons" within the meaning of Rule 16b-3 under the
Exchange Act. The Committee will have the authority to make, administer and
interpret such rules and regulations as it deems necessary to administer the
Purchase Plan. The Company intends that the Purchase Plan will be administered
by the Compensation Committee of the Board of Directors.
PARTICIPATION. An eligible employee may become a Participant in the
Purchase Plan by completing a subscription agreement authorizing payroll
deductions on the form provided by the Company and filing it with the Company's
payroll office not less than 15 days before the Offering Date of the first
Offering in which the Participant wishes to participate. Payroll deductions for
a Participant will begin with the first payroll following the applicable
Offering Date and will continue until the termination date of the Purchase Plan,
subject to termination by the Participant at any
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time. An otherwise eligible employee will not be granted an Option under the
Purchase Plan if: (i) immediately after the grant, the Participant would own
shares of Common Stock and/or hold outstanding options to purchase shares of
Common Stock possessing 5% or more of the total combined voting power or value
of all classes of shares of the Company or of any subsidiary; or (ii) the rate
at which the employee has elected to have payroll deductions withheld under such
Option would permit the employee to purchase shares of Common Stock to accrue at
a rate exceeding $25,000 of the fair market value of such shares (determined as
of the Offering Date) for each calendar year in which such Option is outstanding
at any time. As of January 19, 1996, approximately 121 persons were eligible to
participate in the Purchase Plan.
PAYROLL DEDUCTIONS. By completing and filing a participation form, a
Participant elects to have payroll deductions made on each payday during the
Offering Period at a rate equal to a whole percentage from 1% to 10% (but in no
event less than $10.00) of the compensation that he or she would have received
on the payday. No increases or decreases in the amount of payroll deductions
for a Participant may be made during an Offering. A Participant may increase or
decrease the rate of the Participant's payroll deductions under the Purchase
Plan for subsequent Offerings by completing an amended participation form at
least 15 days prior to the Offering Date for which the increase or decrease is
to become effective. A Participant may discontinue participation in the
Purchase Plan at any time as described below under the heading "Withdrawal and
Termination of Employment."
The funds accumulated through a Participant's payroll deductions under the
Purchase Plan are held by the Company in an account established under the
Purchase Plan for the Participant. These funds are held by the Company as part
of its general assets, usable for any corporate purpose, and the Company is not
obligated to keep these funds separate from its other corporate funds.
Participants will not receive any interest from the Company for the funds
accumulated from their payroll deductions under the Purchase Plan and may not
make any separate cash payment or contribution to such account.
PURCHASE OF SHARES. On each Offering Date, each Participant is
granted, by operation of the Purchase Plan, an Option to purchase the number of
full shares of the Company's Common Stock that he or she will be able to
purchase with the payroll deductions credited to the Participant's account
during the Offering Period and the cash balance (if any) carried forward from
the Participant's account from the preceding Offering Period. Unless a
Participant withdraws from the Purchase Plan, the Participant's Option for the
purchase of shares will be exercised automatically on the Termination Date for
the purchase of the number of full shares of Common Stock that the accumulated
payroll deductions in the Participant's account on the Termination Date will
purchase at the applicable price, determined in the manner described below. Any
cash remaining in a Participant's account under the Purchase Plan after a
purchase by the Participant of shares at the termination of each Offering that
is insufficient to purchase a full share of Common Stock will be carried forward
into the Participant's payroll deduction account for the following Offering, or,
at the discretion of the Committee, such amounts may be treated as if invested
in a fractional share of Common Stock as of the Termination Date.
Notwithstanding the foregoing, in no event may the number of shares purchased by
any Participant during an Offering exceed 250 shares of Common Stock. To the
extent that cash remains in a Participant's account after the purchase of the
maximum number of shares during an Offering, such cash will be carried forward
into the Participant's payroll deduction account for the following Offering.
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The per share purchase price of the shares offered in a given Offering
will be the lower of 85% of the fair market value of a share of the Common Stock
of the Company on the Offering Date or the Termination Date. Fair market value
of the Common Stock is determined by the average of the high and low sales
prices of the Common Stock, as reported by the Nasdaq National Market on the
applicable date or, if no shares were traded on such day, as of the next
preceding day on which there was such a trade.
The Company will deliver to each Participant, as soon as practicable after
the Termination Date, a certificate representing the shares of Common Stock
purchased upon exercise of the Option granted for such Offering except that, at
the discretion of the Committee, an account may be established with a third
party, pursuant to which each Participant will be credited with the number of
shares purchased upon the exercise of the Option granted for such Offering. No
Participant will have any interest in any Common Stock subject to an Option
until the Option has been exercised, at which point the interest will be
strictly that of a purchaser of the shares of Common Stock purchased upon such
exercise, pending delivery of such shares pursuant to the Purchase Plan.
NON-TRANSFERABILITY OF OPTIONS. Neither payroll deductions credited
to a Participant's account nor any rights with regard to the exercise of an
Option or to receive shares of Common Stock under the Purchase Plan may be
assigned, transferred, pledged or otherwise disposed of in any way (other than
by will, the laws of descent and distribution, or by designation of a
beneficiary as provided in the Purchase Plan). Any such attempt at assignment,
transfer, pledge or other disposition will have no effect, except that the
Company may treat such act as an election to withdraw funds, in which case the
provisions described below under the heading "Withdrawal and Termination of
Employment" will apply.
WITHDRAWAL AND TERMINATION OF EMPLOYMENT. A Participant may terminate
participation in the Purchase Plan and withdraw all, but not less than all, of
the payroll deductions credited to the Participant's account under the Purchase
Plan at any time prior to the Termination Date of an Offering for such Offering
by giving written notice to the Company. The notice must state the
Participant's desire to terminate involvement in the Purchase Plan, specify a
termination date and request the withdrawal of all of the Participant's payroll
deductions held under the Purchase Plan. All of the Participant's payroll
deductions credited to the Participant's account will be paid to such
Participant as soon as practicable after the effective date specified in the
notice (or, if no date is specified, as soon as practicable after receipt of the
notice of withdrawal), and the Option for such Offering will automatically be
canceled and no further payroll deductions for the purchase of shares will be
made for such Offering or for any subsequent Offering unless a new participation
form is filed. A Participant's withdrawal from an Offering will not have any
effect upon the Participant's eligibility to participate in a succeeding
Offering or in any similar plan which the Company may adopt, except that a
Participant who is subject to the reporting requirements under Section 16 of the
Exchange Act may not participate in the Purchase Plan for at least six months
after the effective date of such termination and withdrawal unless otherwise
permitted by the Committee in its sole discretion.
Upon termination of the Participant's employment for any reason, including
retirement or death, the payroll deductions credited to such Participant's
account will be returned to such Participant or, in the case of the
Participant's death, to the person or persons entitled to such funds in
accordance with the provisions described above under the section
"Non-Transferability of Options," and the Participant's Option will be
automatically canceled. A transfer of employment
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between the Company and a subsidiary or between subsidiaries and absences or
leaves approved by the Company are not considered terminations under the
Purchase Plan.
FEDERAL INCOME TAX CONSEQUENCES
The following general description of federal income tax consequences is
based upon current statutes, regulations and interpretations. This description
is not intended to address specific tax consequences applicable to an individual
participant who receives an Option and does not address special rules that may
be applicable to directors, officers and greater-than-10% shareholders of the
Company.
The Purchase Plan is intended to qualify as an "employee stock purchase
plan" under Section 423 of the Code. If the Purchase Plan so qualifies, the
amount withheld from a Participant's compensation under the Purchase Plan will
constitute ordinary income for federal income tax purposes in the year in which
such amounts would otherwise have been paid to the Participant. However, a
Participant will generally not recognize any income for federal income tax
purposes either on the grant of an Option or upon the issuance of any shares of
Common Stock under the Purchase Plan.
The federal income tax consequences incurred upon disposition of shares of
Common Stock acquired under the Purchase Plan depend upon how long a Participant
holds the shares. If a Participant disposes of shares acquired under the
Purchase Plan (other than a transfer by reason of death) within a period of two
years from the Offering Date of the Offering in which the shares were acquired,
an amount equal to the difference between the purchase price and the fair market
value of the shares on the last day of the Offering Period will be treated as
ordinary income for federal income tax purposes in the taxable year in which the
disposition takes place. Such amount may be subject to wage withholding. The
difference between the amount realized upon such disposition of the shares and
their fair market value on the last day of the Offering Period will constitute
long-term capital gain or loss if the disposition occurs more than one year
after the last day of the Offering Period and short-term capital gain or loss if
the disposition occurs one year or less after the last day of the Offering
Period.
If a Participant disposes of any shares acquired under the Purchase Plan
more than two years after the Offering Date of the Offering in which such shares
were acquired (or if no disposition has occurred by the time of Participant's
death) an amount equal to the lesser of (a) the excess of the fair market value
of the shares at the time of disposition (or death) over the purchase price, or
(b) the excess of the fair market value of the shares on the Offering Date of
the Offering in which the shares were acquired over the purchase price will be
recognized as ordinary income and may be subject to wage withholding. With
respect to a disposition of such shares, any remaining gain on such disposition
will be taxed as long-term capital gain. With respect to a transfer of such
shares upon death, any remaining gain or loss will not be recognized. However,
a subsequent sale or exchange of such shares by a Participant's estate or the
person receiving such shares by reason of the Participant's death may result in
capital gain or loss.
No income tax deduction ordinarily is allowed to the Company with respect
to the grant of any Option, the issuance of any shares of Common Stock under the
Purchase Plan or the disposition of any shares acquired under the Purchase Plan
and held for two years. However, if a Participant disposes of shares purchased
under the Purchase Plan within two years after the Offering Date of the Offering
in which the shares were acquired, the Company will receive an
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income tax deduction in the year of such disposition in an amount equal to the
amount constituting ordinary income to the Participant, provided that the
Company complies with the applicable wage withholding requirements.
BOARD OF DIRECTORS RECOMMENDATION
The Board of Directors recommends that the shareholders vote FOR
approval and ratification of the Employee Stock Purchase Plan. The affirmative
vote of the holders of a majority of the shares of Common Stock present and
entitled to vote in person or by proxy on this matter at the Annual Meeting, and
at least a majority of the minimum number of votes necessary for a quorum, is
necessary for approval. Unless a contrary choice is specified, proxies
solicited by the Board of Directors will be voted FOR approval of the Employee
Stock Purchase Plan.
SECTION 16 REPORTING
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who own more than
10% of the Company's Common Stock, to file with the Securities and Exchange
Commission (the "SEC") initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Executive
officers, directors and greater than 10% shareholders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) reports they
file. To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company during, or, with respect to, the period ended
October 31, 1995, Dr. Vincent Argiro failed to file on a timely basis a report
on Form 4 required by Section 16 of the Exchange Act, relating to a single
transaction.
INDEPENDENT AUDITORS
The Board of Directors, upon recommendation of the Audit Committee, has
approved the engagement of Coopers & Lybrand L.L.P. as independent certified
public accountants to audit the Company's financial statements for the year
ending October 31, 1996. The Company does not intend to request that the
shareholders approve the selection of the independent public accountants for the
fiscal year ended October 31, 1996. The Company has requested and expects a
representative of Coopers & Lybrand L.L.P. to be present at the Annual Meeting,
to make a statement if he or she so desires and to respond to appropriate
questions.
PROPOSALS FOR THE NEXT ANNUAL MEETING
Shareholder proposals intended to be presented in the proxy materials
relating to the next Annual Meeting of Shareholders must be received by the
Company on or before October 14, 1996.
OTHER BUSINESS
The Company knows of no business that will be presented for consideration
at the Annual Meeting other than that described in this Proxy Statement. As to
other business, if any, that may properly come before the Annual Meeting, it is
intended that proxies solicited by the Board will be voted in accordance with
the judgment of the person or persons voting the proxies.
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ANNUAL REPORT
THE COMPANY WILL FURNISH WITHOUT CHARGE A COPY OF ITS ANNUAL REPORT ON
FORM 10-K (EXCLUSIVE OF EXHIBITS) FOR THE FISCAL YEAR ENDED OCTOBER 31, 1995 TO
EACH PERSON WHO WAS A SHAREHOLDER OF THE COMPANY AS OF JANUARY 19, 1996, UPON
RECEIPT FROM ANY SUCH PERSON OF A WRITTEN REQUEST FOR SUCH AN ANNUAL REPORT.
SUCH REQUEST SHOULD BE SENT TO: BIO-VASCULAR, INC., 2575 UNIVERSITY AVENUE, ST.
PAUL, MINNESOTA, 55114-1024; ATTN: SHAREHOLDER INFORMATION.
BY ORDER OF THE BOARD OF DIRECTORS
John T. Karcanes
PRESIDENT AND CHIEF EXECUTIVE OFFICER
February 12, 1996
St. Paul, Minnesota
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BIO-VASCULAR, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints JOHN T. KARCANES and M. KAREN GILLES, and
each of them, as Proxies, each with full power of substitution, and hereby
authorizes each of them to represent and to vote, as designated below, all the
shares of Common Stock of Bio-Vascular, Inc. held of record by the undersigned
on January 19, 1996, at the Annual Meeting of Shareholders to be held on March
14, 1996, or any adjournment, thereof.
1. PROPOSAL TO SET THE NUMBER OF DIRECTORS AT FIVE.
/ / FOR / / AGAINST / / ABSTAIN
2. ELECTION OF DIRECTORS
/ / FOR all nominees listed below / / AGAINST all nominees
(except as marked to the listed below
contrary below)
(INSTRUCTION: TO VOTE AGAINST ANY INDIVIDUAL NOMINEE, STRIKE A LINE
THROUGH THE NOMINEE'S NAME)
JOHN T. KARCANES EDWARD E. STRICKLAND
JAMES F. LYONS LAWRENCE PERLMAN
RICHARD W. PERKINS
3. PROPOSAL TO ADOPT THE COMPANY'S 1995 STOCK INCENTIVE PLAN.
/ / FOR / / AGAINST / / ABSTAIN
4. PROPOSAL TO ADOPT THE COMPANY'S EMPLOYEE STOCK PURCHASE PLAN.
/ / FOR / / AGAINST / / ABSTAIN
5. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1, 3 AND 4 AND FOR ALL NOMINEES NAMED IN PROPOSAL 2 ABOVE.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
Dated:_________________________________, 1996
_____________________________________________
Signature
_____________________________________________
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
CARD PROMPTLY USING THE ENCLOSED ENVELOPE
