<PAGE>
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
INNERDYNE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE>
INNERDYNE, INC.
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 23, 1997
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of InnerDyne,
Inc., a Delaware corporation (the "Company"), will be held on Friday, May 23,
1997 at 9:00 a.m., local time, at the Company's principal executive offices at
1244 Reamwood Avenue, Sunnyvale, California 94089 for the following purposes:
1. To elect directors to serve for the ensuing year and until their
successors are elected.
2. To ratify the appointment of KPMG Peat Marwick as independent auditors
of the Company for the fiscal year ending December 31, 1997.
3. To transact such other business as may properly come before the meeting
or any postponement or adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on April 7, 1997 are
entitled to notice of and to vote at the Annual Meeting and any adjournments
thereof.
All stockholders are cordially invited to attend the Annual Meeting.
However, to assure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the meeting may vote in person even if he or she returned a proxy.
Very truly yours,
[SIGNATURE]
Craig W. Johnson
SECRETARY
Sunnyvale, California
April 14, 1997
IMPORTANT
------------
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND RETURN THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE. IF A QUORUM IS NOT REACHED, THE COMPANY COULD HAVE THE ADDED EXPENSE
OF RE-ISSUING THESE PROXY MATERIALS. IF YOU ATTEND THE MEETING AND SO DESIRE,
YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON.
THANK YOU FOR ACTING PROMPTLY.
<PAGE>
INNERDYNE, INC.
----------------
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
InnerDyne, Inc. (the "Company" or "InnerDyne") for use at the Annual Meeting of
Stockholders to be held Friday, May 23, 1997 at 9:00 a.m., local time, or at any
postponement or adjournment thereof (the "Annual Meeting"), for the purposes set
forth herein and in the accompanying Notice of Annual Meeting of Stockholders.
The Annual Meeting will be held at the Company's principal executive offices at
1244 Reamwood Avenue, Sunnyvale, California 94089. The Company's telephone
number at its principal executive offices is
(408) 745-6010.
These proxy solicitation materials were mailed on or about April 22, 1997 to
all stockholders entitled to vote at the Annual Meeting.
RECORD DATE
Stockholders of record of the Company's Common Stock at the close of
business on April 7, 1997 are entitled to notice of, and to vote at, the Annual
Meeting. At the April 7, 1997 record date, 21,630,138 shares of the Company's
Common Stock were issued and outstanding.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it any time before its use by delivering to the Company (Attention:
Robert A. Stern, Inspector of Elections) a written notice of revocation or a
duly executed proxy bearing a later date or by attending the meeting and voting
in person.
VOTING AND SOLICITATION
Holders of shares of Common Stock are entitled to one vote per share on all
matters, except that all such holders are entitled to cumulate their votes in
the election of directors.
Every stockholder voting for the election of directors may cumulate such
stockholder's votes and give one candidate the number of votes equal to the
number of directors to be elected multiplied by the number of votes to which the
stockholder's shares are entitled, or may distribute such stockholder's votes on
the same principle among as many candidates as the stockholder may select,
provided that votes cannot be cast for more than six candidates. However, no
stockholder shall be entitled to cumulate votes unless the names of the
candidates for which votes are being cumulated have been placed in nomination
prior to the voting and the stockholder, or any other stockholder, has given
notice at the meeting, prior to the voting, of the stockholder's intention to
cumulate the stockholder's votes. On all other matters, each share of Common
Stock has one vote.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the Inspector of Elections (the "Inspector") with the assistance of the
Company's transfer agent. The Inspector will also determine whether or not a
quorum is present. Except with respect to the election of directors where
cumulative voting is invoked and except in certain other specific circumstances,
the affirmative vote of a majority of shares present in person or represented by
proxy at a duly held meeting at which a quorum is present is required under
Delaware law for approval of proposals presented to stockholders. In general,
Delaware law also provides that a quorum consists of a majority of the shares
entitled to vote and present in person or represented by proxy. The Inspector
will treat abstentions as shares that are present and entitled to vote for
purposes of determining the presence of a quorum and as negative votes for
purposes of determining the approval of any matter submitted to the stockholders
for a vote. Any proxy which is returned using the
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form of proxy enclosed and which is not marked as to a particular item will be
voted for the election of directors, for ratification of the appointment of the
designated independent auditors and, as the proxy holders deem advisable, on
other matters that may come before the meeting, as the case may be, with respect
to the item not marked. If a broker indicates on the enclosed proxy or its
substitute that it does not have discretionary authority as to certain shares to
vote on a particular matter, those shares will not be considered as present with
respect to that matter. The Company believes that the tabulation procedures to
be followed by the Inspector are consistent with the general statutory
requirements in Delaware concerning voting of shares and determination of a
quorum.
The cost of soliciting proxies will be borne by the Company. In addition,
the Company may reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding solicitation
material to such beneficial owners. Proxies may also be solicited by certain of
the Company's directors, officers and regular employees, without additional
compensation, personally or by telephone or telegram.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Proposals of stockholders that are intended to be presented by such
stockholders at the Company's 1998 Annual Meeting of Stockholders must be
received by the Company no later than December 23, 1997 in order that such
proposals may be included in the proxy statement and form of proxy relating to
that meeting.
PROPOSAL NO. 1:
ELECTION OF DIRECTORS
NOMINEES
A board of six directors is to be elected at the meeting. Unless otherwise
instructed, the proxy holders will vote the proxies received by them for
management's six nominees named below, all of whom are currently directors of
the Company.
In the event that any nominee of the Company is unable or declines to serve
as a director at the time of the Annual Meeting, the proxies will be voted for
any nominee who shall be designated by the present Board of Directors to fill
the vacancy. In the event that additional persons are nominated for election as
directors, the proxy holders intend to vote all proxies received by them in such
a manner in accordance with cumulative voting as will assure the election of as
many of the nominees listed below as possible and, in such event, the specific
nominees to be voted for will be determined by the proxy holders. It is expected
that all nominees will be able and willing to serve as directors. The term of
office of each person elected as a director will continue until the next Annual
Meeting of Stockholders, until such director's successor has
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been elected and qualified or until such director resigns as a director of the
Company. The names of the nominees, and certain information about them as of
December 31, 1996, are set forth below:
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
- -------------------------------- --- -------------------------------------------- -----------
<S> <C> <C> <C>
William G. Mavity 47 President and Chief Executive Officer of the 1993
Company
Edward W. Benecke (1) 54 President of Medical Contracts Associates, a 1995
provider of consulting services to health
care companies in the areas of marketing
and distribution
Robert M. Curtis (2) 51 President of VanMed, a medical venture 1993
capital incubator
Eugene J. Fischer (1) 50 General Partner of Pathfinder Venture 1989
Capital Funds, a group of venture capital
funds
Guy P. Nohra (2) 36 Vice President of Burr, Egan, Deleage & Co., 1994
a venture capital firm
Steven N. Weiss (2) 50 General Partner of Montgomery Medical 1987
Ventures II, L.P., a venture capital firm
</TABLE>
- ------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Except as set forth below, each of the nominees has been engaged in his
principal occupation described above during the past five years. There is no
family relationship between any of the directors or executive officers of the
Company.
Mr. Mavity joined the Company as President, Chief Executive Officer and a
director in October 1993, after having spent more than twenty years in various
capacities with the 3M Company ("3M"), including more than ten years within a
number of the operating units of 3M's health care business. From August 1992
until October 1993, Mr. Mavity served as Operations Director for 3M's Medical
Device Division. From April 1989 until August 1992, Mr. Mavity served as General
Manager of 3M's Sarns cardiovascular surgery business unit. From July 1988 until
April 1989, Mr. Mavity served as Manufacturing Manager for the Sarns subsidiary.
Mr. Mavity holds a B.E.A. degree from the University of Delaware.
Mr. Benecke has served as a director of the Company since 1995. Mr. Benecke
is the President of Medical Contracts Associates, an organization that provides
consulting services to health care companies in the areas of marketing and
distribution. Prior to forming the above entity in 1994, Mr. Benecke spent 25
years within various units of Johnson & Johnson, one of the world's leading
suppliers of health care products. From 1987 to 1993, he was Vice President of
Corporate National Accounts and headed an organization responsible for
implementing and managing Johnson & Johnson's multi-company agreements and
overall business relationships with the major multi-hospital systems and
alliances in the United States. Mr. Benecke holds a B.S. degree in business
administration from Southeast Missouri State University. Mr. Benecke also serves
on the Board of Directors of Vision Sciences, Inc.
Mr. Curtis has served as a director of the Company since 1995 and has also
served periodically as a consultant to the Company on an "as-needed" basis since
that time. Mr. Curtis is President of VanMed, a medical venture capital
incubator, which identifies, reviews, arranges funding for and manages the early
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<PAGE>
stage success of seed health care investment opportunities. From 1991 to 1996,
he was Principal of Robert Curtis Associates, a business development and
management consulting firm. From 1990 to 1991, Mr. Curtis served as President,
Chief Executive Officer and Chairman of Urosystems, Inc., which was sold to
Medtronic, Inc. From 1976 to 1990, he held a number of positions at Shiley,
Inc., a manufacturer of medical devices, and its parent corporation, Pfizer,
Inc., a diversified health care products company. He has served, at various
times, as President, Chief Executive Officer and Chairman of the Board of
Shiley, Inc. and as a Senior Vice President and a member of the Board of
Directors of Pfizer Hospital Products Group, the medical device division of
Pfizer, Inc. Mr. Curtis holds BS and MS degrees from the University of
California, Berkeley.
Mr. Fischer has served as a director of the Company since 1989. Since 1989,
he has been a general partner of Pathfinder Venture Capital Funds, a group of
venture capital funds. Since 1996, he has also been a managing member of the
general partner of Capstone Ventures, a venture capital fund. From 1983 to 1988,
he was a general partner of Technology Funding, Ltd., a venture capital
management company, where he was responsible for investments in computer and
software technology, medical systems and pharmaceuticals. Mr. Fischer holds B.S.
and M.S. degrees from the University of Minnesota and the University of
California, respectively. Mr. Fischer also serves as a director of a number of
privately held companies.
Mr. Nohra has served as a director of InnerDyne since 1994. He has been with
Burr, Egan, Deleage & Co. since 1989. His investment activity is specialized to
the health care marketplace, which includes biotechnology, medical devices and
medical instrumentation. Prior to joining Burr, Egan, Deleage & Co., Mr. Nohra
was Product Manager of Medical Products with Security Pacific Trading
Corporation. He holds a B.A. from Stanford University and an M.B.A. from the
University of Chicago's Graduate School of Business. Mr. Nohra also serves as a
director of Interpore International, an orthopedics company, Euphonix, Inc., and
a number of privately held companies.
Mr. Weiss has served as a director of the Company since 1987. Since 1987, he
has been a general partner of Montgomery Medical Ventures II, L.P., a venture
capital firm. Mr. Weiss has held a number of senior management positions in the
medical device industry and holds B.S. and M.S. degrees from City College of New
York and an M.B.A. from Fordham University. Mr. Weiss also serves as a director
of KeraVision, Inc. and a number of privately held companies.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of ten meetings during
the fiscal year ended December 31, 1996. The Board of Directors has an Audit
Committee and a Compensation Committee. There is no committee performing the
functions of a nominating committee.
The Audit Committee of the Board of Directors reviews the results and scope
of the audit and other services provided by the Company's independent auditors,
approves fee arrangements with auditors and reports the results of its review to
the full Board of Directors and to management. This Committee, which consists of
directors Fischer and Benecke, held one meeting during fiscal 1996.
The Compensation Committee of the Board of Directors, or a subcommittee
thereof, where necessary, administers the Company's incentive compensation and
benefit plans (including stock plans) for individuals subject to Section 16 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
conjunction with the Board of Directors, establishes salaries, incentives and
other forms of compensation for directors, officers and other employees. This
Committee, which consists of directors Curtis, Nohra and Weiss, held one meeting
during fiscal 1996.
4
<PAGE>
No incumbent director attended fewer than 75 percent of the aggregate number
of meetings of the Board of Directors and of the committees, if any, upon which
such director served during fiscal 1996.
COMPENSATION OF DIRECTORS
Directors of the Company are reimbursed for expenses actually incurred in
attending meetings of the Board of Directors and its committees. In addition,
nonemployee members of the Board of Directors receive a yearly fee of $6,000
(distributed quarterly and pro rated in the event that the director serves for
only part of the quarter). The Board of Directors fee for Mr. Nohra is paid
directly to Burr, Egan, Deleage & Co., and the Board of Directors fee for Mr.
Weiss is paid directly to Montgomery Medical Ventures II, L.P. An entity
affiliated with Mr. Benecke provided $30,000 in consulting services to the
Company in 1996, prior to the cancellation of its consulting agreement with the
Company. Mr. Curtis has a consulting agreement with the Company which was
inactive during 1996 and has remained so to date in 1997.
Each nonemployee director participates in the Company's 1991 Directors'
Stock Option Plan, pursuant to which nonemployee directors are automatically
granted options to purchase shares of Common Stock of the Company on the terms
and conditions set forth in such plan. During the fiscal year ended December 31,
1996, options to purchase 10,000 shares of Common Stock at an exercise price of
$5.00 per share were granted under the Company's 1991 Directors' Stock Option
Plan to each of Messrs. Benecke, Curtis, Fischer and Nohra. Pursuant to the
policies of the venture capital firm with which he is associated, Mr. Weiss
declined his option.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL OF THE NOMINEES LISTED
ABOVE.
PROPOSAL NO. 2:
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed KPMG Peat Marwick, independent
auditors, to audit the consolidated financial statements of the Company for the
fiscal year ending December 31, 1997, and recommends that stockholders vote for
ratification of such appointment. In the event of a negative vote on such
ratification, the Board of Directors will reconsider its selection.
KPMG Peat Marwick has audited the Company's financial statements annually
since its inception. Representatives of KPMG Peat Marwick are expected to be
present at the meeting, with the opportunity to make a statement if they desire
to do so, and to respond to appropriate questions.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF KPMG PEAT MARWICK AS INDEPENDENT AUDITORS FOR THE COMPANY. THE
EFFECT OF AN ABSTENTION IS THE SAME AS THAT OF A VOTE AGAINST THE PROPOSAL.
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COMMON STOCK OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
Common Stock as of April 7, 1997 as to (i) each person who is known by the
Company to beneficially own more than five percent of the Company's Common
Stock, (ii) each of the Company's directors and nominees, (iii) each of the
executive officers named in the Summary Compensation Table beginning on page 11,
and (iv) all directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)
------------------------
PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER TOTAL
- -------------------------------------------------------------------------------- ---------- ------------
<S> <C> <C>
Entities affiliated with Burr, Egan, Deleage & Co. (2) ......................... 2,126,067 9.83%
One Embarcadero Center, Suite 4050
San Francisco, CA 94111
Perkins Capital Management, Inc. (3) ........................................... 1,968,400 9.10%
730 East Lake Street
Wayzata, MN 55391-1769
Montgomery Medical Ventures II, L.P ............................................ 1,303,918 6.03%
600 Montgomery Street
San Francisco, CA 94111
Pathfinder Venture Capital Fund III ............................................ 1,235,780 5.71%
3000 Sand Hill Road
Building 3, Suite 255
Menlo Park, CA 94025
William G. Mavity (4)........................................................... 404,191 1.83%
Edward W. Benecke (5)........................................................... 21,500 *
Robert M. Curtis (6)............................................................ 68,125 *
Eugene J. Fischer (7)........................................................... 1,258,278 5.81%
Guy P. Nohra (8)................................................................ 2,152,067 9.94%
Steven N. Weiss (9)............................................................. 1,303,918 6.03%
Robert A. Stern (10)............................................................ 71,667 *
Daniel J. Genter (11)........................................................... 79,166 *
All directors and executive officers as a group (9 persons) (12)................ 5,423,079 24.24%
</TABLE>
- ------------------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock subject
to options currently exercisable, or exercisable within 60 days, are deemed
outstanding for computing the percentage of the person holding such option
but are not outstanding for computing the percentage of any other person.
Except as indicated by footnote, and subject to community property laws
where applicable, the persons named in the table above have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them.
(2) Includes 1,798,054 shares held by ALTA IV Limited Partnership and 328,013
shares held by C.V. Sofinnova Partners Five.
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<PAGE>
(3) Consists of 674,100 shares with sole voting power and 1,968,400 shares with
sole dispositive power. Based solely on information contained in the
Schedule 13G dated January 23, 1997 filed by the stockholder with the
Securities and Exchange Commission.
(4) Includes 397,917 shares subject to options exercisable within 60 days of
April 7, 1997.
(5) Includes 21,500 shares subject to options exercisable within 60 days of
April 7, 1997.
(6) Includes 68,125 shares subject to options exercisable within 60 days of
April 7, 1997.
(7) Includes 1,235,780 shares held by Pathfinder Venture Capital Fund III, of
which Mr. Fischer is a general partner. He may be deemed to be a beneficial
owner of such shares because of his position as a general partner of such
partnership. Mr. Fischer disclaims beneficial ownership of such shares
except to the extent of his proportionate partnership interest therein. Also
includes 22,000 shares subject to options exercisable within 60 days of
April 7, 1997.
(8) Includes 1,798,054 shares held by ALTA IV Limited Partnership and 328,013
shares held by C.V. Sofinnova Partners Five. These funds are affiliated with
Burr, Egan, Deleage & Co., of which Mr. Nohra is a Vice President. He
disclaims beneficial ownership of such shares. Includes 26,000 shares
subject to options exercisable within 60 days of April 7, 1997.
(9) Includes 1,303,918 shares held by Montgomery Medical Ventures II, L.P., of
which Mr. Weiss is a general partner of the general partner of such entity.
He disclaims beneficial ownership of such shares, except to the extent of
his proportionate partnership interest therein.
(10) Includes 66,667 shares subject to options exercisable within 60 days of
April 7, 1997.
(11) Includes 79,166 shares subject to options exercisable within 60 days of
April 7, 1997.
(12) Includes 745,541 shares subject to options exercisable within 60 days April
7, 1997 held by all executive officers and directors of the Company.
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<PAGE>
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S
PREVIOUS FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, THAT MIGHT INCORPORATE FUTURE FILINGS,
INCLUDING THIS PROXY STATEMENT, IN WHOLE OR IN PART, THE FOLLOWING REPORT AND
THE PERFORMANCE GRAPH ON PAGE 10 SHALL NOT BE INCORPORATED BY REFERENCE INTO ANY
SUCH FILINGS.
REPORT OF THE COMPENSATION COMMITTEE
COMPENSATION POLICIES
The Board of Directors establishes and periodically reviews the compensation
of the Chief Executive Officer and the management employees who report to the
Chief Executive Officer. Compensation for executives is based generally on the
concept that compensation must: (1) be competitive with that of comparable
companies in order to help motivate and retain the talent, leadership skills and
experience needed to help successfully guide the Company and (2) provide a
strong incentive for key personnel to achieve the Company's financial, product
development and sales and marketing objectives.
It is the Company's policy that executive compensation include base salary,
bonus and stock options. The Company's salary levels are determined by
comparisons with companies with similar characteristics in the medical device
industry. Salary increases are determined based on the individual performance of
the executive, the performance of the Company, any change in the
responsibilities of the executive and comparisons to industry compensation data.
Bonuses for the Chief Executive Officer are determined each year by the
Compensation Committee. Bonuses for other executive employees are based on
recommendations made by the Chief Executive Officer to the Compensation
Committee. All bonus considerations are based on individual performance, Company
performance and, if applicable, changes in responsibility.
The Company relies upon stock options as an important element of the
compensation packages of executive employees. By using stock options, the
Company has been able to keep salaries and bonuses at relatively modest levels.
All employee stock options are granted pursuant to one of the Company's stock
option plans. The Company makes stock option grants periodically at no less than
100% of the market price of the Company's Common Stock on the day prior to the
date of the grant.
The Company has entered into "change of control" arrangements with William
G. Mavity, Daniel J. Genter and Robert A. Stern and has entered into severance
arrangements with William G. Mavity and Robert A. Stern. See "Compensation of
Executive Officers--Employment Agreements."
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The compensation of William G. Mavity, President and Chief Executive
Officer, consists of base salary, an annual bonus, stock options and an auto
allowance.
The Compensation Committee of the Board of Directors periodically reviews
Mr. Mavity's base salary and bonus and revises his compensation based on an
overall evaluation of his performance toward the achievement of the Company's
financial, strategic and other goals, with consideration given to his length of
service and to competitive chief executive officer compensation information.
Mr. Mavity has served as the Company's President and Chief Executive Officer
since October 1993. Mr. Mavity's base salary was increased in October 1996 to
$247,500. The Compensation Committee believes that this increase was appropriate
in light of Mr. Mavity's personal performance and comparable base salary
information for chief executive officers.
For 1997, Mr. Mavity is eligible to receive a cash bonus of up to 25% of his
base salary, with the specific bonus amount being determined by measurement
against performance milestones established by the Compensation Committee of the
Board. Based on Mr. Mavity's personal performance in 1996 and measurement
against milestones, in January 1997, the Compensation Committee awarded Mr.
Mavity a bonus of $45,000.
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Mr. Mavity's compensation is also structured to provide a long-term focus on
the Company's operating performance through the grant of stock options. In
October 1993, Mr. Mavity was granted an option to purchase 200,000 shares of
Common Stock at an exercise price of $1.875 per share, with vesting over a
four-year period. In August 1994, Mr. Mavity was granted an option to purchase
350,000 shares of Common Stock at an exercise price of $1.50 per share, with
175,000 shares vesting over a four-year period and the remaining 175,000 shares
vesting as to one-third on each of the dates that the Company's Common Stock
maintains a fair market value of at least $4.00, $6.00 and $8.00 per share,
respectively, for a period of 90 consecutive days. On September 12, 1996, Mr.
Mavity was granted an option to purchase 225,000 shares of Common Stock at an
exercise price of $3.50 per share, of which 56,250 shares were immediately
exercisable, with 1/36th of the remaining 168,750 shares becoming exercisable on
the last day of each calendar month, beginning on September 30, 1996.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Compensation Committee has considered the impact of Section 162(m) of
the Internal Revenue Code of 1986, as amended, adopted under the Omnibus Budget
Reconciliation Act of 1993, which section disallows a deduction for any publicly
held corporation for individual compensation exceeding $1 million in any taxable
year for the Chief Executive Officer and four other most highly compensated
executive officers, unless such compensation meets the requirements for the
"performance-based" exception to the general rule. Since the cash compensation
paid by the Company to each of its executive officers is expected to be well
below $1 million, and the Compensation Committee believes that options granted
under the Company's 1996 Stock Option Plan will meet the requirements for
qualifying as performance-based, the Compensation Committee believes that this
section will not affect the tax deductions available to the Company. It will be
the Compensation Committee's policy to qualify, to the extent reasonable, the
executive officers' compensation for deductibility under applicable tax law.
COMPENSATION COMMITTEE
Robert M. Curtis
Guy P. Nohra
Steven N. Weiss
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COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION
See "Proposal No. 1: Election of Directors--Compensation of Directors" for a
discussion of certain information with respect to directors serving on the
Compensation Committee.
The members of the Compensation Committee of the Board of Directors are
Robert M. Curtis, Guy P. Nohra and Steven N. Weiss. No member of the
Compensation Committee or executive officer of the Company has a relationship
that would constitute an interlocking relationship with executive officers or
directors of another entity.
PERFORMANCE GRAPH
The following graph summarizes cumulative total stockholder return data
(assuming reinvestment of dividends) for the period since the Company's stock
was first registered under Section 12 of the Securities Exchange Act of 1934, as
amended (January 17, 1992). The graph assumes that $100 was invested on January
17, 1992: (i) in the Common Stock of InnerDyne, (ii) in the Nasdaq Market Index
(provided by Media General Financial Services, Inc.) and (iii) in the MG Medical
Instruments and Supplies Index (also provided by Media General Financial
Services, Inc.). The stock price performance on the following graph is not
necessarily indicative of future stock price performance.
[CHART]
<TABLE>
<CAPTION>
1/17/92 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
<S> <C> <C> <C> <C> <C> <C>
InnerDyne Common Stock 100.00 36.76 11.76 22.06 16.18 19.12
Nasdaq Market Index 100.00 99.19 118.98 124.92 162.03 201.35
MG Medical Instruments and
Supplies Index 100.00 92.93 78.67 86.47 139.54 146.40
</TABLE>
10
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation paid by the Company for each
of the three years in the period ended December 31, 1996 to the Company's Chief
Executive Officer, Vice President and Chief Financial Officer and Senior Vice
President of Sales and Marketing. No other executive officer earned in excess of
$100,000 during the fiscal year ended December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION -------------
----------------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(1) COMPENSATION ($) OPTIONS (#) ($)(2)
- ----------------------------------- --------- ---------- ------------ ---------------- ------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
William G. Mavity (3).............. 1996 $ 230,608 $ 45,000 $ 2,957 225,000 $ 22
President and Chief 1995 193,846 20,000 100,775 0 34
Executive Officer 1994 161,578 40,000 47,660 350,000 62
Robert A. Stern (4)................ 1996 135,692 0 26,083 200,000 22
Vice President and Chief Financial
Officer
Daniel J. Genter (5)............... 1996 116,923 30,000 22,979 225,000 16
Senior Vice President of Sales and
Marketing
</TABLE>
- ------------------------
(1) 1996 bonuses were paid in 1997 to executive officers for performance in
1996. Mr. Mavity's 1995 bonus was paid in 1996 for performance in 1995, and
his 1994 bonus was paid in 1995 for performance in 1994.
(2) Reflects the cost of insurance premiums paid by the Company for term life
insurance under the Company's group life insurance employee benefit.
(3) Mr. Mavity has a severance arrangement with the Company pursuant to which he
is entitled to the equivalent of one year's salary in the event his
employment is terminated without cause. He also has a "change of control"
arrangement with the Company. See "--Employment Agreements." Other Annual
Compensation for 1994 and 1995 consists of amounts paid by the Company
related to temporary housing and relocation for Mr. Mavity, in addition to
lease costs for an automobile provided for Mr. Mavity's use. Other Annual
Compensation for 1996 consists of lease costs for an automobile provided for
Mr. Mavity's use.
(4) Mr. Stern commenced employment with the Company in January 1996. Mr. Stern
has a severance arrangement with the Company pursuant to which he is
entitled to the equivalent of six months' salary in the event his employment
is terminated without cause. He also has a "change of control" arrangement
with the Company. See "--Employment Agreements." Other Annual Compensation
for Mr. Stern for 1996 consists of amounts paid by the Company related to
his relocation to California.
(5) Mr. Genter commenced employment with InnerDyne in April 1996. He has a
"change of control" arrangement with the Company. See "--Employment
Agreements." Other Annual Compensation for Mr. Genter in 1996 consists of
amounts paid by the Company related to his relocation to California, in
addition to an auto allowance provided to Mr. Genter.
11
<PAGE>
STOCK OPTION GRANTS IN FISCAL 1996
The following table sets forth information for the executive officers named
in the Summary Compensation Table with respect to grants of options to purchase
Common Stock of the Company made in 1996 and the value of all options held by
such executive officers on December 31, 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES PERCENT OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OPTION TERM (2)
OPTIONS GRANTED TO EMPLOYEES IN PRICE EXPIRATION --------------------
NAME (SHARES) FISCAL YEAR (1) ($ PER SHARE) DATE 5% ($) 10% ($)
- ------------------------------- --------------- ----------------- ------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
William G. Mavity (3).......... 225,000 20.5 3.50 9/12/2001 217,572 480,777
Robert A. Stern (4)............ 200,000 18.2 2.75 1/16/2001 151,955 335,781
Daniel J. Genter (5)........... 225,000 20.5 3.375 4/02/2001 209,801 463,606
</TABLE>
- ------------------------
(1) The Company granted options to employees for an aggregate of 1,096,975
shares of Common Stock during 1996.
(2) Potential realizable values are reported net of the option exercise price
but before taxes associated with exercise. These amounts represent certain
assumed rates of appreciation only. Actual realized gains, if any, on stock
option exercises are dependent on future performance of the Company's Common
Stock, as well as the optionee's continued employment through the vesting
period.
(3) Granted September 12, 1996. Exercisable immediately to the extent of 1/4th
of the shares subject to the option and 1/36th of the shares subject to the
option at the end of each one-month period, beginning on September 30, 1996.
(4) Granted January 16, 1996. Exercisable as to 50,000 shares on January 16,
1997 and as to 4,166 shares each month thereafter.
(5) Granted April 2, 1996. Exercisable immediately as to 25,000 shares and as to
4,166 shares each month thereafter.
The following table sets forth information for the named executive officers
with respect to exercises of options to purchase Common Stock of the Company in
the fiscal year ended December 31, 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
SHARES ACQUIRED YEAR-END (#) AT FISCAL YEAR-END ($)
NAME ON EXERCISE (#) VALUE REALIZED ($)(1) (EXERCISABLE/UNEXERCISABLE) (EXERCISABLE/UNEXERCISABLE)(1)
- ---------------------- ----------------- ------------------------- ------------------------- ---------------------------
<S> <C> <C> <C> <C>
William G. Mavity..... 0 0 330,736/444,264 $396,348/$491,148
Robert A. Stern....... 0 0 0/200,000 $0/$100,000
Daniel J. Genter...... 0 0 25,000/200,000 $0/$0
</TABLE>
- ------------------------
(1) Value calculated by determining the difference between the fair market value
of underlying securities at exercise date (for value realized) or year-end
(for value at year-end), and the exercise price.
12
<PAGE>
EMPLOYMENT AGREEMENTS
William G. Mavity and Robert A. Stern, officers of the Company, have
severance arrangements with the Company pursuant to which they are entitled to
the equivalent of one year's and six months' salary, respectively, in the event
of termination of employment without cause.
The Company has adopted certain "change of control" arrangements with
William G. Mavity, Robert A. Stern and Daniel J. Genter pursuant to which all
options granted to such executive officers to purchase the Company's Common
Stock shall immediately vest in the event that such officer's employment is
involuntary terminated without cause within a specified period of time following
a change of control. Mr. Mavity's change of control agreement terminates upon
the earlier of (i) the date that all obligations of the parties under the
agreement have been satisfied or (ii) two years after a change of control. Mr.
Stern and Mr. Genter's change of control agreements terminate upon the earlier
of (i) the date that all obligations of the parties under the agreements have
been satisfied or (ii) one year after a change of control. Events constituting a
change of control include (i) any person acquiring 50% or more of the total
voting power represented by the Company's then outstanding voting securities
without the approval of the Board, (ii) any merger, sale of assets or
liquidation of the Company in which the Company's outstanding voting securities
prior to the transaction cease to represent at least 50% of the total voting
power represented by the voting securities of the Company or of the surviving
entity after the transaction or (iii) replacing a majority of the Board of
Directors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On June 2, 1995, the Company issued an aggregate of 1,435,999 shares of its
Common Stock and warrants to purchase 287,200 shares of its Common Stock in a
private placement, The warrants, as amended, had an exercise price of $2.90 per
share and terminated at 5:00 p.m. (Pacific time ) on April 1, 1996, unless
exercised prior to such time. Entities affiliated with Burr, Egan, Deleage & Co.
(of which Guy P. Nohra, a director of the Company, is a Vice President)
purchased an aggregate of 110,620 shares of Common Stock and warrants to
purchase 22,124 shares of Common Stock in the financing. These warrants were
exercised prior to April 1, 1996.
See "Compensation of Executive Officers--Employment Agreements" for a
description of certain severance and "change of control" arrangements between
the Company and William G. Mavity, Robert A. Stern and Daniel J. Genter,
officers of the Company.
Certain of the Company's stockholders have rights to require the Company to
register shares of the Company's Common Stock from time to time pursuant to the
Securities Act of 1933, as amended.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Company's directors, its
executive officers and any persons holding more than ten percent of the
Company's Common Stock are required to report their initial ownership of the
Company's Common Stock and any subsequent changes in that ownership to the
Securities and Exchange Commission (the "SEC"). Specific filing deadlines for
these reports have been established, and the Company is required to disclose in
this Proxy Statement any failure to file by these dates during the fiscal year
ended December 31, 1996. To the best of the Company's knowledge, all of these
filing requirements have been satisfied. In making this statement, the Company
has relied solely on written representations of its directors and executive
officers and any ten percent holders and copies of the reports that they filed
with the SEC.
13
<PAGE>
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If any
other matters properly come before the meeting, it is the intention of the
persons named in the enclosed form of proxy to vote the shares they represent as
the Board of Directors may recommend.
BY ORDER OF THE BOARD OF DIRECTORS
[SIGNATURE]
Craig W. Johnson
SECRETARY
Dated: April 14, 1997
14
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
INNERDYNE, INC.
1997 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of InnerDyne, Inc., a Delaware corporation
("InnerDyne"), hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement, each dated April 14, 1997, and hereby
appoints William G. Mavity and Robert A. Stern, and each of them, with full
power of substitution, as proxies, and authorizes them to represent and to
vote, as designated below, all the stock of InnerDyne that the undersigned is
entitled to vote at the 1997 ANNUAL MEETING OF STOCKHOLDERS OF INNERDYNE,
INC. TO BE HELD ON MAY 23, 1997 and at any postponement or adjournment
thereof, as follows:
If no direction is made, this proxy will be voted FOR (1) the election
of directors in the manner described in the Proxy Statement and (2) the
proposal to ratify the selection of KPMG Peat Marwick as InnerDyne's
independent auditors for the current fiscal year. If this proxy is executed
in such manner as not to withhold authority to vote for the election of any
nominee to the Board of Directors, it shall be deemed to grant such authority.
CONTINUED AND TO BE DATED AND SIGNED ON REVERSE SIDE
<PAGE>
1. ELECTION OF DIRECTORS
/ / FOR all nominees listed below / / WITHHOLD authority to vote
for all nominees
listed below
(except as indicated)
If you wish to withhold authority to vote for any individual nominee,
strike a line through that nominee's name in the list below:
Edward W. Benecke; Robert M. Curtis; Eugene J. Fischer; William G. Mavity;
Guy P. Nohra; Steven N. Weiss.
2. PROPOSAL TO APPROVE THE APPOINTMENT OF KPMG PEAT MARWICK AS THE
INDEPENDENT AUDITORS OF INNERDYNE FOR THE FISCAL YEAR ENDING DECEMBER 31, 1997:
/ / FOR / / AGAINST / / ABSTAIN
and, in their discretion, the proxies are authorized to vote on such other
matter or matters as may properly come before the meeting and any
postponement(s) or adjournment(s) thereof.
Dated: , 1997
--------------------------------
--------------------------------------------
Signature
--------------------------------------------
Signature
Please sign exactly as name appears
hereon. When shares are held by joint
tenants, both should sign. When signing
as attorney, executor, administrator,
trustee or guardian, please give full
title as such. If a corporation, please
sign in full corporate name by the
President or other authorized officer.
If a partnership, please sign in
partnership name by an authorized person.
