<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
/X/ Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
I-FLOW CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $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 14a-6(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 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------------------
<PAGE> 2
I-FLOW CORPORATION
2532 WHITE ROAD
IRVINE, CALIFORNIA 92714
___________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
___________
To the Shareholders of I-Flow Corporation:
The Annual Meeting of Shareholders of I-Flow Corporation (the
"Company") will be held at the Hyatt Regency Irvine, 17900 Jamboree Boulevard,
Irvine, California, on Friday, May 17, 1996 at 9:30 a.m., Pacific Time, for the
following purposes:
1. To elect seven directors to serve for the coming year and until
their successors are elected and qualified. Management has
nominated for director the seven persons specified in the
accompanying Proxy Statement.
2. To act on a proposal to adopt a new 1996 Stock Incentive Plan as
described in the accompanying Proxy Statement.
3. To act on a proposal to amend the Company's By-Laws to effect an
increase in the number of Directors of the Corporation.
4. To transact such other business as may properly come before the
Annual Meeting and any adjournment or postponement thereof.
The close of business on March 29, 1996 has been fixed as the record
date for determination of shareholders entitled to receive notice of and to
vote at the Annual Meeting and any adjournment or postponement thereof.
Your attention is directed to the accompanying Proxy Statement. To
constitute a quorum for the conduct of business at the Annual Meeting, it is
necessary that holders of a majority of all outstanding Voting Shares (as
defined in the accompanying Proxy Statement) be present in person or be
represented by proxy. To assure representation at the Annual Meeting, you are
urged to date and sign the enclosed proxy and return it promptly in the
enclosed envelope.
By Order of the Board of Directors
Donald M. Earhart
Chief Executive Officer
Irvine, California
Dated: April 1, 1996
<PAGE> 3
I-FLOW CORPORATION
2532 WHITE ROAD
IRVINE, CALIFORNIA 92714
__________
PROXY STATEMENT
Your proxy is solicited by the Board of Directors of I-Flow
Corporation (the "Company") for use at the Annual Meeting of Shareholders
scheduled to be held on Friday, May 17, 1996, or at any adjournment or
postponement thereof, for the purposes set forth in the accompanying Notice of
Annual Meeting of Shareholders. This Proxy Statement and accompanying form of
proxy will be first mailed to shareholders on or about April 5, 1996.
The Company will bear the cost of solicitation of proxies. Proxies
may be solicited in person or by telephone, facsimile, telegraph or cable by
personnel of the Company who will not receive any additional compensation for
such solicitation. In addition, the Company will request brokers or other
persons holding stock in their names or in the names of their nominees to
forward proxies and proxy material to the beneficial owners of such stock and
will reimburse them for expenses incurred in so doing.
VOTING
Only shareholders of record at the close of business on March 29, 1996
("Record Date") are entitled to notice of, and to vote at, the Annual Meeting.
As of the Record Date, the Company had 10,104,687 shares of common stock
(the "Common Stock") and 656,250 shares of Series B Preferred Stock (the
"Preferred Stock") outstanding. The Preferred Stock is convertible into
700,000 shares of Common Stock, and the holders of the Preferred Stock in the
aggregate are entitled to vote such number of shares at the Annual Meeting.
Shares of Common Stock and the Common Stock equivalent shares of Preferred
Stock (the "Voting Shares") each have one vote per share, except that
shareholders may have cumulative voting rights with respect to the election of
directors, and vote together as a class on the matters referred to in the
accompanying Notice of Annual Meeting of Shareholders. A majority of the
Voting Shares outstanding on the Record Date and entitled to vote at the Annual
Meeting, present in person or by proxy, will constitute a quorum for the
transaction of business at the Annual Meeting. Abstentions and broker
non-votes will be counted for purposes of determining the presence or absence
of a quorum, but will not be counted for purposes of determining the outcome of
any vote, although they will have the same effect as a negative vote.
In voting for directors, each shareholder has the right to cumulate
his votes and give one candidate a number of votes equal to the number of
directors to be elected, multiplied by the number of votes to which his shares
are entitled, or to distribute his total votes on the same principle among as
many candidates as he desires, and the seven candidates receiving the highest
number of votes will be elected. In order for one or all shareholders to be
entitled to cumulate votes, one shareholder must give notice prior to the
voting of his intention to cumulate his votes. In the event that any person
other than the nominees named herein should be nominated for election as a
director, the proxy holders may, in the exercise of their best judgment, vote
the proxies they receive cumulatively to elect as directors as many of the
nominees named herein as the votes represented by the proxies held by them are
entitled to elect.
Each proxy will be voted FOR (i) the election of the seven director
nominees named herein; (ii) approval of the 1996 Stock Incentive Plan; and
(iii) approval of the amendment to the Company's Bylaws to increase the
authorized number of directors of the Company, unless the shareholder otherwise
directs in the shareholder's proxy. Where the shareholder has appropriately
directed how the proxy is to be voted, it will be voted according to the
shareholder's direction. Any shareholder has the power to revoke the
shareholder's proxy at any time before it is voted at the Annual Meeting by
submitting a written notice of revocation to the Secretary of the Company or by
filing a duly executed proxy bearing a later date. A proxy will not be voted
if the shareholder who executed it is present at the Annual Meeting and elects
to vote the shares represented thereby in person.
<PAGE> 4
PRINCIPAL SHAREHOLDERS AND
STOCK OWNERSHIP OF MANAGEMENT
The table below sets forth information regarding the beneficial
ownership of the outstanding Voting Shares as of February 26, 1996, of (i) each
of the Company's directors and nominees and each of the executive officers
named in the summary compensation table found elsewhere in the Proxy Statement,
(ii) each person known by the Company to be the beneficial owner of five
percent or more of its outstanding Voting Shares and (iii) all of the Company's
directors and executive officers as a group. Unless otherwise indicated, and
except for voting and investment powers held jointly with a person's spouse,
the Company believes that the beneficial owner has sole voting and investment
power over such shares. As of February 26, 1996 there were 10,660,162 Voting
Shares outstanding.
<TABLE>
<CAPTION>
PERCENTAGE OF VOTING
NAME AND ADDRESS OF NUMBER OF VOTING SHARES SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED
------------------- ----------------------- --------------------
<S> <C> <C>
Proactive Partners (1) 1,403,425 (2) 12.46%
50 Osgood Place,
San Francisco, CA 94133
Donald M. Earhart 1,081,847 (3) 9.26%
2532 White Road
Irvine, CA 92714
Charles C. McGettigan 919,425 (4) 8.33%
50 Osgood Place
San Francisco, CA 94133
Caisse Nationale de Credit Agricole 686,215 (5) 6.33%
90 Boulevard Pasteur
25015 Paris France
AXA Banque ("Axa Mutuelles") 686,400 (6) 6.32%
5/7 rue de Milan
75439 Paris Cedex 09
Henry T. Tai, Ph.D., M.D. 484,567 (7) 4.51%
P.O. Box 335
Pacific Palisades, CA 90272
Joel S. Kanter 393,412 (8) 3.68%
Windy City, Inc.
8000 Towers Crescent Dr., Suite 1070
Vienna, VA 22182
John H. Abeles, M.D. 351,604 (9) 3.29%
2365 N.W. 41st Street
Boca Raton, FL 33431
James J. Dal Porto 107,605 (10) 1.00%
2532 White Road
Irvine, CA 92714
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
PERCENTAGE OF VOTING
NAME AND ADDRESS OF NUMBER OF VOTING SHARES SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED
------------------- ----------------------- --------------------
<S> <C> <C>
Erik H. Loudon 28,000 (11) 0.26%
22 Hans Place
London SW1X 0EP, England
Jack H. Halperin 21,950 (12) 0.21%
361 Silver Court
Woodmere, NY 11598
All Directors and Executive 3,388,410 (13) 27.42%
Officers as a group (8 Persons)
</TABLE>
(1) "Proactive Partners" consists of three San Francisco based
merchant banking funds, Proactive Partners L.P., Lagunitas Partners, L.P., and
Fremont Proactive Partners, L.P. Charles C. McGettigan, a director of I-Flow,
is a general partner of Proactive Partners, L.P. and Fremont Proactive
Partners, L.P.; an affiliate of Mr. McGettigan is a general partner of
Lagunitas Partners, L.P.
(2) Includes (i) 96,393 shares of the Company's Common Stock held by
"Proactive Partners", (ii) 656,250 shares of Series B Preferred Stock held by
"Proactive Partners" which is convertible at any time to 700,000 shares of the
Company's Common Stock, and (iii) 607,032 shares of Common Stock issuable upon
exercise of warrants held by "Proactive Partners". 65,792 shares of Common
Stock, 477,780 shares of Series B Preferred Stock and 335,938 shares of Common
Stock issuable upon exercise of warrants owned by Proactive Partners, L.P. and
Fremont Proactive Partners, L.P. are also included below in the beneficial
ownership of Charles C. McGettigan.
(3) Includes (i) 48,300 shares of Common Stock held of record by Mr.
Earhart, (ii) 4,778 shares of Common Stock held of record by Mr. Earhart's
immediate family, (iii) 1,022,656 shares of Common Stock issuable upon the
exercise of stock options held by Mr. Earhart, (iv) 6,000 shares of Common
Stock issuable upon exercise of warrants held by Mr. Earhart, and (v) 113
shares of Common Stock issuable upon exercise of warrants held by Mr. Earhart's
immediate family. Does not include 63,654 shares issuable upon exercise of
options granted to Mr. Earhart, but not exercisable within 60 days.
(4) Includes (i) 65,792 shares of Common Stock held by Proactive
Partners, L.P. and Fremont Proactive Partners, L.P., (ii) 447,917 shares of
Series B Preferred Stock which is convertible at any time to 477,780 shares of
Common Stock and 355,938 shares of Common Stock issuable upon exercise of
warrants held by Proactive Partners, L.P. and Fremont Proactive Partners, L.P.,
two funds in which Mr. McGettigan is a general partner and which are also
included above in the beneficial ownership of "Proactive Partners", and (iii)
19,915 shares of Common Stock issuable upon exercise of stock options held by
Mr. McGettigan. Does not include 7,500 shares issuable upon exercise of stock
options granted to Mr. McGettigan, but not exercisable within 60 days.
(5) Includes (i) 505,715 shares of Common Stock held of record by
Caisse Nationale de Credit Agricole, and (ii) 180,500 shares of Common Stock
issuable upon exercise of warrants held by Caisse Nationale de Credit Agricole.
(6) Includes (i) 488,400 shares of Common Stock held of record by Axa
Mutuelles, and (ii) 198,000 shares of Common Stock issuable upon exercise of
warrants held by Axa Mutuelles.
(7) Includes (i) 409,817 shares of Common Stock held of record by Dr.
Tai, (ii) 44,750 shares of Common Stock issuable upon exercise of stock options
held by Dr. Tai., and (iii) 30,000 shares of Common Stock issuable upon
exercise of warrants held by Dr. Tai. Does not include 7,500 shares issuable
upon exercise of stock options granted to Dr. Tai, but not exercisable within
60 days. The shares, options and warrants listed include
3
<PAGE> 6
shares held by: (i) Bea Adair - Lilian Byers Cancer Research Fund, of which Dr.
Tai is trustee; (ii) Henry T. Tai, M.D., Pension Plan, of which Dr. Tai is
beneficiary; (iii) Dr. Tai's wholly owned corporation, Henry T. Tai, M.D.,
Inc., and (iv) Dr. Tai individually. Dr. Tai has sole voting and dispositive
power with respect to all shares.
(8) Includes (i) 300,000 shares of Common Stock held of record by
Walnut Capital Corporation, a corporation having Mr. Kanter as its President,
(ii) 51,543 shares of Common Stock held of record by Windy City, Inc., a
corporation having Mr. Kanter as its President, (iii) 1,050 shares of Common
Stock held of record by Mr. Kanter's immediate family, (iv) 18,869 shares of
Common Stock issuable upon exercise of warrants held by Windy City, Inc., (v)
450 shares of Common Stock issuable upon exercise of options held by Joel S.
Kanter, and (vi) 21,500 shares of Common Stock issuable upon exercise of
options held by Windy City, Inc. Does not include 7,500 shares issuable upon
exercise of stock options granted to Windy City, Inc., but not exercisable
within 60 days. Mr. Kanter does not own any of the voting securities of Windy
City, Inc. or Walnut Capital Corporation.
(9) Includes (i) 329,404 shares of Common Stock held of record by
Northlea Partners Ltd., a limited partnership, of which Dr. Abeles is the
general partner (as to which Dr. Abeles disclaims beneficial ownership except
to the extent of his pecuniary interest), and (ii) 22,200 shares of Common
Stock issuable upon exercise of stock options held by Northlea Partners. Does
not include 7,500 shares issuable upon exercise of options granted to Northlea
Partners, but not exercisable within 60 days.
(10) Includes 107,605 shares of Common Stock issuable upon exercise
of stock options held by Mr. Dal Porto. Does not include 220,863 shares
issuable upon exercise of stock options granted to Mr. Dal Porto, but not
exercisable within 60 days.
(11) Includes (i) 4,200 shares of Common Stock held of record by Mr.
Loudon, and (ii) 23,800 shares of Common Stock issuable upon exercise of stock
options held by Mr. Loudon. Does not include 7,500 shares issuable upon
exercise of stock options granted to Mr. Loudon, but not exercisable within 60
days.
(12) Includes 21,950 shares of Common Stock issuable upon exercise of
stock options held by Mr. Halperin. Does not include 7,500 shares issuable
upon exercise of stock options granted to Mr. Halperin, but not exercisable
within 60 days.
(13) Includes (i) 65,792 shares of Common Stock, 447,917 shares of
Series B Preferred Stock, convertible into 477,780 shares of Common Stock, and
355,938 shares of Common Stock issuable upon exercise of warrants held by
Proactive Partners, L.P. and Fremont Proactive Partners, L.P., two funds in
which Mr. McGettigan is a general partner and which are also included above in
the beneficial ownership of "Proactive Partners" and Mr. McGettigan and (ii)
300,000 shares of Common Stock held by Walnut Capital which are also included
above in the beneficial ownership of Mr. Kanter. Does not include 329,517
shares of Common Stock issuable upon exercise of stock options held by certain
officers and directors, which are not exercisable within 60 days.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Under the Company's Bylaws, seven directors are to be elected at the
Annual Meeting to serve a term expiring at the Annual Meeting in 1997 and until
their successors have been elected and qualified. Unless otherwise directed on
the enclosed proxy card, proxies will be voted for the election of the nominees
listed below. If any nominee should become unavailable for election, the
proxies will be voted for the election of a substitute nominee selected by the
Board of Directors. It is not expected, however, that any nominee will be
unavailable for election. Nominees receiving the greatest number of votes at
the Annual Meeting up to the number of authorized directors will be elected.
4
<PAGE> 7
The following persons will be nominated at the Annual Meeting to serve
as a director of the Company:
<TABLE>
<CAPTION>
DIRECTOR
NAME PRINCIPAL OCCUPATION OR EMPLOYMENT AGE SINCE
-------------- ---------------------------------- --- -----------
<S> <C> <C> <C>
John H. Abeles, M.D. President of MedVest, Inc., a consulting and venture 51 1985
capital firm in the medical products industry;
currently on the Board of Directors of AccuMed
International, Inc., Dusa Pharmaceuticals, Inc.,
Healthcare Acquisition Corporation and Oryx
Technology, Inc.
Henry T. Tai, Ph.D., Founder of the Company; practicing oncology and 52 1990
M.D. hematology specialist, and academic appointee at the (Formerly a
University of Southern California Medical School; director
currently Secretary of the Company. from 1985 to
1988)
Donald M. Earhart Chairman of the Board (since March 1991), Chief 51 1990
Executive Officer (since July 1990), and President of
the Company (since June 1990); President of Optical
Division of Allergan, Inc. from 1986 to 1990;
currently on the Board of Directors of An Ping, a
Bermuda investment company.
Joel S. Kanter President of Windy City, Inc., an investment 39 1991
management firm; President of Walnut Financial
Services, Inc., a diversified financial services and
consulting company; former Managing Director of
Investor's Washington Service, a Washington D.C.
based service that provides information for
corporations and institutional money managers;
currently on the Board of Directors of Concept
Technologies Group, Inc., GranCare, Inc., Healthcare
Acquisition Corporation, Medcross, Inc., Osteoimplant
Technologies, Inc. and Walnut Financial Services,
Inc.
Jack H. Halperin, Esq. Corporate and securities attorney who has been in 49 1991
private practice since 1988; member of Bresler and
Bab, a New York law firm from 1987 to 1988; member of
Solinger, Grosz & Goldwasser, P.C. from 1981 to
1987; currently on the Board of Directors of AccuMed
International, Inc., Memry Corporation and Xytronics,
Inc.
Erik H. Loudon Managing Director of EHL Investment Services Limited 57 1991
in the Channel Islands; Director of Sarasin
Investment Management, Ltd. in London from 1985 to
1989; currently on Board of Directors of Emerge
Capital, Luxembourg, Fotolabo S.A. Switzerland and
Leaf Asset Management, Luxembourg.
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
DIRECTOR
NAME PRINCIPAL OCCUPATION OR EMPLOYMENT AGE SINCE
-------------- ---------------------------------- --- -----------
<S> <C> <C> <C>
Charles C. McGettigan General partner since 1991 of Proactive Partners, 51 1992
L.P., a merchant banking fund; co-founder in 1988 of
McGettigan, Wick & Co., Inc., an investment banking
firm; Principal, Corporate Finance, of Hambrecht &
Quist, Inc. from 1984 to 1988; currently serves on
the Board of Directors of Digital Dictation, Inc.,
Modtech, Inc., NDE Environmental, Inc., Onsite
Energy, Inc., PMR Corporation, Sonex Research, Inc.
and Wray-Tech Instruments, Inc.
</TABLE>
- ------------
BOARD COMMITTEES & MEETINGS
The Board of Directors held a total of 8 meetings in 1995.
The Board of Directors has an Audit Committee with Henry Tai, Charles
McGettigan and John Abeles as its members. The Audit Committee reviews with
management and the Company's independent public accountants such matters as the
Company's internal accounting controls and procedures, the plan and results of
the audit engagement and suggestions of the accountants for improvements in
accounting procedures. It considers the type and scope of services, both of an
audit and a non-audit character, to be performed by the independent public
accountants and reviews the respective costs related to the performance of such
services. During each Committee meeting, members of the Committee and
representatives of the accountants have an opportunity for discussions outside
the presence of management, if desired.
The Board of Directors has a Compensation Committee with Charles
McGettigan, Jack Halperin, and Joel Kanter as its members. The purpose of the
Compensation Committee is to set policy concerning Board compensation, to grant
options under the Stock Option Plans and to review compensation issues
concerning officers and key employees of the Company.
BOARD COMPENSATION
Outside members of the Board of Directors are compensated by the Company
for meetings attended and all directors are reimbursed for their travel
expenses. In calendar year 1995, Messrs. Abeles, Tai, Kanter, Halperin,
McGettigan and Loudon were considered to be outside members of the Board of
Directors. The cash compensation for the outside directors in calendar year
1995 was $500 per meeting for telephonic attendance and $750 per meeting for
in-person meeting attendance. In addition, outside directors receive stock
options described below. The total amount of director's fees paid by the
Company in calendar year 1995 was $23,000.
The Company has a Non-Employee Director Stock Option Plan, which was
approved by the shareholders at the Annual Shareholders Meeting on May 4, 1992
(and amended at the Annual Shareholders Meeting on May 11, 1995). Under the
terms of this plan (as amended), effective on the first business day of each
calendar year, commencing January 2, 1992, each outside director then serving
is automatically granted options, expiring five years from the date of grant,
to purchase 10,000 shares of the Company's Common Stock at an exercise price
equal to the market price of the Company's Common Stock on the date of grant.
These options vest on a quarterly basis throughout the calendar year. New
directors joining the Board after the first business day of the calendar year
receive options to purchase a pro rated portion of the 10,000 shares. Options
to purchase a total of 60,000 shares of Common Stock at an exercise price of
$1.88 per share were granted in calendar year 1995 under the Non-Employee
Director Stock Option Plan.
6
<PAGE> 9
EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation for services
rendered in all capacities during the calendar years ended December 31, 1995,
1994 and 1993 of the present Chief Executive Officer and all other executive
officers whose salary and bonus exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION> Long term
compensation
Annual Compensation Awards
------------------------------ ------------
($) ($) ($) Options
Name and Principal Position Year Salary Bonus Other (#)
(a)
--------------------------- ---- ------- ------ ------ -----------
<S> <C> <C> <C> <C> <C>
Donald M. Earhart (c) 1995 200,000 80,000 6,827(b) 150,000
President & Chief Executive 1994 200,000 40,000 9,330(b) 254,000
1993 200,000 40,000 0 145,000
James J. Dal Porto 1995 115,320 35,000 7,540(b) 50,000
Executive Vice President, COO 1994 104,830 20,000 12,600(b) 73,000
1993 94,288 20,000 0 39,000
</TABLE>
- ------------
(a) Bonuses awarded for each year were paid in February of the following
year. The 1995 bonus for Mr. Earhart included $40,000 in cash and
$40,000 in deferred compensation to be paid by the Company only upon
the exercise of stock options to purchase 9,174 shares of the
Company's Common Stock. The 1994 bonus for Mr. Earhart consisted of
$40,000 in deferred compensation to be paid by the Company only upon
the exercise of stock options to purchase 17,778 shares of the
Company's Common Stock. The 1993 bonus for Mr. Earhart included
$20,000 in cash and $20,000 in deferred compensation to be paid by the
Company only upon the exercise of stock options to purchase 9,709
shares of the Company's Common Stock.
(b) Accrued vacation paid in the 1995 and 1994 calendar years.
(c) Terms and conditions of employment of the Chief Executive Officer are
outlined in an Employment Agreement he has with the Company which is
described elsewhere herein under the caption "Certain Other
Transactions".
The following table shows information regarding stock options granted
to the named executive officers during calendar year 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
-----------------
% of total Market
options Exercise price per
granted to or base share on
Options employees price date of Expiration
Name Granted in 1995 ($/Share) grant Date
---- -------- ----------------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Donald M. Earhart 150,000(a) 44.1% 1.54 $1.81 12/30/2004
James J. Dal Porto 50,000(b) 14.7% 1.54 $1.81 12/30/1999
</TABLE>
- --------------
7
<PAGE> 10
(a) All options are immediately vested and exercisable upon the date of grant.
(b) These options vest 20% after one year from the date of grant, and the
remainder on a pro rata daily basis over the next four years. All options
become immediately exercisable upon the disposition of all or
substantially all of the Company's assets or capital stock.
The following table shows certain information concerning stock option
exercises by named executive officers during 1995 and the value of options held
by such executives at 1995 year end.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
Number of unexercised options Value of unexercised in-the-
at year end money options at year end
Shares ----------------------------- ----------------------------
acquired on $ Value (a) (a)
exercise Realized Exercisable Unexercisable Exercisable Unexercisable
Name (#) (#) (#) (#) ($) ($)
---- ----------- -------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Donald M. Earhart 0 0 778,482 63,333 $2,365,634 $309,067
James J. Dal Porto 0 0 91,994 115,006 $276,404 $402,486
- --------------
</TABLE>
(a) Value of unexercised options is based on the closing NASDAQ bid price on
December 31, 1995 ($5.13 per share).
There is no table provided for Long Term Incentive Plan Awards as there are no
such Long Term Incentive Plans in place at the Company.
CERTAIN OTHER TRANSACTIONS
Donald Earhart joined the Company in June 1990 as the President and
Chief Operating Officer. Mr. Earhart became the Chief Executive Officer of the
Company in July 1990 and Chairman of the Board in March 1991. Upon the
commencement of his employment, Mr. Earhart entered into a written Employment
Agreement with the Company for a four (4) year term pursuant to which he will
serve as a Chief Executive Officer of the Company for a minimum base salary of
$200,000 per annum, subject to adjustment upward by the Board of Directors,
plus a bonus to be determined annually by the Board based upon attainment of
goals set by the Board. Under the Employment Agreement, Mr. Earhart is
entitled to a severance payment equal to two (2) times his annual salary plus
the previous year's bonus if the Agreement is terminated by the Company without
cause, or if the Agreement is terminated by the employee for good reason after
a change of control with respect to the Company. Mr. Earhart was granted fully
vested options to purchase 120,000 shares of the Company's Common Stock at an
exercise price $2.20 per share, expiring October 24, 2001, at the time his
employment commenced. All option grants to Mr. Earhart from the commencement
of his employment to the end of the 1995 fiscal year are included in the
Summary Compensation Table and Aggregated Option Exercise Table above. The
specific options granted in the 1995 fiscal year are indicated in the above
Option Grant Table. Mr. Earhart is entitled to register shares of the
Company's Common Stock which he owns under the Securities Act of 1933, at the
expense of the Company.
8
<PAGE> 11
1987-1988 STOCK OPTION PLANS
The Company's 1987-1988 Stock Option Plans (the "1987-1988 Stock
Option Plans") consist of an Incentive Stock Option Plan ("Plan A") having
options intended to qualify as incentive stock options within the meaning of
Section 422A (b) of the Internal Revenue Code, as amended and a Non-Statutory
Stock Option Plan ("Plan B"). Incentive stock options under Plan A are granted
to certain employees and non-statutory stock options under Plan B are granted
to employees and consultants. The total number of shares of Common Stock for
which options may be granted is 2,000,000 shares.
The 1987-1988 Stock Option Plans are administered by a Committee of
the Board of Directors consisting of non-employee directors. The Committee
determines the terms of options exercised, including the exercise price, the
number of shares subject to the option and the terms and conditions of
exercise. No option granted under the Plans is transferable by the optionee
other than by will or the laws of descent and distribution and each option is
exercisable during the lifetime of the optionee only by such optionee.
The exercise price of all stock options granted under the 1987-1988
Stock Option Plans must be at least equal to the fair market value of such
shares on the date of grant. With respect to any participant who owns stock
possessing more than 10% of the voting rights of the Company's outstanding
capital stock, the exercise price of any incentive stock option must be not
less than 110% of the fair market value on the date of grant. The maximum term
of each option is five years for options granted pursuant to Plan A and ten
years for options granted pursuant to Plan B. Options shall become exercisable
at such times and in such installments as the Board shall provide in the terms
of each individual option; provided, however that no option granted under Plan
A may be exercised in whole or in part until one year after the date such
option was granted.
In the event of termination of employment or consulting arrangement
with the Company, other than by death or disability, options granted to the
optionee that are exercisable at the time of the termination will expire on the
earlier to occur of (i) the expiration date of the options, or (ii) 30 days
after such termination, provided, however that such 30 day period may be
extended, at the discretion of the Board, to 90 days in the case of options
granted under Plan A, or up to ten years following such termination in the case
of options granted under Plan B. Upon termination of employment or consulting
arrangement with the Company of an optionee by reason of death or disability ,
the stock option remains exercisable for one year thereafter to the extent it
was exercisable on the date of such termination. In the event the Company or
shareholders of the Company dispose of all or substantially all of the assets
or capital stock of the Company by means of a sale of assets, merger,
consolidation, reorganization, liquidation or otherwise ( a "Reorganization"),
the options shall become exercisable (notwithstanding provisions in the option
to the contrary) and if not then exercised shall terminate, unless arrangements
are made with the other parties to the Reorganization to convert the options to
new equivalent options giving effect to the Reorganization.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
As of January 1, 1992, the Company adopted a separate Non-Employee
Director Stock Option Plan (the "Director Plan") which provides for the
granting of options to non-employee directors to purchase up to 400,000 shares
of the Company's Common Stock at exercise prices equal to the fair market value
of the Company's Common Stock at the date of grant. Under the terms of the
Director Plan, options to purchase 10,000 shares of the Company's Common Stock
are to be granted to each non-employee director serving in such capacity as of
the first business day in January of each year so long as the Director Plan
remains in existence. Options granted become exercisable in four equal
installments, with one installment occurring at the end of each calendar
quarter subsequent to the date of grant. The options expire at the earlier of
five years from the date of grant or two years after termination of the option
holder's status as a director.
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OPTIONS GRANTED - ALL PLANS
As of February 29, 1996, options granted for services to employees,
directors, or consultants covering a total of 2,455,583 shares of Common Stock,
at exercise prices ranging from $0.25 to $5.15 per share, were outstanding.
Options to purchase 1,112,219 shares were outstanding under the 1987-1988 Stock
Option Plans, and options to purchase 171,715 shares were outstanding under the
Non-Employee Director Stock Option Plan and options to purchase 583,899 were
subject to approval of the new 1996 Stock Incentive Plan described below, and
options to purchase 589,750 shares were outstanding outside of any Plan.
In February 1996, the Board unanimously adopted a resolution approving
and recommending to the shareholders for their adoption at the Annual Meeting,
a new 1996 Stock Incentive Plan (see Proposal 2). Options for the purchase of
583,899 shares were granted under the plan (subject to shareholder approval and
required governmental filings, qualifications and registrations) which are
included in the preceding total above. These options are exercisable at $4.36
per share and expire from 2000 to 2005. Of these grants, Mr. Earhart received
options to purchase 244,495 shares and Mr. Dal Porto received options to
purchase 121,468 shares.
PROPOSAL NO. 2
PROPOSAL FOR THE APPROVAL OF THE
1996 STOCK INCENTIVE PLAN
On February 8, 1996, the Board of Directors adopted, subject to
shareholder approval and required governmental filings, qualifications and
registrations, the I-Flow Corporation 1996 Stock Incentive Plan (the "1996
Plan"), the text of which is included as Exhibit A to this Proxy Statement.
Approval of the 1996 Plan requires the affirmative vote of a majority of the
shares present in person or by proxy and entitled to vote at the Annual
Meeting.
The following summary of the 1996 Plan's components and significant
provisions is qualified in its entirety by reference to the 1996 Plan itself,
which is included as Exhibit A to this Proxy Statement.
PURPOSE AND ELIGIBILITY
The 1996 Plan is intended to promote the interests of the Company and
its shareholders by using investment interests in the Company to attract,
retain and motivate its management and other persons, to encourage and reward
their contributions to the performance of the Company and to align their
interests with the interests of the Company's shareholders.
The persons eligible to receive an Award under the 1996 Plan includes
directors, officers, employees, consultants, and advisors of the Company and
its affiliated entities; provided, that nonemployee directors of the Company
who qualify for purposes of the l996 Plan as "disinterested" under Rule 16b-3
of the rules and regulations under the Securities and Exchange Act of 1934, as
amended, ("Exchange Act"), are not eligible to receive Awards under the 1996
Plan as long as the Company has any class of equity securities registered
pursuant to Section 12 of the Exchange Act. Currently, it is estimated that
approximately 75 persons are eligible to receive Awards under the 1996 Plan.
ADMINISTRATION, AMENDMENT AND TERMINATION
The administering body for the 1996 Plan will be the Company's Board
of Directors or a committee of not less than two directors appointed by the
Board ("Committee"). As long as the Company has a class of equity securities
registered under Section 12 of the Securities Exchange Act of 1934, as amended,
("Exchange Act"), the
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1996 Plan will be administered by the Committee and all members of the
Committee must be "disinterested" within the meaning of Rule 16b-3 under the
Exchange Act.
The administering body will have the power to construe the 1996 Plan
and the rights of recipients of Awards granted thereunder. The administering
body will also have the power to (i) discontinue, suspend or amend the 1996
Plan in any manner (subject to certain limited exceptions, including increases
in the number of shares available which may be the subject of Awards under the
Plan and shareholder approval of other amendments that would materially
increase the benefits accruing to participants) and (ii) modify, extend, renew
or exchange outstanding Awards.
The 1996 Plan, as amended from time to time shall, in the discretion
of the administering body, apply to and govern Awards granted under the Plan
prior to the date of such amendment, provided that the consent of an Award
holder is required if such amendment would alter, terminate, impair or
adversely affect an Award.
Awards may be granted under the 1996 Plan until the tenth anniversary
of the adoption of the Plan by the Company's Board of Directors.
SECURITIES SUBJECT TO PLAN
The 1996 Plan provides for the grant ("Award") of stock options
(including incentive stock options or nonqualified stock options), restricted
stock, stock appreciation rights, stock payments, dividend equivalents, stock
bonuses, stock sales, phantom stock and other stock- based benefits (as
described in Exhibit A). Stock options granted under the 1996 Plan may be
incentive stock options ("ISO's") intended to qualify under the provisions of
Section 422 of the Internal Revenue Code ("Code") or non-qualified stock
options which do not so qualify. The maximum number of shares of Common Stock
which may be the subject of Awards granted under the 1996 Plan may not exceed
2,500,000 shares in the aggregate, subject to adjustments for stock splits or
other adjustments as discussed below. The shares available under the 1996 Plan
may either be authorized and unissued shares or shares reacquired by the
Company through open market purchases or otherwise. If any Award granted under
the 1996 Plan expires, terminates or is forfeited before the exercise thereof
or the payment in full thereof, the shares covered by the unexercised or unpaid
portion will become available for new grants under the 1996 Plan.
If (i) the outstanding shares of Common Stock of the Company are
increased, decreased or exchanged for a different number or kind of shares or
other securities, or if additional shares or new or different shares or other
securities are distributed in respect of such shares of Common Stock (or any
stock or securities received with respect to such Common Stock), through
merger, consolidation, sale or exchange of all or substantially all of the
properties of the Company, reorganization, recapitilization, reclassification,
stock dividend, stock split, reverse stock split, spin-off or other
distribution with respect to such shares of Common Stock (or any stock or
securities received with respect to such Common Stock) or (ii) the value of the
outstanding shares of Common Stock of the Company is reduced by reason of an
extraordinary cash dividend, an appropriate and proportionate adjustment may be
made in (1) the maximum number and kind of shares subject to the Plan, (2) the
number and kind of shares or other securities subject to then outstanding
Awards, and/or (3) the price for each share or other unit of any other
securities subject to then outstanding Awards. Any adjustments under the 1996
Plan will be made by the administering body, whose determination as to any
adjustment will be final, binding and conclusive.
As of the effective time and date of any change in control of the
Company (as defined in the 1996 Plan), the Plan and any then outstanding Awards
(whether or not vested) shall automatically terminate unless (i) provision is
made in writing in connection with such transaction for the continuance of the
Plan and for the assumption of such Awards, or for the substitution for such
Awards of new awards covering the securities of a successor entity or an
affiliate thereof with appropriate adjustments as to the number and kind of
securities and exercise prices, in which event the Plan and such outstanding
Awards shall continue or be replaced, as the case may be, in the manner and
under the terms so provided; or (ii) the Board otherwise shall provide in
writing for such adjustments as it deems appropriate in the terms and
conditions of the then-outstanding Awards (whether or not vested), including
without limitation (A) accelerating the vesting of outstanding Awards, and/or
(B) providing
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for the cancellation of Awards and their automatic conversion into the right to
receive the securities, cash or other consideration that a holder of the shares
underlying such Awards would have been entitled to receive upon consummation of
such change in control had such shares been issued and outstanding immediately
prior to the effective date and time of the change in control (net of the
appropriate option exercise prices). If, pursuant to the foregoing provisions
of the Plan, the Plan and the Awards shall terminate by reason of the
occurrence of a change in control without provision for any of the action(s)
described in clause (i) or (ii) above, then any recipient holding outstanding
Awards shall have the right, at such time immediately prior to the consummation
of the change in control as the Board shall designate, to exercise the
recipient's Awards to the full extent not theretofore exercised, including any
installments which have not yet become vested.
TERMS AND CONDITIONS OF AWARDS UNDER THE PLAN
The administering body will select the recipients of Awards granted under
the 1996 Plan and will determine the dates, amounts, exercise prices, vesting
periods and other relevant terms of the Awards. The maximum number of shares
of Common Stock with respect to which an Award or Awards may be granted to any
eligible person in any one year shall not exceed 500,000 shares, subject to
antidilution adjustment as provided in the Plan.
Award Pricing. The pricing of Awards, including the exercise price for
stock options granted under the Plan, shall be determined by the administering
body as of the date the Award is granted and may be greater or less than the
fair market value (as determined under the Plan) of the underlying shares as of
such date; provided, however, that Awards constituting incentive stock options
under the Code may not be granted at less than the fair market value of the
underlying shares as of the date of grant (or 110% of fair market value in the
case of any Award intended to qualify as incentive stock options under the Code
and granted to certain holders of significant amounts of the Company's
outstanding Common Stock).
Award Vesting. Awards granted under the 1996 Plan vest and become
exercisable as determined by the administering body in its discretion. Awards
granted under the 1996 Plan may be exercised at any time after they vest and
before the expiration date determined by the administering body, provided that
no Award may be exercised more than ten years after its grant (five years after
grant in the case of any Award intended to qualify as incentive stock options
under the Code and granted to certain holders of significant amounts of the
Company's outstanding Common Stock). Furthermore, in the absence of a specific
agreement to the contrary, options will generally expire and become
unexercisable immediately upon termination of the recipient's employment with
the Company for cause, thirty days in the case of termination without cause, or
six months after the termination of the recipient's employment with the Company
by reason of death, permanent disability or normal retirement. The Committee
may accelerate the vesting of any options and may also extend the period
following termination of employment with the Company during which options may
vest and/or be exercised (subject to a maximum ten-year term from date of
grant).
Award Payments. The exercise price for Awards may be paid in cash or in
any other consideration the Committee deems acceptable, including securities of
the Company surrendered by the Award holder or withheld from the shares
otherwise deliverable upon exercise. The Company may extend or arrange for the
extension of credit to any Award holder to finance the Award holder's purchase
of shares upon exercise of the holder's Award on terms approved by the
administering body, subject to restrictions under applicable laws and
regulations, or allow exercise in a broker's transaction in which the exercise
price will not be received until after exercise and subsequent sale of the
underlying Common Stock. Consideration received by the Company upon exercise
of Awards granted under the 1996 Plan will be used for general working capital
purposes.
Limited Transferability of Awards. Awards are generally not transferable
by the recipient during the life of the recipient.
Existing Award Grants. There were no Award grants under the 1996 Plan
during the year ended December 31, 1995.
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Awards Documentation. Awards granted under the 1996 Plan will be
evidenced by an agreement duly executed on behalf of the Company and by the
recipient or, a confirming memorandum issued by the Company to the recipient,
setting forth such terms and conditions applicable to the Award. The adoption
of the 1996 Plan shall not affect any other stock option, incentive or other
compensation plans in effect for the Company, and the 1996 Plan shall not
preclude the Company from establishing any other forms of incentive or other
compensation for employees, directors, advisors or consultants of the Company,
whether or not approved by shareholders.
Rights With Respect to Common Stock. No recipient of an Award under the
1996 Plan and no beneficiary or other person claiming under or through such
individual will have any right, title or interest in or to any shares of Common
Stock subject to any Award or any rights as a shareholder unless and until such
Award is duly exercised pursuant to the terms of the Plan and the exercise of
such Award results in the issuance of shares of Common Stock to the recipient.
1996 Plan Provisions Regarding Section 162(m) of the Internal Revenue
Code. In general, Section 162(m) of the Code imposes a $1,000,000 limit on the
amount of compensations that may be deducted by the Company in any tax year
with respect to the CEO of the Company and its other four most highly
compensated employees, including any compensation relating to an Award under
the 1996 Plan. To prevent compensation relating to an Award under the 1996
Plan from being subject to the $1,000,000 limit of Code Section l62(m), the
1996 Plan provides that no one eligible person shall be granted any Awards with
respect to more than 500,000 shares of Common Stock in any one calendar year if
such grant would otherwise be subject to Code Section 162(m). Furthermore, if
Code Section 162(m) would otherwise apply and if the amount of compensation an
eligible person would receive under an Award is not based solely on an increase
in the value of the underlying common stock of the Company after the date of
grant or award, the administering body can condition the grant, vesting, or
exercisability of such an Award on the attainment of a preestablished objective
performance goal. For this purpose, a preestablished objective performance
goal may include one or more of the following performance criteria: (a) cash
flow, (b) earnings per share (including earnings before interest, taxes, and
amortization), (c) return on equity, (d) total stockholder return, (e) return
on capital, (f) return on assets or net assets, (g) income or net income, (h)
operating income or net operating income, (i) operating margin, (j) return on
operating revenue, and (k) any other similar performance criteria.
FEDERAL INCOME TAX ASPECTS
The following is a brief description of the federal income tax treatment
which will generally apply to an Award made under the 1996 Plan, based on
federal income tax laws in effect on the date hereof. The exact federal income
tax treatment of an Award will depend on the specific nature of the Award.
Such an Award may, depending on the conditions applicable to the Award, be
taxable as an option, as restricted or unrestricted stock, as a stock or cash
payment, or otherwise. Because the following is only a brief summary of the
general federal income tax rules, a recipient of an Award should not rely
thereon for individual tax advice, as each recipient's situation and the
consequences of any particular transaction will vary depending upon the
specific facts and circumstances involved. Each recipient is advised to
consult with his or her own tax advisor for particular federal, as well as
state and local, income and any other tax advice.
Incentive Stock Options. Pursuant to the 1996 Plan employees may be
granted options which are intended to qualify as ISOs under the provisions of
Section 422 of the Code. Generally, the optionee is not taxed and the Company
is not entitled to a deduction on the grant or the exercise of an ISO.
However, if the optionee sells the shares acquired upon the exercise of an ISO
(''ISO Shares") at any time within (a) one year after the date of transfer of
ISO Shares to the optionee pursuant to the exercise of such ISO or (b) two
years after the date of grant of such ISO, then (1) the optionee will recognize
capital gain equal to the excess, if any, of the sales price over the fair
market value of the ISO Shares on the date of exercise, (2) the optionee will
recognize ordinary income equal to the excess, if any, of the lesser of the
sales price or the fair market value of the ISO Shares on the date of exercise,
over the exercise price of such ISO, (3) the optionee will recognize capital
loss equal to the excess, if any, of the exercise price of such ISO over the
sales price of the ISO Shares, and (4) the Company will generally be entitled
to a deduction equal to the amount of ordinary income recognized by the
optionee. If the optionee sells the ISO Shares at
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any time after the optionee has held the ISO Shares for at least (i) one year
after the date of transfer of the ISO Shares to the optionee pursuant to the
exercise of the ISO and (ii) two years after the date of grant of the ISO, then
the optionee will recognize capital gain or loss equal to the difference
between the sales price and the exercise price of such ISO, and the Company
will not be entitled to any deduction.
The amount by which the fair market value of the ISO Shares received upon
exercise of an ISO exceeds the exercise price will be included as a positive
adjustment in the calculation of an optionee's "alternative minimum taxable
income" ("AMTI") in the year of exercise. The "alternative minimum tax"
imposed on individual taxpayers is generally equal to the amount by which 28%
(26% of AMTI below certain amounts) of the individuals AMTI (reduced by certain
exemption amounts) exceeds his or her regular income tax liability for the
year.
Nonqualified Options. The grant of an option or other similar right to
acquire stock which does not qualify for treatment as an ISO (a "Nonqualified
Option") is generally not a taxable event for the optionee. Upon exercise of
the option, the optionee will generally recognize ordinary income in an amount
equal to the excess of the fair market value of the stock acquired upon
exercise (determined as of the date of the exercise) over the exercise price of
such option, and the Company will be entitled to a tax deduction equal to such
amount. See "Special Rules for Incentive Awards Granted to Insiders," below.
Special Rules for Incentive Awards Granted to Insiders . If an
optionee is a director, officer or shareholder subject to Section 16 of the
Exchange Act (an "Insider") and exercises an option within six months of the
date of grant, the timing of the recognition of any ordinary income should be
deferred until (and the amount of ordinary income should be determined based on
the fair market value (or sales price in the case of a disposition) of the
shares of Common Stock upon) the earlier of the following two dates (the "16(b)
Date"): (a) six months after the date of grant or (b) a disposition of the
shares of Common Stock, unless the Insider makes an election under Section
83(b) of the Code (an "83(b) Election") within 30 days after exercise to
recognize ordinary income based on the value of the Common Stock on the date of
exercise. In addition, special rules apply to an Insider who exercises an
option having an exercise price greater than the fair market value of the
underlying shares on the date of exercise. Insiders should consult their tax
advisors to determine the tax consequences to them of exercising options
granted to them pursuant to the 1996 Plan.
Restricted Stock. An Award under the 1996 Plan may also include the grant
of Common Stock that imposes certain restrictions on the recipient's rights to
the stock ("Restricted Stock"). Unless the recipient makes an 83(b) Election
as discussed above within 30 days after the receipt of the Restricted Stock,
the recipient generally will not be taxed on the receipt of Restricted Stock
until the restrictions on such stock expire or are removed. When the
restrictions expire or are removed, the recipient will recognize ordinary
income (and the Company will be entitled to a deduction) in an amount equal to
the excess of the fair market value of the stock at that time over the purchase
price. However, if the recipient makes an 83(b) Election within 30 days of the
receipt of Restricted Stock, he or she will recognize ordinary income (and the
Company will be entitled to a deduction) equal to the excess of the fair market
value of the stock on the date of receipt (determined without regard to vesting
restrictions) over the purchase price. In the case of an Insider (as defined
above), the timing of income recognition (including the date used to compute
the fair market value of stock) with respect to Restricted Stock may be
deferred until the 16(b) Date, as described in "Special Rules for Incentive
Awards Granted to Insiders" above, unless the Insider makes a valid 83(b)
Election.
Stock Appreciation Rights and Phantom Stock. Recipients of stock
appreciation rights ("SARs") and phantom stock awards ("Phantom Stock")
generally do not recognize income upon the grant of such rights. When a
recipient elects to receive payment of a SAR or Phantom Stock, the recipient
recognizes ordinary income in an amount equal to the cash and fair market value
of shares of Common Stock received, and the Company is entitled to a deduction
equal to such amount.
Stock Bonuses, Dividends, and Dividend Equivalents. The issuance of
shares of Common Stock to eligible persons as bonuses for services rendered
("Stock Bonuses"), and the payment of dividends and dividend equivalent
payments are taxable as ordinary income when actually or constructively
received by the recipient. As to a Stock Bonus, the amount taxable as ordinary
income is the aggregate fair market value of the Common Stock
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determined as of the date received. The Company is entitled to deduct the
amount of a Stock Bonus, dividends, and dividend equivalent payments when such
amounts are received by and taxable as compensation to the recipient.
Miscellaneous Tax Issues. An Award may be granted under the 1996 Plan
which does not fall clearly into the categories described above. The federal
income tax treatment of such an Award will depend upon the specific terms of
such Award. Generally, the Company will be required to make arrangements for
withholding applicable taxes with respect to any ordinary income recognized by
a participant in connection with an Award made under the 1996 Plan.
With certain exceptions, an individual may not deduct investment-related
interest to the extent such interest exceeds the individual's net investment
income for the year. Investment interest generally includes interest paid on
indebtedness incurred to purchase shares of Common Stock. Interest disallowed
under this rule may be carried forward to and deducted in later years, subject
to the same limitations.
A holder's tax basis in Common Stock acquired pursuant to the 1996 Plan
generally will equal the amount paid for the Common Stock plus any amount
recognized as ordinary income with respect to such stock. Other than ordinary
income recognized with respect to the Common Stock and included in the basis,
any subsequent gain or loss upon the disposition of such stock generally will
be capital gain or loss (long-term or short-term, depending on the holder's
holding period).
Special rules will apply in cases where a recipient of an Award pays the
exercise or purchase price of the Award or applicable withholding tax
obligations under the 1996 Plan by delivering previously owned shares of Common
Stock or by reducing the amount of shares otherwise issuable pursuant to the
Award. The surrender or withholding of such shares will in certain
circumstances result in the recognition of income with respect to such shares
or a carryover basis in the shares acquired.
The terms of the agreements pursuant to which specific Awards are made to
employees under the 1996 Plan may provide for accelerated vesting or payment of
an Award in connection with a change in ownership or control of the Company.
In that event and depending upon the individual circumstances of the recipient,
certain amounts with respect to such awards may constitute "excess parachute
payments" under the "golden parachute" provisions of the Code. Pursuant to
these provisions, a recipient will be subject to a 20% excise tax on any
"excess parachute payments" and the Company will be denied any deduction with
respect to such payment. A recipient of an Award should consult his or her tax
advisors as to whether accelerated vesting of an Award in connection with a
change of ownership or control of the Company would give rise to an excess
parachute payment.
The Company generally obtains a deduction equal to the ordinary income
recognized by the recipient of an Award. The Company's deduction for such
amounts (including amounts attributable to the ordinary income recognized with
respect to ISOs, Nonqualified Options, or Restricted Stock), however, may be
limited under Code Section 162(m) to $1,000,000 (per person) annually.
RECOMMENDATION AND VOTE
The affirmative vote of a majority of the Voting Shares present in
person or by proxy and entitled to vote at the Annual Meeting is required to
approve the 1996 Plan described above. The Board recommends a vote FOR the
approval of the I-Flow Corporation 1996 Stock Incentive Plan. All proxies will
be voted to approve the 1996 Plan unless otherwise directed on the enclosed
proxy card.
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PROPOSAL NO. 3
AMEND THE COMPANY'S BYLAWS TO
INCREASE THE NUMBER OF DIRECTORS
The Board of Directors of the Company at a meeting on February 8, 1996
adopted a resolution approving and recommending to the shareholders for their
adoption at the Annual Meeting, an amendment to the Bylaws of I-Flow
Corporation, Restated as of July 22, 1991, to reflect the following changes to
the first two sentences of Section 3, Article II of the Bylaws as Restated to
read in their entirety as follows:
"Section 3. Number and Qualification of Directors. The authorized
number of Directors of the Corporation shall not be less than six (6)
nor more than eleven (11). The exact number of authorized Directors
shall be eight (8) until changed, within the limits specified above, by
a Bylaw amending this Section 3, duly adopted by the Board of Directors
or by the Shareholders."
PURPOSE OF THE PROPOSED AMENDMENT TO THE COMPANY'S BYLAWS
The Company's current Bylaws provide for the number of directors to be
fixed within a range of not less than four nor more than seven. The Board of
Directors has approved and recommended the increase in the number of Directors
of the Corporation in order to provide the Board of Directors additional
flexibility in adding qualified persons to the Board of Directors as the Board
deems appropriate from time to time. If this proposal is approved, the Board
intends to appoint James J. Dal Porto, the Company's Executive Vice President
and Chief Operating Officer, as a Director of the Corporation.
James J. Dal Porto is 43 years old and joined the Company in October 1989
to serve as Controller. Mr. Dal Porto was promoted to Treasurer in October
1990, to Vice President of Finance and Administration in March 1991, to
Executive Vice President, Chief Financial Officer in March 1993 and to Chief
Operating Officer in February 1994. Mr. Dal Porto served as Financial Planning
Manager and Manager of Property Accounting and Local Taxation at CalComp, a
high technology manufacturing company, from 1984 to 1989. Mr. Dal Porto holds
a Bachelor of Science degree in Economics from the University of California,
Los Angeles, and a Masters in Business Administration from California State
University, Northridge.
RECOMMENDATION AND VOTE
The affirmative vote of a majority of the Voting Shares entitled to
vote at the Annual Meeting is required to approve the amendment described
above. The Board recommends a vote FOR the approval of the amendment to the
Company's Bylaws. All proxies will be voted to approve the amendment to the
Bylaws unless otherwise directed on the enclosed proxy card.
AUDITORS
The firm of Deloitte & Touche has served as the Company's independent
public accountants for the calendar year ended December 31, 1995. A
representative of Deloitte & Touche is expected to be present at the Annual
Meeting, at which time such representative will be given an opportunity to make
a statement, if desired, and to respond to appropriate shareholder questions.
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ANNUAL REPORTS
The Company's Annual Report for the calendar year ended December 31,
1995, including audited financial statements, is being mailed to shareholders
along with this Proxy Statement. In addition, the Company has filed an Annual
Report on Form 10-K for its calendar year ended December 31, 1995 with the
Securities and Exchange Commission. SHAREHOLDERS MAY OBTAIN A COPY OF THE FORM
10-K ANNUAL REPORT INCLUDING FINANCIAL STATEMENTS, WITHOUT CHARGE, BY WRITING
THE COMPANY AT THE ADDRESS LISTED ABOVE.
OTHER BUSINESS
At the time of the preparation of this Proxy Statement, the Company's
Board of Directors had not been informed of any other matters which would be
presented for action at the Annual Meeting. If any other matters are properly
presented, the persons named in the accompanying proxy card will vote or
refrain from voting in accordance with their best judgment.
1997 SHAREHOLDER PROPOSALS
Shareholders who wish to include proposals for action at the Company's
1997 Annual Meeting of Shareholders in next year's proxy statement and proxy
card must cause their proposals to be received in writing by the Company at its
address set forth on the first page of this Proxy Statement no later than
December 4, 1996. Such proposals should be addressed to the Company's
Secretary, and may be included in next year's proxy statement if they comply
with certain rules and regulations promulgated by the Commission.
Shareholders who do not present proposals for inclusion in the Proxy
Statement but who still intend to submit a proposal at the 1997 Annual Meeting
must, in accordance with the Company's Bylaws, provide timely written notice of
the matter to the Secretary of the Company. To be timely, a shareholder's
written notice must be delivered to or mailed and received at the principal
executive offices of the Company not less than 60 days nor more then 90 days
prior to the Annual Meeting as originally scheduled. If less than 70 days
notice or prior public disclosure of the date of the scheduled Annual Meeting
is given, then notice of the proposed business matter must be received by the
Secretary not later than the close of business on the tenth day following the
day on which such notice of the date of the scheduled Annual Meeting was mailed
or the day on which such public disclosure was made, whichever first occurs.
Any notice to the Secretary must include as to each matter the shareholder
proposes to bring before the meeting: (i) a brief description of the proposal
desired to be brought before the Annual Meeting and the reasons for conducting
such business at the Annual Meeting; (ii) the name and record address of the
shareholder proposing such business and any other shareholders known by such
shareholder to be supporting such proposal; (iii) the class and number of
shares of the Company's stock which are beneficially owned by the shareholder
and (iv) any financial interest of the shareholder in such proposal.
By Order of the Board of Directors
Donald M. Earhart
Dated: April 1, 1996 Chief Executive Officer
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EXHIBIT A
I-FLOW CORPORATION
1996 STOCK INCENTIVE PLAN
ARTICLE I
PURPOSE OF PLAN
The Company has adopted this Plan to promote the interests of
the Company and its stockholders by using investment interests in the Company
to attract, retain and motivate its management and other persons, to encourage
and reward their contributions to the performance of the Company, and to align
their interests with the interests of Company's stockholders.
ARTICLE II
EFFECTIVE DATE AND TERM OF PLAN
2.1 TERM OF PLAN. This Plan became effective as of the
Effective Date and shall continue in effect until the Expiration Date, at which
time this Plan shall automatically terminate.
2.2 EFFECT ON AWARDS. Awards may be granted during the
Plan Term, but no Awards may be granted after the Plan Term. Notwithstanding
the foregoing, each Award properly granted under this Plan during the Plan Term
shall remain in effect after termination of this Plan until such Award has been
exercised, terminated, or expired in accordance with its terms and the terms of
this Plan.
2.3 STOCKHOLDER APPROVAL. This Plan shall be approved by
the Company's stockholders within 12 months after the Effective Date. The
effectiveness of any Awards granted prior to such stockholder approval shall be
subject to such stockholder approval.
ARTICLE III
SHARES SUBJECT TO PLAN
3.1 NUMBER OF SHARES. The maximum number of shares of
Common Stock that may be issued pursuant to Awards granted under this Plan
shall be 2,500,000, subject to adjustment as set forth in Section 3.4.
3.2 SOURCE OF SHARES. The Common Stock to be issued
under this Plan will be made available, at the discretion of the Board, either
from authorized but unissued shares of Common Stock or from previously issued
shares of Common Stock reacquired by the Company, including without limitation
shares purchased on the open market.
3.3 AVAILABILITY OF UNUSED SHARES. Shares of Common
Stock subject to unexercised portions of any Award granted under this Plan that
expire, terminate or are cancelled, and shares of Common Stock issued pursuant
to an Award under this Plan that are reacquired by the Company pursuant to the
terms of the Award under which such shares were issued, will again become
available for the grant of further Awards under this Plan.
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3.4 ADJUSTMENT PROVISIONS.
(a) If (i) the outstanding shares of Common Stock of the
Company are increased, decreased or exchanged for a different number or kind of
shares or other securities, or if additional shares or new or different shares
or other securities are distributed in respect of such shares of Common Stock
(or any stock or securities received with respect to such Common Stock),
through merger, consolidation, sale or exchange of all or substantially all of
the properties of the Company, reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split, spin-off or
other distribution with respect to such shares of Common Stock (or any stock or
securities received with respect to such Common Stock), or (ii) the value of
the outstanding shares of Common Stock of the Company is reduced by reason of
an extraordinary cash dividend, an appropriate and proportionate adjustment may
be made in (1) the maximum number and kind of shares subject to this Plan as
provided in Section 3.1, (2) the number and kind of shares or other securities
subject to then outstanding Awards, and/or (3) the price for each share or
other unit of any other securities subject to then outstanding Awards.
(b) No fractional interests will be issued under the
Plan resulting from any adjustments.
(c) To the extent any adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Administering
Body, whose determination in that respect shall be final, binding and
conclusive.
(d) The grant of an Award pursuant to this Plan shall not
affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge or to consolidate or to dissolve, liquidate or sell, or
transfer all or any part of its business or assets.
(e) No adjustment to the terms of an Incentive Stock
Option shall be made unless such adjustment either (i) would not cause the
Option to lose its status as an Incentive Stock Option or (ii) is agreed to in
writing by the Administering Body and the Recipient.
3.5 RESERVATION OF SHARES. The Company will at all times
reserve and keep available such number of shares of Common Stock as shall equal
at least the number of shares of Common Stock subject to then outstanding
Awards issuable in shares of Common Stock under this Plan.
ARTICLE IV
ADMINISTRATION OF PLAN
4.1 ADMINISTERING BODY.
(a) Subject to the provisions of Section 4.1(b)(ii), this
Plan shall be administered by the Board or by a Committee of the Board
appointed pursuant to Section 4.1(b).
(b) (i) The Board in its sole discretion may from
time to time appoint a Committee of not less than two Board members to
administer this Plan and, subject to applicable law, to exercise all of the
powers, authority and discretion of the Board under this Plan. The Board may
from time to time increase or decrease (but not below two) the number of
members of the Committee, remove from membership on the Committee all or any
portion of its members, and/or appoint such person or persons as it desires to
fill any vacancy existing on the Committee, whether caused by removal,
resignation or otherwise. The Board may disband the Committee at any time and
revest in the Board the administration of this Plan.
(ii) Notwithstanding the foregoing provisions of
this Section 4.1(b) to the contrary, as long as the Company is an Exchange Act
Registered Company, (1) the Board shall appoint the Committee, (2) this Plan
shall be administered by the Committee, and (3) each of the Committee's members
shall be Disinterested
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Directors, and in addition, if Awards are to be made to persons subject to
Section 162(m) of the IRC and such Awards are intended to constitute
Performance Based Compensation, then each of the Committee's members shall, in
addition to being a Disinterested Director, shall also be an Outside Director.
(iii) The Committee shall report to the Board the names of
Eligible Persons granted Awards, the number of shares of Common Stock covered
by each Award, and the terms and conditions of each such Award.
4.2 AUTHORITY OF ADMINISTERING BODY.
(a) Subject to the express provisions of this Plan, the
Administering Body shall have the power to interpret and construe this Plan and
any Award Documents or other documents defining the rights and obligations of
the Company and Recipients hereunder and thereunder, to determine all questions
arising hereunder and thereunder, to adopt and amend such rules and regulations
for the administration hereof and thereof as it may deem desirable, and
otherwise to carry out the terms of this Plan and such Award Documents and
other documents. The interpretation and construction by the Administering Body
of any provisions of this Plan or of any Award shall be conclusive and binding.
Any action taken by, or inaction of, the Administering Body relating to this
Plan or any Awards shall be within the absolute discretion of the Administering
Body and shall be conclusive and binding upon all persons. Subject only to
compliance with the express provisions hereof, the Administering Body may act
in its absolute discretion in matters related to this Plan and any and all
Awards.
(b) Subject to the express provisions of this Plan, the
Administering Body may from time to time in its discretion select the Eligible
Persons to whom, and the time or times at which, Incentive Awards shall be
granted or sold, the nature of each Incentive Award, the number of shares of
Common Stock or the number of rights that make up or underlie each Incentive
Award, the period for the exercise of each Incentive Award, and such other
terms and conditions applicable to each individual Incentive Award as the
Administering Body shall determine. The Administering Body may grant at any
time new Incentive Awards to an Eligible Person who has previously received
Incentive Awards or other grants (including other stock options) whether such
prior Incentive Awards or such other grants are still outstanding, have
previously been exercised as a whole or in part, or are cancelled in connection
with the issuance of new Incentive Awards. The Administering Body may grant
Incentive Awards singly or in combination or in tandem with other Incentive
Awards as it determines in its discretion. The purchase price, exercise price,
initial value and any and all other terms and conditions of the Incentive
Awards may be established by the Administering Body without regard to existing
Incentive Awards or other grants.
(c) Any action of the Administering Body with respect to
the administration of this Plan shall be taken pursuant to a majority vote of
the authorized number of members of the Administering Body or by the unanimous
written consent of its members; provided, however, that (i) if the
Administering Body is the Committee and consists of two members, then actions
of the Administering Body must be unanimous, and (ii) if the Administering Body
is the Board, actions taken at a meeting of the Board shall be valid if
approved by directors constituting a majority of the required quorum for such
meeting.
4.3 NO LIABILITY. No member of the Board or the
Committee or any designee thereof will be liable for any action or inaction
with respect to this Plan or any Award or any transaction arising under this
Plan or any Award except in circumstances constituting bad faith of such
member.
4.4 AMENDMENTS.
(a) The Administering Body may, insofar as permitted by
applicable law, rule or regulation, from time to time suspend or discontinue
this Plan or revise or amend it in any respect whatsoever, and this Plan as so
revised or amended will govern all Awards hereunder, including those granted
before such revision or amendment; provided, however, that no such revision or
amendment shall alter, impair or diminish any rights or obligations under any
Award theretofore granted under this Plan without the written consent of the
Recipient to whom such Award was granted. Without limiting the generality of
the foregoing, the Administering Body is authorized to amend this Plan to
comply with or take advantage of amendments to applicable laws, rules or
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regulations, including amendments to the Securities Act, Exchange Act or the
IRC or any rules or regulations promulgated thereunder. No stockholder
approval of any amendment or revision shall be required unless (i) such
approval is required by applicable law, rule or regulation or (ii) an amendment
or revision to this Plan would materially increase the number of shares subject
to this Plan (as adjusted under Section 3.4), materially modify the
requirements as to eligibility for participation in this Plan, extend the final
date upon which Awards may be granted under this Plan, or otherwise materially
increase the benefits accruing to Recipients in a manner not specifically
contemplated herein, or affect this Plan's compliance with Rule 16b-3 or
applicable provisions of or regulations under the IRC, and stockholder approval
of the amendment or revision is required to comply with Rule 16b-3 or
applicable provisions of or rules under the IRC.
(b) The Administering Body may, with the written consent
of a Recipient, make such modifications in the terms and conditions of an
Incentive Award as it deems advisable. Without limiting the generality of the
foregoing, the Administering Body may, in its discretion with the written
consent of the Recipient, at any time and from time to time after the grant of
any Incentive Award accelerate or extend the vesting or exercise period of any
Incentive Award as a whole or in part, and adjust or reduce the purchase or
exercise price of Incentive Awards held by such Recipient by cancellation of
such Incentive Awards and granting of Incentive Awards at lower purchase or
exercise prices or by modification, extension or renewal of such Incentive
Awards. In the case of Incentive Stock Options, Recipients acknowledge that
extensions of the exercise period may result in the loss of the favorable tax
treatment afforded incentive stock options under Section 422 of the IRC.
(c) Except as otherwise provided in this Plan or in the
applicable Award Document, no amendment, revision, suspension or termination of
this Plan will, without the written consent of the Recipient, alter, terminate,
impair or adversely affect any right or obligation under any Award previously
granted under this Plan.
4.5 OTHER COMPENSATION PLANS. The adoption of this Plan
shall not affect any other stock option, incentive or other compensation plans
in effect for the Company, and this Plan shall not preclude the Company from
establishing any other forms of incentive or other compensation for employees,
directors, advisors or consultants of the Company, whether or not approved by
stockholders.
4.6 PLAN BINDING ON SUCCESSORS. This Plan shall be
binding upon the successors and assigns of the Company.
4.7 REFERENCES TO SUCCESSOR STATUTES, REGULATIONS AND
RULES. Any reference in this Plan to a particular statute, regulation or rule
shall also refer to any successor provision of such statute, regulation or
rule.
4.8 ISSUANCES FOR COMPENSATION PURPOSES ONLY. This Plan
constitutes an "employee benefit plan" as defined in Rule 405 promulgated under
the Securities Act. Awards to eligible employees or directors shall be made
for any lawful consideration, including compensation for services rendered,
promissory notes or otherwise. Awards to consultants and advisors shall be
made only in exchange for bona fide services rendered by such consultants or
advisors and such services must not be in connection with the offer and sale of
securities in a capital-raising transaction.
4.9 INVALID PROVISIONS. In the event that any provision
of this Plan is found to be invalid or otherwise unenforceable under any
applicable law, such invalidity or unenforceability shall not be construed as
rendering any other provisions contained herein invalid or unenforceable, and
all such other provisions shall be given full force and effect to the same
extent as though the invalid and unenforceable provision were not contained
herein.
4.10 GOVERNING LAW. This Agreement shall be governed by
and interpreted in accordance with the internal laws of the State of
California, without giving effect to the principles of the conflicts of laws
thereof.
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ARTICLE V
GENERAL AWARD PROVISIONS
5.1 PARTICIPATION IN PLAN.
(a) A person shall be eligible to receive grants of
Incentive Awards under this Plan if, at the time of the grant of the Incentive
Award, such person is an Eligible Person.
(b) Incentive Stock Options may be granted only to
Eligible Persons meeting the employment requirements of Section 422 of the IRC.
(c) Notwithstanding anything to the contrary herein, the
Administering Body may, in order to fulfill the purposes of this Plan, modify
grants of Incentive Awards to Recipients who are foreign nationals or employed
outside of the United States to recognize differences in applicable law, tax
policy or local custom.
5.2 AWARD DOCUMENTS.
(a) Each Award granted under this Plan shall be evidenced
by an agreement duly executed on behalf of the Company and by the Recipient or,
in the Committee's discretion, a confirming memorandum issued by the Company to
the Recipient, setting forth such terms and conditions applicable to the Award
as the Committee may in its discretion determine. Award Documents may but need
not be identical and shall comply with and be subject to the terms and
conditions of this Plan, a copy of which shall be provided to each Recipient
and incorporated by reference into each Award Document. Any Award Document may
contain such other terms, provisions and conditions not inconsistent with this
Plan as may be determined by the Committee.
(b) In case of any conflict between this Plan and any
Award Document, this Plan shall control.
5.3 EXERCISE OF STOCK OPTIONS. No Stock Option shall be
exercisable except in respect of whole shares, and fractional share interests
shall be disregarded. Not less than 100 shares of Common Stock (or such other
amount as is set forth in the applicable Award Documents) may be purchased at
one time and Stock Options must be exercised in multiples of 100 unless the
number purchased is the total number at the time available for purchase under
the terms of the Stock Option. A Stock Option shall be deemed to be exercised
when the Secretary or other designated official of the Company receives written
notice of such exercise from the Recipient, together with payment of the
exercise price made in accordance with Section 5.4 and any amounts required
under Section 5.11. Notwithstanding any other provision of this Plan, the
Administering Body may impose, by rule and/or in Award Documents, such
conditions upon the exercise of Stock Options (including without limitation
conditions limiting the time of exercise to specified periods) as may be
required to satisfy applicable regulatory requirements, including without
limitation Rule 16b-3 and Rule 10b-5 under the Exchange Act, and any amounts
required under Section 5.12 or other applicable section of or regulation under
the IRC.
5.4 PAYMENT FOR AWARDS.
(a) Payment of Exercise Price. The exercise price or
other payment for an Award shall be payable upon the exercise of a Stock Option
or upon other purchase of shares pursuant to an Award granted hereunder by
delivery of legal tender of the United States or payment of such other
consideration as the Administering Body may from time to time deem acceptable
in any particular instance.
(b) The Company may assist any person to whom an Award is
granted hereunder (including without limitation any officer or eligible
director of the Company) in the payment of the purchase price or other amounts
payable in connection with the receipt or exercise of that Award, by lending
such amounts to such person on such terms and at such rates of interest and
upon such security (if any) as shall be approved by the Administering Body.
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(c) In the discretion of the Administering Body, Awards
may be exercised by capital stock of the Company delivered in transfer to the
Company by or on behalf of the person exercising the Award and duly endorsed in
blank or accompanied by stock powers duly endorsed in blank, with signatures
guaranteed in accordance with the Exchange Act if required by the Administering
Body, or retained by the Company from the stock otherwise issuable upon
exercise or surrender of vested and/or exercisable Awards or other equity
incentive awards previously granted to the Recipient and being exercised (if
applicable) (in either case valued at Fair Market Value as of the exercise
date); or such other consideration as the Administering Body may from time to
time in the exercise of its discretion deem acceptable in any particular
instance; provided, however, that the Administering Body may, in the exercise
of its discretion, (i) allow exercise of an Award in a broker- assisted or
similar transaction in which the exercise price is not received by the Company
until promptly after exercise, and/or (ii) allow the Company to loan the
exercise price to the person entitled to exercise the Award, if the exercise
will be followed by a prompt sale of some or all of the underlying shares and a
portion of the sale proceeds is dedicated to full payment of the exercise price
and amounts required pursuant to Section 5.11.
5.5 NO EMPLOYMENT RIGHTS. Nothing contained in this Plan
(or in Award Documents or in any other documents related to this Plan or to
Awards granted hereunder) shall confer upon any Eligible Person or Recipient
any right to continue in the employ of the Company or any Affiliated Entity or
constitute any contract or agreement of employment or engagement, or interfere
in any way with the right of the Company or any Affiliated Entity to reduce
such person's compensation or other benefits or to terminate the employment or
engagement of such Eligible Person or Recipient, with or without cause. Except
as expressly provided in this Plan or in any statement evidencing the grant of
an Award pursuant to this Plan, the Company shall have the right to deal with
each Recipient in the same manner as if this Plan and any such statement
evidencing the grant of an Award pursuant to this Plan did not exist, including
without limitation with respect to all matters related to the hiring,
discharge, compensation and conditions of the employment or engagement of the
Recipient. Any question(s) as to whether and when there has been a termination
of a Recipient's employment or engagement, the reason (if any) for such
termination, and/or the consequences thereof under the terms of this Plan or
any statement evidencing the grant of an Award pursuant to this Plan shall be
determined by the Administering Body and the Administering Body's determination
thereof shall be final and binding.
5.6 RESTRICTIONS UNDER APPLICABLE LAWS AND REGULATIONS.
(a) All Awards granted under this Plan shall be subject
to the requirement that, if at any time the Company shall determine, in its
discretion, that the listing, registration or qualification of the shares
subject to Awards granted under this Plan upon any securities exchange or under
any federal, state or foreign law, or the consent or approval of any government
regulatory body, is necessary or desirable as a condition of, or in connection
with, the granting of such an Award or the issuance, if any, or purchase of
shares in connection therewith, such Award may not be exercised as a whole or
in part unless and until such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Company. During the term of this Plan, the Company will use
its reasonable efforts to seek to obtain from the appropriate regulatory
agencies any requisite qualifications, consents, approvals or authorizations in
order to issue and sell such number of shares of its Common Stock as shall be
sufficient to satisfy the requirements of this Plan. The inability of the
Company to obtain from any such regulatory agency having jurisdiction thereof
the qualifications, consents, approvals or authorizations deemed by the Company
to be necessary for the lawful issuance and sale of any shares of its Common
Stock hereunder shall relieve the Company of any liability in respect of the
nonissuance or sale of such stock as to which such requisite authorization
shall not have been obtained.
(b) The Company shall be under no obligation to register
or qualify the issuance of Awards or underlying shares under the Securities Act
or applicable state securities laws. Unless the issuance of Awards and
underlying shares have been registered under the Securities Act and qualified
or registered under applicable state securities laws, the Company shall be
under no obligation to issue any Awards or underlying shares of Common Stock
covered by any Award unless the Awards and underlying shares may be issued
pursuant to applicable exemptions from such registration or qualification
requirements. In connection with any such exempt issuance, the Administering
Body may require the Recipient to provide a written representation and
undertaking to
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the Company, satisfactory in form and scope to the Company and upon which the
Company may reasonably rely, that such Recipient is acquiring such Awards and
underlying shares for such Recipient's own account as an investment and not
with a view to, or for sale in connection with, the distribution of any such
shares of stock, and that such person will make no transfer of the same except
in compliance with any rules and regulations in force at the time of such
transfer under the Securities Act and other applicable law, and that if shares
of stock are issued without such registration, a legend to this effect
(together with any other legends deemed appropriate by the Administering Body)
may be endorsed upon the securities so issued. The Company may also order its
transfer agent to stop transfers of such shares. The Administering Body may
also require the Recipient to provide the Company such information and other
documents as the Administering Body may request in order to satisfy the
Administering Body as to the investment sophistication and experience of the
Recipient and as to any other conditions for compliance with any such
exemptions from registration or qualification.
5.7 ADDITIONAL CONDITIONS. Any Incentive Award may also
be subject to such other provisions (whether or not applicable to any other
Award or Recipient) as the Administering Body determines appropriate including
without limitation provisions to assist the Recipient in financing the purchase
of Common Stock through the exercise of Stock Options, provisions for the
forfeiture of or restrictions on resale or other disposition of shares of
Common Stock acquired under any form of benefit, provisions giving the Company
the right to repurchase shares of Common Stock acquired under any form of
benefit in the event the Recipient elects to dispose of such shares, and
provisions to comply with federal and state securities laws and federal and
state income tax withholding requirements.
5.8 NO PRIVILEGES OF STOCK OWNERSHIP. Except as
otherwise set forth herein, a Recipient or a permitted transferee of an Award
shall have no rights as a stockholder with respect to any shares issuable or
issued in connection with the Award until the date of the receipt by the
Company of all amounts payable in connection with exercise of the Award and
performance by the Recipient of all obligations thereunder. Status as an
Eligible Person shall not be construed as a commitment that any Award will be
granted under this Plan to an Eligible Person or to Eligible Persons generally.
No person shall have any right, title or interest in any fund or in any
specific asset (including shares of capital stock) of the Company by reason of
any Award granted hereunder. Neither this Plan (or any documents related
hereto) nor any action taken pursuant hereto shall be construed to create a
trust of any kind or a fiduciary relationship between the Company and any
person. To the extent that any person acquires a right to receive an Award
hereunder, such right shall be no greater than the right of any unsecured
general creditor of the Company.
5.9 NONASSIGNABILITY. No Award granted under this Plan
shall be assignable or transferable except (i) by will or by the laws of
descent and distribution, or (ii) subject to the final sentence of this Section
5.9, upon dissolution of marriage pursuant to a qualified domestic relations
order or, in the discretion of the Administering Body and under circumstances
that would not adversely affect the interests of the Company, pursuant to a
nominal transfer that does not result in a change in beneficial ownership.
During the lifetime of a Recipient, an Award granted to such person shall be
exercisable only by the Recipient (or the Recipient's permitted transferee) or
such person's guardian or legal representative. Notwithstanding the foregoing,
(i) no Award owned by a Recipient subject to Section 16 of the Exchange Act may
be assigned or transferred in any manner inconsistent with Rule 16b-3, and (ii)
Incentive Stock Options (or other Awards subject to transfer restrictions under
the IRC) may not be assigned or transferred in violation of Section 422(b)(5)
of the IRC (or any comparable or successor provision) or the regulations
thereunder, and nothing herein is intended to allow such assignment or
transfer.
5.10 INFORMATION TO RECIPIENTS.
(a) The Administering Body in its sole discretion shall
determine what, if any, financial and other information shall be provided to
Recipients and when such financial and other information shall be provided
after giving consideration to applicable federal and state laws, rules and
regulations, including without limitation applicable federal and state
securities laws, rules and regulations.
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(b) The furnishing of financial and other information
that is confidential to the Company shall be subject to the Recipient's
agreement that the Recipient shall maintain the confidentiality of such
financial and other information, shall not disclose such information to third
parties, and shall not use the information for any purpose other than
evaluating an investment in the Company's securities under this Plan. The
Administering Body may impose other restrictions on the access to and use of
such confidential information and may require a Recipient to acknowledge the
Recipient's obligations under this Section 5.10(b) (which acknowledgment shall
not be a condition to Recipient's obligations under this Section 5.10(b).
5.11 WITHHOLDING TAXES. Whenever the granting, vesting or
exercise of any Award granted under this Plan, or the transfer of any shares
issued upon exercise of any Award, gives rise to tax or tax withholding
liabilities or obligations, the Administering Body shall have the right to
require the Recipient to remit to the Company an amount sufficient to satisfy
any federal, state and local withholding tax requirements prior to issuance of
such shares. The Administering Body may, in the exercise of its discretion,
allow satisfaction of tax withholding requirements by accepting delivery of
stock of the Company or by withholding a portion of the stock otherwise
issuable in connection with an Award.
5.12 LEGENDS ON AWARDS AND STOCK CERTIFICATES. Each Award
Document and each certificate representing shares acquired upon vesting or
exercise of an Award shall be endorsed with all legends, if any, required by
applicable federal and state securities and other laws to be placed on the
Award Document and/or the certificate. The determination of which legends, if
any, shall be placed upon Award Documents or the certificates shall be made by
the Administering Body in its sole discretion and such decision shall be final
and binding.
5.13 EFFECT OF TERMINATION OF EMPLOYMENT ON INCENTIVE
AWARDS.
(i) Termination for Just Cause. Subject to
subsection (iii) below, and except as otherwise provided in a written agreement
between the Company and the Recipient, which may be entered into at any time
before or after termination of employment, in the event of a Just Cause
Dismissal of a Recipient all of the Recipient's unexercised Stock Options,
whether or not vested, shall expire and become unexercisable as of the date of
such Just Cause Dismissal.
(ii) Termination other than for Just Cause.
Subject to subsection (iii) below, and except as otherwise provided in a
written agreement between the Company and the Recipient, which may be entered
into at any time before or after termination of employment, in the event of a
Recipient's termination of employment for:
(A) any reason other than for Just Cause
Dismissal, death, Permanent Disability or normal retirement, the
Recipient's Stock Options, whether or not vested, shall expire and
become unexercisable as of the earlier of (1) the date such Stock
Options would expire in accordance with their terms had the Recipient
remained employed and (2) thirty days after the date of employment
termination.
(B) death, Permanent Disability or
normal retirement, the Recipient's unexercised Options shall, whether
or not vested, expire and become unexercisable as of the earlier of
(1) the date such Stock Options would expire in accordance with their
terms had the Recipient remained employed and (2) six months after the
date of employment termination.
(iii) Alteration of Vesting and Exercise Periods.
Notwithstanding anything to the contrary in subsections (i) or (ii) above, the
Administering Body may in its discretion designate shorter or longer periods to
exercise Stock Options following a Recipient's termination of employment;
provided, however, that any shorter periods determined by the Administering
Body shall be effective only if provided for in the instrument that evidences
the grant to the Recipient of such Stock Options or if such shorter period is
agreed to in writing by the Recipient. Notwithstanding anything to the
contrary herein, Stock Options shall be exercisable by a Recipient (or the
Recipient's successor in interest) following such Recipient's termination of
employment only to the extent that
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installments thereof had become exercisable on or prior to the date of such
termination; provided, however, that the Administering Body may, in its
discretion, elect to accelerate the vesting of all or any portion of any Stock
Options that had not become exercisable on or prior to the date of such
termination.
(iv) Leave of Absence. In the case of any
employee on an approved leave of absence, the Administering Body may make such
provision respecting continuance of a Stock Option as the Administering Body in
its discretion deems appropriate, except that in no event shall a Stock Option
be exercisable after the date such Stock Options would expire in accordance
with its terms had the Recipient remained continuously employed.
5.15 LIMITS ON AWARDS TO CERTAIN ELIGIBLE PERSONS.
Notwithstanding any other provision of this Plan, no one Eligible Person shall
be granted any Awards with respect to more than 500,000 shares of Common Stock
in any one calendar year; provided, however, that this limitation shall not
apply if it is not required in order for the compensation attributable to
Awards hereunder to qualify as Performance- Based Compensation. The limitation
set forth in this Section 5.15 shall be subject to adjustment as provided in
Section 3.4 or under Article VII, but only to the extent such adjustment would
not affect the status of compensation attributable to Awards hereunder as
Performance-Based Compensation.
5.16 SPECIAL PROVISIONS REGARDING CALIFORNIA PERMITTED
PLAN. Notwithstanding any provisions of this Plan to the contrary, during any
period that this Plan constitutes a California Permitted Plan, the terms of any
Awards granted during such period shall comply with the California
Commissioner's guidelines for options granted to and share purchases by
employees, directors and consultants as set forth in the California Securities
Rules Section Section 260.140.41 and 260.140.42 in effect at the time the
California Commissioner issues the qualification permit for this Plan, unless
and to the extent any such compliance is waived by the California Commissioner.
As of the Effective Date, such guidelines require, among other matters (i) that
the option exercise price of Stock Options be not less than 85% of the fair
value of the underlying shares as of the grant date of the Stock Option, with
the exercise price to be not less than 110% of the fair value as of such date
in the case of Stock Options granted to Significant Shareholders; (ii) the
right to exercise a Stock Option at a rate of at least 20% per year over a
five-year period commencing with the option grant date; (iii) in the case of
stock purchases, a purchase price of at least 85% of the fair value of the
shares at the time the stock purchase right is granted or consummated, with the
price to be 100% of the fair value of the shares at such dates in the case of
stock purchases by Significant Stockholders; and (iv) that Recipients receive
financial statements of the Company at least annually.
ARTICLE VI
INCENTIVE AWARDS
6.1 STOCK OPTIONS.
(a) Nature of Stock Options. Stock Options may be
Incentive Stock Options or Nonqualified Stock Options.
(b) Option Exercise Price. The exercise price for each
Stock Option shall be determined by the Administering Body as of the date such
Stock Option is granted. The exercise price may be greater than or less than
the Fair Market Value of the Common Stock subject to the Option, provided that
in no event shall the exercise price be less than the par value of the shares
of Common Stock subject to the Stock Option. The Administering Body may, with
the consent of the Recipient and subject to compliance with statutory or
administrative requirements applicable to Incentive Stock Options, amend the
terms of any Stock Option to provide that the exercise price of the shares
remaining subject to the Stock Option shall be reestablished at a price not
less than 100% of the Fair Market Value of the Common Stock on the effective
date of the amendment. No modification of any other term or provision of any
Stock Option which is amended in accordance with the foregoing shall be
required, although the Administering Body may, in its discretion, make such
further modifications of any such Stock Option as are not inconsistent with
this Plan.
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(c) Option Period and Vesting. Stock Options granted
hereunder shall vest and may be exercised as determined by the Administering
Body, except that exercise of such Stock Options after termination of the
Recipient's employment shall be subject to Section 5.13. Each Stock Option
granted hereunder and all rights or obligations thereunder shall expire on such
date as shall be determined by the Administering Body, but not later than l0
years after the date the Stock Option is granted and shall be subject to
earlier termination as provided herein or in the Award Document. The
Administering Body may in its discretion at any time and from time to time
after the grant of a Stock Option accelerate vesting of such Option as a whole
or part by increasing the number of shares then purchasable, provided that the
total number of shares subject to such Stock Option may not be increased.
Except as otherwise provided herein, a Stock Option shall become exercisable,
as a whole or in part, on the date or dates specified by the Administering Body
and thereafter shall remain exercisable until the expiration or earlier
termination of the Stock Option.
(d) Special Provisions Regarding Incentive Stock Options.
(i) Notwithstanding anything in this Section 6.1
to the contrary, the exercise price and vesting period of any Stock Option
intended to qualify as an Incentive Stock Option shall comply with the
provisions of Section 422 of the IRC and the regulations thereunder. As of the
Effective Date, such provisions require, among other matters, that (A) the
exercise price must not be less than the Fair Market Value of the underlying
stock as of the date the Incentive Stock Option is granted, and not less than
110% of the Fair Market Value as of such date in the case of a grant to a
Significant Stockholder; and (B) that the Incentive Stock Option not be
exercisable after the expiration of five years from the date of grant in the
case of an Incentive Stock Option granted to a Significant Stockholder.
(ii) The aggregate Fair Market Value (determined
as of the respective date or dates of grant) of the Common Stock for which one
or more Options granted to any Recipient under this Plan (or any other option
plan of the Company or any of its subsidiaries or affiliates) may for the first
time become exercisable as Incentive Stock Options under the federal tax laws
during any one calendar year shall not exceed $100,000.
(iii) Any Options granted as Incentive Stock
Options pursuant to this Plan that for any reason fail or cease to qualify as
such shall be treated as Nonqualified Stock Options.
6.2 RESTRICTED STOCK.
(a) Award of Restricted Stock. The Administering Body
shall determine the Purchase Price (if any), the terms of payment of the
Purchase Price, the restrictions upon the Restricted Stock, and when such
restrictions shall lapse.
(b) Requirements of Restricted Stock. All shares of
Restricted Stock granted or sold pursuant to this Plan will be subject to the
following conditions:
(i) No Transfer. The shares may not be sold,
assigned, transferred, pledged, hypothecated or otherwise disposed of,
alienated or encumbered until the restrictions are removed or expire;
(ii) Certificates. The Administering Body may
require that the certificates representing Restricted Stock granted or sold to
a Recipient pursuant to this Plan remain in the physical custody of an escrow
holder or the Company until all restrictions are removed or expire;
(iii) Restrictive Legends. Each certificate
representing Restricted Stock granted or sold to a Recipient pursuant to this
Plan will bear such legend or legends making reference to the restrictions
imposed upon such Restricted Stock as the Administering Body in its discretion
deems necessary or appropriate to enforce such restrictions; and
(iv) Other Restrictions. The Administering Body
may impose such other conditions on Restricted Stock as the Administering Body
may deem advisable including without limitation restrictions under the
Securities Act, under
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the Exchange Act, under the requirements of any stock exchange upon which such
Restricted Stock or shares of the same class are then listed and under any blue
sky or other securities laws applicable to such shares.
(c) Lapse of Restrictions. The restrictions imposed upon
Restricted Stock will lapse in accordance with such terms or other conditions
as are determined by the Administering Body.
(d) Rights of Recipient. Subject to the provisions of
Section 6.2(b) and any restrictions imposed upon the Restricted Stock, the
Recipient will have all rights of a stockholder with respect to the Restricted
Stock granted or sold to such Recipient under this Plan, including without
limitation the right to vote the shares and receive all dividends and other
distributions paid or made with respect thereto.
(e) Termination of Employment. Unless the Administering
Body in its discretion determines otherwise, upon a Recipient's termination of
employment for any reason, all of the Recipient's Restricted Stock remaining
subject to restrictions imposed pursuant to this Plan on the date of such
termination of employment shall be repurchased by the Company at the Purchase
Price (if any).
6.3 STOCK APPRECIATION RIGHTS.
(a) Granting of Stock Appreciation Rights. The
Administering Body may at any time and from time to time approve the grant to
Eligible Persons of Stock Appreciation Rights, related or unrelated to Stock
Options.
(b) SARs Related to Options.
(i) A Stock Appreciation Right granted in
connection with a Stock Option granted under this Plan will entitle the holder
of the related Stock Option, upon exercise of the Stock Appreciation Right, to
surrender such Stock Option, or any portion thereof to the extent previously
vested but unexercised, with respect to the number of shares as to which such
Stock Appreciation Right is exercised, and to receive payment of an amount
computed pursuant to Section 6.3(b)(iii). Such Stock Option will, to the
extent surrendered, then cease to be exercisable.
(ii) A Stock Appreciation Right granted in
connection with a Stock Option hereunder will be exercisable at such time or
times, and only to the extent that, the related Stock Option is exercisable,
and will not be transferable except to the extent that such related Stock
Option may be transferable.
(iii) Upon the exercise of a Stock Appreciation
Right related to a Stock Option, the Recipient will be entitled to receive
payment of an amount determined by multiplying: (i) the difference obtained by
subtracting the exercise price of a share of Common Stock specified in the
related Stock Option from the Fair Market Value of a share of Common Stock on
the date of exercise of such Stock Appreciation Right (or as of such other date
or as of the occurrence of such event as may have been specified in the
instrument evidencing the grant of the Stock Appreciation Right), by (ii) the
number of shares as to which such Stock Appreciation Right is exercised.
(c) SARs Unrelated to Options. The Administering Body
may grant Stock Appreciation Rights unrelated to Stock Options to Eligible
Persons. Section 6.3(b)(iii) shall be used to determine the amount payable at
exercise under such Stock Appreciation Right, except that in lieu of the Option
exercise price specified in the related Stock Option the initial base amount
specified in the Incentive Award shall be used.
(d) Limits. Notwithstanding the foregoing, the
Administering Body, in its discretion, may place a dollar limitation on the
maximum amount that will be payable upon the exercise of a Stock Appreciation
Right under this Plan.
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(e) Payments. Payment of the amount determined under the
foregoing provisions may be made solely in whole shares of Common Stock valued
at their Fair Market Value on the date of exercise of the Stock Appreciation
Right or, alternatively, at the sole discretion of the Administering Body, in
cash or in a combination of cash and shares of Common Stock as the
Administering Body deems advisable. The Administering Body has full discretion
to determine the form in which payment of a Stock Appreciation Right will be
made and to consent to or disapprove the election of a Recipient to receive
cash in full or partial settlement of a Stock Appreciation Right. If the
Administering Body decides to make full payment in shares of Common Stock, and
the amount payable results in a fractional share, payment for the fractional
share will be made in cash.
(f) Rule 16b-3. The Administering Body may, at the time
a Stock Appreciation Right is granted, impose such conditions on the exercise
of the Stock Appreciation Right as may be required to satisfy the requirements
of Rule 16b-3 (or any other comparable provisions in effect at the time or
times in question).
6.4 STOCK PAYMENTS. The Administering Body may approve
Stock Payments of the Company's Common Stock to any Eligible Person for all or
any portion of the compensation (other than base salary) or other payment that
would otherwise become payable by the Company to the Eligible Person in cash.
6.5 DIVIDEND EQUIVALENTS. The Administering Body may
grant Dividend Equivalents to any Recipient who has received a Stock Option,
SAR or other Incentive Award denominated in shares of Common Stock. Such
Dividend Equivalents shall be effective and shall entitle the recipients
thereof to payments during the Applicable Dividend Period. Dividend
Equivalents may be paid in cash, Common Stock or other Incentive Awards; the
amount of Dividend Equivalents paid other than in cash shall be determined by
the Administering Body by application of such formula as the Administering Body
may deem appropriate to translate the cash value of dividends paid to the
alternative form of payment of the Dividend Equivalent. Dividend Equivalents
shall be computed as of each dividend record date and shall be payable to
recipients thereof at such time as the Administering Body may determine.
6.6 STOCK BONUSES. The Administering Body may issue
shares of Common Stock to Eligible Persons as bonuses for services rendered or
for any other valid consideration on such terms and conditions as the
Administering Body may determine.
6.7 STOCK SALES. The Administering Body may sell to
Eligible Persons shares of Common Stock on such terms and conditions as the
Administering Body may determine.
6.8 PHANTOM STOCK. The Administering Body is authorized
to grant Awards of Phantom Stock. Phantom Stock is a cash bonus granted under
this Plan measured by the Fair Market Value of a specified number of shares of
Common Stock on a specified date, or measured by the excess of such Fair Market
Value over a specified minimum, which may but need not include a Dividend
Equivalent.
6.9 OTHER STOCK-BASED BENEFITS. The Administering Body
is authorized to grant Other Stock-Based Benefits. Other Stock- Based Benefits
are any arrangements granted under this Plan not otherwise described above
which (i) by their terms might involve the issuance or sale of Common Stock or
(ii) involve a benefit that is measured, as a whole or in part, by the value,
appreciation, dividend yield or other features attributable to a specified
number of shares of Common Stock.
ARTICLE VII
REORGANIZATIONS
7.1 CORPORATE TRANSACTIONS NOT INVOLVING A CHANGE IN
CONTROL. If the Company shall consummate any Reorganization not involving a
Change of Control in which holders of shares of Common Stock are entitled to
receive in respect of such shares any securities, cash or other consideration
(including without limitation a different number of shares of Common Stock),
each Award outstanding under this Plan shall thereafter be exercisable, in
accordance with this Plan, only for the kind and amount of securities, cash
and/or other consideration receivable upon such Reorganization by a holder of
the same number of shares of Common Stock as
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are subject to that Award immediately prior to such Reorganization, and any
adjustments will be made in the sole discretion of the Administering Body to
the terms of the Award as the Administering Body may deem appropriate to give
effect to the Reorganization.
7.2 CORPORATE TRANSACTIONS INVOLVING A CHANGE IN CONTROL.
As of the effective time and date of any Change in Control this Plan and any
then outstanding Awards (whether or not vested) shall automatically terminate
unless (i) provision is made in writing in connection with such transaction for
the continuance of this Plan and for the assumption of such Awards, or for the
substitution for such Awards of new awards covering the securities of a
successor entity or an affiliate thereof, with appropriate adjustments as to
the number and kind of securities and exercise prices, in which event this Plan
and such outstanding Awards shall continue or be replaced, as the case may be,
in the manner and under the terms so provided; or (ii) the Board otherwise
shall provide in writing for such adjustments as it deems appropriate in the
terms and conditions of the then-outstanding Awards (whether or not vested),
including without limitation (A) accelerating the vesting of outstanding
Awards, and/or (B) providing for the cancellation of Awards and their automatic
conversion into the right to receive the securities, cash or other
consideration that a holder of the shares underlying such Awards would have
been entitled to receive upon consummation of such Change in Control had such
shares been issued and outstanding immediately prior to the effective date and
time of the Change in Control (net of the appropriate option exercise prices).
If, pursuant to the foregoing provisions of this Section 7.2, this Plan and the
Awards shall terminate by reason of the occurrence of a Change in Control
without provision for any of the action(s) described in clause (i) or (ii)
hereof, then any Recipient holding outstanding Awards shall have the right, at
such time immediately prior to the consummation of the Change in Control as the
Board shall designate, to exercise the Recipient's Awards to the full extent
not theretofore exercised, including any installments which have not yet become
vested.
ARTICLE VIII
DEFINITIONS
Capitalized terms used in this Plan and not otherwise defined
shall have the meanings set forth below:
"ADMINISTERING BODY" shall mean the Board as long as no
Committee has been appointed and is in effect and shall mean the Committee once
the Committee has been appointed and is in effect.
"AFFILIATED ENTITY" means any Parent Corporation or Subsidiary
Corporation.
"APPLICABLE DIVIDEND PERIOD" means (i) the period between the
date a Dividend Equivalent is granted and the date the related Stock Option,
SAR, or other Incentive Award is exercised, terminates, or is converted to
Common Stock, or (ii) such other time as the Administering Body may specify in
the written instrument evidencing the grant of the Dividend Equivalent.
"AWARD" means any Incentive Award.
"AWARD DOCUMENT" means the agreement or confirming memorandum
setting forth the terms and conditions of an Award.
"BOARD" means the Board of Directors of the Company.
"CALIFORNIA COMMISSIONER" means the Commissioner of
Corporations of the State of California.
"CALIFORNIA PERMITTED PLAN" means this Plan when at any time
the issuance of securities under this Plan is not exempt from qualification
under the California Securities Law and the issuance of securities under this
Plan is subject to a qualification permit issued by the California
Commissioner.
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"CALIFORNIA SECURITIES LAW" means the California Corporate
Securities Law of 1968, as amended.
"CALIFORNIA SECURITIES RULES" means the Rules of the
California Commissioner adopted under the California Securities Law.
"CHANGE IN CONTROL" means the following and shall be deemed to
occur if any of the following events occur:
(i) Any Person becomes the beneficial owner
(within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 50% or more of either the then outstanding shares of Common Stock
or the combined voting power of the Company's then outstanding
securities entitled to vote generally in the election of directors; or
(ii) Individuals who, as of the effective date
hereof, constitute the Board of Directors of the Company ("Incumbent
Board") cease for any reason to constitute at least a majority of the
Board of Directors of the Company, provided that any individual who
becomes a director after the effective date hereof whose election, or
nomination for election by the Company's stockholders, is approved by
a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered to be a member of the Incumbent
Board unless that individual was nominated or elected by any Person
having the power to exercise, through beneficial ownership, voting
agreement and/or proxy, 20% or more of either the then outstanding
shares of Common Stock or the combined voting power of the Company's
then outstanding voting securities entitled to vote generally in the
election of directors, in which case that individual shall not be
considered to be a member of the Incumbent Board unless such
individual's election or nomination for election by the Company's
stockholders is approved by a vote of at least two-thirds of the
directors then comprising the Incumbent Board; or
(iii) Consummation by the Company of the sale or
other disposition by the Company of all or substantially all of the
Company's assets or a Reorganization of the Company with any other
person, corporation or other entity, other than
(A) a Reorganization that would result
in the voting securities of the Company outstanding immediately prior
thereto (or, in the case of a reorganization or merger or
consolidation that is preceded or accomplished by an acquisition or
series of related acquisitions by any Person, by tender or exchange
offer or otherwise, of voting securities representing 5% or more of
the combined voting power of all securities of the Company,
immediately prior to such acquisition or the first acquisition in such
series of acquisitions) continuing to represent, either by remaining
outstanding or by being converted into voting securities of another
entity, more than 50% of the combined voting power of the voting
securities of the Company or such other entity outstanding immediately
after such reorganization or merger or consolidation (or series of
related transactions involving such a reorganization or merger or
consolidation), or
(B) a Reorganization effected to
implement a recapitalization or reincorporation of the Company (or
similar transaction) that does not result in a material change in
beneficial ownership of the voting securities of the Company or its
successor; or
(iv) Approval by the stockholders of the Company
or an order by a court of competent jurisdiction of a plan of
liquidation of the Company.
"COMMISSION" means the Securities and Exchange Commission.
"COMMITTEE" means the committee appointed by the Board to
administer this Plan pursuant to Section 4.1.
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"COMMON STOCK" means the common stock of the Company, no par
value per share, as constituted on the Effective Date of this Plan, and as
thereafter adjusted as a result of any one or more events requiring adjustment
of outstanding Awards under Section 3.4 above.
"COMPANY" means I-Flow Corporation, a California corporation.
"DISINTERESTED DIRECTOR" means any non-employee director of
the Company who qualifies as "disinterested" within the meaning of Rule 16b-3.
"DIVIDEND EQUIVALENT" means a right granted by the Company
under Section 6.5 to a holder of a Stock Option, Stock Appreciation Right or
other Incentive Award denominated in shares of Common Stock to receive from the
Company during the Applicable Dividend Period payments equivalent to the amount
of dividends payable to holders of the number of shares of Common Stock
underlying such Stock Option, Stock Appreciation Right, or other Incentive
Award.
"EFFECTIVE DATE" means February 8, 1996, which is the date
this Plan was adopted by the Board.
"ELIGIBLE PERSON" shall include directors, officers,
employees, consultants and advisors of the Company or of any Affiliated Entity;
provided, however, that Disinterested Directors shall not be Eligible Persons
at any time the Company is an Exchange Act Registered Company.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXCHANGE ACT REGISTERED COMPANY" means that the Company has
any class of any equity security registered pursuant to Section 12 of the
Exchange Act.
"EXPIRATION DATE" means the tenth anniversary of the Effective
Date.
"FAIR MARKET VALUE" of a share of the Company's capital stock
as of a particular date shall be: (i) if the stock is listed on an established
stock exchange or exchanges (including for this purpose, the Nasdaq National
Market), the mean between the highest and lowest sale prices of the stock
quoted for such date in the Transactions Index of each such exchange as
averaged with such mean price as reported on any and all other exchanges, as
published in The Wall Street Journal and determined by the Administering Body,
or, if no sale price was quoted in any such Index for such date, then as of the
next preceding date on which such a sale price was quoted; or (ii) if the stock
is not then listed on an exchange or the Nasdaq National Market, the average of
the closing bid and asked prices per share for the stock in the over-the-
counter market as quoted on The Nasdaq Small Cap Market on such date (in the
case of (i) or (ii), subject to adjustment as and if necessary and appropriate
to set an exercise price not less than 100% of the fair market value of the
stock on the date an option is granted); or (iii) if the stock is not then
listed on an exchange or quoted in the over-the-counter market, an amount
determined in good faith by the Administering Body; provided, however, that (A)
when appropriate, the Administering in determining Fair Market Value of capital
stock of the Company may take into account such other factors as it may deem
appropriate under the circumstances and (B) if the stock is traded on the
Nasdaq Small Cap Market and both sales prices and bid and asked prices are
quoted or available, the Administering Body may elect to determine Fair Market
Value under either clause (i) or (ii) above. Notwithstanding the foregoing,
the Fair Market Value of capital stock for purposes of grants of Incentive
Stock Options shall be determined in compliance with applicable provisions of
the IRC. The Fair Market Value of rights or property other than capital stock
of the Company means the fair market value thereof as determined by the
Committee on the basis of such factors as it may deem appropriate.
"INCENTIVE AWARD" means any Stock Option, Restricted Stock,
Stock Appreciation Right, Stock Payment, Stock Bonus, Stock Sale, Phantom
Stock, Dividend Equivalent, or Other Stock-Based Benefit granted or sold to an
Eligible Person under this Plan.
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"INCENTIVE STOCK OPTION" means a Stock Option that qualifies
as an incentive stock option under Section 422 of the IRC.
"IRC" means the Internal Revenue Code of 1986, as amended.
"JUST CAUSE DISMISSAL" shall mean a termination of a
Recipient's employment for any of the following reasons: (i) the Recipient
violates any reasonable rule or regulation of the Board, the Company's Chief
Executive Officer or the Recipient's superiors that results in damage to the
Company or which, after written notice to do so, the Recipient fails to correct
within a reasonable time; (ii) any willful misconduct or gross negligence by
the Recipient in the responsibilities assigned to the Recipient; (iii) any
willful failure to perform the Recipient's job as required to meet Company
objectives; (iv) any wrongful conduct of a Recipient which has an adverse
impact on the Company or which constitutes a misappropriation of Company
assets; (v) the Recipient's performing services for any other person or entity
which competes with the Company while the Recipient is employed by the Company,
without the written approval of the Chief Executive Officer of the Company; or
(vi) any other conduct that the Administering Body determines constitutes Just
Cause for Dismissal; provided, however, that if a Recipient is party to an
employment agreement with the Company providing for just cause dismissal (or
some comparable notion) of Recipient from Recipient's employment with the
Company, "Just Cause Dismissal" for purposes of this Plan shall have the same
meaning as ascribed thereto or to such comparable notion in such employment
agreement.
"NONQUALIFIED STOCK OPTION" means a Stock Option that is not
an Incentive Stock Option.
"OTHER STOCK-BASED BENEFITS" means an Incentive Award granted
under Section 6.9 of this Plan.
"OUTSIDE DIRECTOR means an "outside director" as defined in
the regulations adopted under Section 162(m) of the IRC.
"PARENT CORPORATION" means any Parent Corporation as defined
in Section 424(e) of the IRC.
"PAYMENT EVENT" means the event or events giving rise to the
right to payment of a Performance Award.
"PERFORMANCE-BASED COMPENSATION" means performance-based
compensation as described in Section 162(m) of the IRC.If the amount of
compensation an Eligible Person will receive under any Award is not based
solely on an increase in the value of Common Stock after the date of grant or
award, the Committee, in order to qualify an Award as performance-based
compensation under Section 162(m) of the IRC, can condition the grant, award,
vesting, or exercisability of such an Award on the attainment of a
preestablished, objective performance goal. For this purpose, a
preestablished, objective performance goal may include one or more of the
following performance criteria: (a) cash flow, (b) earnings per share
(including earning before interest, taxes, and amortization), (c) return on
equity, (d) total stockholder return, (e) return on capital, (f) return an
assets or net assets, (g) income or net income, (h) operating income or net
operating income, (i) operating margin, (j) return on operating revenue, and
(k) any other similar performance criteria.
"PERSON" means any person, entity or group, within the meaning
of Section 13(d) or 14(d) of the Exchange Act, but excluding (i) the Company
and its subsidiaries, (ii) any employee stock ownership or other employee
benefit plan maintained by the Company that is qualified under ERISA and (iii)
an underwriter or underwriting syndicate that has acquired the Company's
securities solely in connection with a public offering thereof.
"PERMANENT DISABILITY" shall mean that the Recipient becomes
physically or mentally incapacitated or disabled so that the Recipient is
unable to perform substantially the same services as the Recipient performed
prior to incurring such incapacity or disability (the Company, at its option
and expense, being entitled to retain a physician to confirm the existence of
such incapacity or disability, and the determination of such physician to be
binding upon the Company and the Recipient), and such incapacity or disability
continues for a period of
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\three consecutive months or six months in any 12-month period or such other
period(s) as may be determined by the Committee with respect to any Award,
provided that for purposes of determining the period during which an Incentive
Stock Option may be exercised pursuant to Section 5.13(ii) hereof, Permanent
Disability shall mean "permanent and total disability" as defined in Section
22(e) of the IRC.
"PHANTOM STOCK" means an Incentive Award granted under
Section 6.8 of this Plan.
"PLAN" means this 1996 Stock Incentive Plan of the Company.
"PLAN TERM" means the period during which this Plan remains in
effect (commencing the Effective Date and ending on the Expiration Date).
"PURCHASE PRICE" means the purchase price (if any) to be paid
by a Recipient for Restricted Stock as determined by the Committee (which price
shall be at least equal to the minimum price required under applicable laws and
regulations for the issuance of Common Stock which is nontransferable and
subject to a substantial risk of forfeiture until specific conditions are met).
"RECIPIENT" means a person who has received an Award under
this Plan.
"REORGANIZATION" means any merger, consolidation or other
reorganization.
"RESTRICTED STOCK" means Common Stock that is the subject of
an Award made under Section 6.2 and which is nontransferable and subject to a
substantial risk of forfeiture until specific conditions are met as set forth
in this Plan and in any statement evidencing the grant of such Incentive Award.
"RULE 16B-3" means Rule 16b-3 under the Exchange Act.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SIGNIFICANT STOCKHOLDER" is an individual who, at the time a
Stock Option is granted to such individual under this Plan, owns more than ten
percent (10%) of the combined voting power of all classes of stock of the
Company or of any Parent Corporation or Subsidiary Corporation (after
application of the attribution rules set forth in Section 424(d) of the IRC).
"STOCK APPRECIATION RIGHT" or "SAR" means a right granted
under Section 6.3 to receive a payment that is measured with reference to the
amount by which the Fair Market Value of a specified number of shares of Common
Stock appreciates from a specified date, such as the date of grant of the SAR,
to the date of exercise.
"STOCK BONUS" means an issuance or delivery of unrestricted or
restricted shares of Common Stock under Section 6.6 of this Plan as a bonus for
services rendered or for any other valid consideration under applicable law.
"STOCK PAYMENT" means a payment in shares of the Company's
Common Stock to replace all or any portion of the compensation (other than base
salary) that would otherwise become payable to a Recipient.
"STOCK OPTION" means a right to purchase stock of the Company
granted under Section 6.1 of this Plan.
"STOCK SALE" means a sale of Common Stock to an Eligible
Person under Section 6.7 of this Plan.
"SUBSIDIARY CORPORATION" means any Subsidiary Corporation as
defined in Section 425(f) of the IRC.
A-17
<PAGE> 37
I-FLOW CORPORATION
PROXY SOLICITED BY BOARD OF DIRECTORS
The undersigned hereby appoints Donald M. Earhart and James J. Dal
Porto, and each of them, as Proxies, each with the power to appoint such
Proxy's substitute, and hereby authorizes them to represent and vote as
designated below all the shares of Common Stock of I-Flow Corporation held of
record by the undersigned on March 29, 1996 at the Annual Meeting of
Shareholders to be held on May 17, 1996, and at any adjournments or
postponements thereof. The proposals referred to below are described in the
Proxy Statement for the Annual Meeting.
Management recommends that you vote FOR all nominees for director
listed below, and FOR Proposals 2 and 3.
1. Election of Directors:
FOR [ ] All nominees listed below WITHHOLD [ ] Authority to vote for all
(except as indicated to nominees listed below.
the contrary below)
INSTRUCTIONS: To withhold authority to vote for any individual nominee, line
through the nominee's name.
Donald M. Earhart Dr. John H. Abeles Dr. Henry T. Tai Joel S. Kanter
Jack H. Halperin Erik H. Loudon Charles C. McGettigan
2. Proposal to adopt a new 1996 Stock Incentive Plan as described in the Proxy
Statement.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Proposal to amend the Company's By-Laws to effect an increase in the
authorized number of Directors of the Company.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting.
(Please sign and date on the reverse side)
- --------------------------------------------------------------------------------
<PAGE> 38
(Continued from other side)
This proxy will be voted as directed. If no direction is made, this Proxy will
be voted FOR
the election of the seven director nominees set forth in the accompanying Proxy
Statement and FOR Proposals 2 and 3.
Date: , 1996
----------------------------
---------------------------------------
(Shares of Common Stock)
Please sign exactly as name appears
hereon. When shares are held by joint
tenants, both should sign. When signing
as an attorney, executor, administrator,
trustee or guardian, please give full
title as such. If a corporation,
please sign in full corporate name by
President or authorized officer. If a
partnership, limited liability company
or other entity, please sign entity's
full name by authorized person.
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PLEASE MARK, DATE, SIGN AND RETURN THIS
PROXY PROMPTLY IN THE ENCLOSED ENVELOPE
