SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act
of 1934 (Amendment No. ____)
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
EVEREST MEDICAL CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing:
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
EVEREST MEDICAL CORPORATION
13755 First Avenue North
Minneapolis, Minnesota 55441
(612) 473-6262
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 21, 1997
TO THE SHAREHOLDERS OF EVEREST MEDICAL CORPORATION:
Notice is hereby given that the Annual Meeting of the Shareholders of
Everest Medical Corporation (the "Company") will be held on Monday, April 21,
1997, at 3:30 p.m. local time, at the Holiday Inn Minneapolis West, 9970 Wayzata
Boulevard, Minneapolis, Minnesota 55426, for the following purposes:
1. To elect four directors to serve for the ensuing year and until their
successors are elected and qualified.
2. To approve the 1997 Stock Option Plan.
3. To consider and act upon a proposal to ratify the selection of Ernst &
Young LLP as independent auditors of the Company for the fiscal year
ending December 31, 1997.
4. To transact such other business as may be properly brought before the
Annual Meeting or any adjournment thereof.
Only shareholders of record as shown on the books of the Company at the
close of business on March 5, 1997 will be entitled to vote at the Annual
Meeting or any adjournment thereof.
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING. WHETHER OR NOT YOU
PLAN TO BE PERSONALLY PRESENT AT THE MEETING, HOWEVER, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. IF YOU
LATER DECIDE TO REVOKE YOUR PROXY, YOU MAY DO SO AT ANY TIME BEFORE IT IS
EXERCISED.
By Order of the Board of Directors
David D. Koentopf
Chairman of the Board
March 21, 1997
<PAGE>
EVEREST MEDICAL CORPORATION
13755 First Avenue North
Minneapolis, Minnesota 55441
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS,
APRIL 21, 1997
INTRODUCTION
Your proxy is solicited by the Board of Directors of Everest Medical
Corporation (the "Company") for use at the Annual Meeting of Shareholders to be
held on Monday, April 21, 1997, at 3:30 p.m. local time, at the Holiday Inn
Minneapolis West, 9970 Wayzata Boulevard, Minneapolis, Minnesota 55426, or at
any adjournment thereof, for the purposes set forth in the Notice of Annual
Meeting.
The cost of soliciting proxies, including the preparation, assembly and
mailing of the proxies and soliciting material, as well as the cost of
forwarding such material to the beneficial owners of the Company's stock, will
be borne by the Company. Directors, officers and regular employees of the
Company may, without compensation other than their regular compensation, solicit
proxies personally or by telephone. The Company may reimburse brokerage firms
and others for expenses in forwarding proxy material to the beneficial owners of
the Company's stock.
Any shareholder giving a proxy may revoke it any time prior to its use
at the Annual Meeting by giving written notice of such revocation to the
Secretary of the Company. Written notice of revocation may be given prior to the
Annual Meeting, or a shareholder may appear at the Annual Meeting and give
written notice of revocation prior to use of the proxy. The enclosed proxy, when
properly signed and returned to the Company, will be voted as directed therein.
Proxies which are signed by shareholders but which lack specific instruction
with respect to any proposals will be voted in favor of the proposals set forth
in the Notice of Meeting and in favor of the slate of directors proposed by the
Board of Directors and listed herein.
The presence at the Annual Meeting in person or by proxy of the holders
of a majority of the outstanding shares of the Company's stock entitled to vote
shall constitute a quorum for the transaction of business. If a broker returns a
"non-vote" proxy, indicating a lack of voting instructions by the beneficial
holder of the shares and a lack of discretionary authority on the part of the
broker to vote on a particular matter, then the shares covered by such non-vote
shall be deemed present at the meeting for purposes of determining a quorum but
shall not be deemed to be represented at the meeting for purposes of calculating
the vote required for approval of such matter. If a shareholder abstains from
voting as to any matter, then the shares held by such shareholder shall be
deemed present at the meeting for purposes of determining a quorum and for
purposes of calculating the vote with respect to such matter, but shall not be
deemed to have been voted in favor of such matter. An abstention as to any
proposal will therefore have the same effect as a vote against the proposal.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL OF THE
PROPOSALS SET FORTH IN THE NOTICE OF MEETING.
The Company expects that this Proxy Statement, the Proxy and Notice of
Annual Meeting will first be mailed to shareholders on or about March 21, 1997.
- 1 -
<PAGE>
OUTSTANDING SHARES AND VOTING RIGHTS
The Board of Directors of the Company has fixed March 5, 1997 as the
record date for determining shareholders entitled to notice of and to vote at
the 1997 Annual Meeting. Persons who are not shareholders of record on such date
will not be allowed to vote at the Annual Meeting. At the close of business on
March 5, 1997, there were 7,005,934 shares of Common Stock (the "Common Stock"),
636,937 shares of Series A Convertible Preferred Stock, 652,273 shares of Series
B 8% Convertible Preferred Stock, 410,906 shares of Series C 6% Convertible
Preferred Stock and 471,500 shares of Series D 10% Convertible Preferred Stock
(the Series A, Series B, Series C and Series D Convertible Preferred Stock are
hereinafter collectively referred to as "Preferred Stock"), all of which have a
par value of $.01, issued and outstanding. Each share of Common Stock and
Preferred Stock is entitled to one vote in person or by proxy on each matter to
be voted on at the Annual Meeting, voting together as a single class. Holders of
Common Stock and Preferred Stock are not entitled to cumulate their votes for
the election of directors.
SECURITY OWNERSHIP OF MANAGEMENT AND
CERTAIN BENEFICIAL OWNERS
The following table sets forth as of March 5, 1997 certain information
regarding beneficial ownership of the Company's capital stock by: (i) each
person known by the Company to be the beneficial owner of more than 5% of any
class of the outstanding capital stock; (ii) each director and nominee of the
Company; (iii) the executive officers named in the Summary Compensation Table;
and (iv) all executive officers and directors of the Company as a group. Unless
otherwise indicated, each holder named or included in the group has sole voting
and investment power with respect to the shares set forth opposite such holder's
name.
SEE TABLE ON FOLLOWING PAGES
- 2 -
<PAGE>
<TABLE>
<CAPTION>
Shares of Series A Shares of Series B
Shares of Common Stock Convertible Preferred Convertible Preferred
Beneficially Owned (1)(2) Stock Beneficially Owned Stock Beneficially Owned
------------------------- ------------------------ ------------------------
Name (and Address of
5% Owners) or Percent Percent Percent
Identity of Group Amount of Class Amount of Class Amount of Class
- ------------------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
David D. Koentopf 45,000(3) * -- -- -- --
John L. Shannon, Jr. 322,823(4) 4.4% -- -- -- --
Donald R. Brattain 317,588(5) 4.4% 40,000 6.3% 90,910 13.9%
601 Lakeshore Pkwy.
Suite 1140
Minnetonka, MN 55305
Richard J. Migliori, M.D. 10,000(3) * -- -- -- --
R. Keith Poppe 41,786(6) * -- -- -- --
Perkins Capital 2,682,300(7) 37.9% -- -- 5,000 *
Management, Inc.
730 East Lake Street
Wayzata, MN 55391
John R. Albers 955,630(8) 12.4% 412,937 64.8% 109,090 16.7%
9400 North Central Expy
Suite 1250
Dallas, TX 75231
Okabena Partnership K 390,909(9) 5.4% -- -- -- --
90 S. 7th Street, #5140
Minneapolis, MN 55402
Aaron Boxer TTEE Aaron 357,454(8) 4.9% 140,000 22.0% 36,000 5.5%
Boxer Rev Trust
7287 Sidonia Court
Boca Raton, FL 33433-6932
Kenneth R. Parker 149,000(8) 2.1% -- -- 50,000 7.7%
1250 - 11th St. SW
Willmar, MN 56201
Jeffrey A. Sowada 90,000(10) 1.3% -- -- -- --
1151 Dunbar Way
Mahtomedi, MN 55115
VBS General Partnership 175,000(8) 2.4% -- -- 50,000 7.7%
445 Tigertail Road
Los Angeles, CA 90049
John O. Hanson 170,000(8) 2.4% -- -- 40,000 6.1%
14116 Frontier Lane
Burnsville, MN 55337
Steven G. Loe 36,363 * -- -- -- --
#4 Watertower Place
4300 Baker Road
Minnetonka, MN 55343
Jennifer J. Naegle TTEE 36,363 * -- -- -- --
Jennifer J. Naegle Rev
Trust dtd 3/15/95
150 Bradley Place, #803
Palm Beach, FL 33408
Steve Romanek 34,545 * -- -- -- --
3571 Hwy. 33 North
Cloquet, MN 55720
Paul A. Liedl 51,400 * -- -- -- --
531 Mariner Drive
Bayport, MN 55003
James N. Owens TTEE 40,000 * -- -- -- --
James N. Owens Rev Trust
P.O. Box 2387
Port Aransas, TX 78373
All current executive officers 795,183(11) 10.3% 40,000 6.3% 90,910 13.9%
and directors as a group (8
persons)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Shares of Series C Shares of Series D
Convertible Preferred Convertible Preferred
Stock Beneficially Owned Stock Beneficially Owned
------------------------ ------------------------
Name (and Address of
5% Owners) or Percent Percent
Identity of Group Amount of Class Amount of Class
- ------------------- ------ -------- ------ --------
<S> <C> <C> <C> <C>
David D. Koentopf -- -- -- --
John L. Shannon, Jr. -- -- -- --
Donald R. Brattain -- -- -- --
601 Lakeshore Pkwy.
Suite 1140
Minnetonka, MN 55305
Richard J. Migliori, M.D. -- -- -- --
R. Keith Poppe -- -- -- --
Perkins Capital -- -- -- --
Management, Inc.
730 East Lake Street
Wayzata, MN 55391
John R. Albers -- -- 100,000 21.2%
9400 North Central Expy
Suite 1250
Dallas, TX 75231
Okabena Partnership K -- -- -- --
90 S. 7th Street, #5140
Minneapolis, MN 55402
Aaron Boxer TTEE Aaron 145,454 35.4% -- --
Boxer Rev Trust
7287 Sidonia Court
Boca Raton, FL 33433-6932
Kenneth R. Parker -- -- -- --
1250 - 11th St. SW
Willmar, MN 56201
Jeffrey A. Sowada -- -- 25,000 5.3%
1151 Dunbar Way
Mahtomedi, MN 55115
VBS General Partnership 50,000 12.2% 25,000 5.3%
445 Tigertail Road
Los Angeles, CA 90049
John O. Hanson -- -- 50,000 10.6%
14116 Frontier Lane
Burnsville, MN 55337
Steven G. Loe 36,363 8.8% -- --
#4 Watertower Place
4300 Baker Road
Minnetonka, MN 55343
Jennifer J. Naegle TTEE 36,363 8.8% -- --
Jennifer J. Naegle Rev
Trust dtd 3/15/95
150 Bradley Place, #803
Palm Beach, FL 33408
Steve Romanek 34,545 8.4% -- --
3571 Hwy. 33 North
Cloquet, MN 55720
Paul A. Liedl -- -- 50,000 10.6%
531 Mariner Drive
Bayport, MN 55003
James N. Owens TTEE 10,000 2.4% 30,000 6.4%
James N. Owens Rev Trust
P.O. Box 2387
Port Aransas, TX 78373
All current executive officers -- -- -- --
and directors as a group (8
persons)
</TABLE>
- 4 -
<PAGE>
* Less than 1% of the outstanding shares.
(1) Shares not outstanding, but deemed beneficially owned by virtue of the
right of a holder or member of a group to acquire them within 60 days
are treated as outstanding only when determining the amount and percent
owned by such holder or group.
(2) Includes shares issuable upon conversion of Preferred Stock
beneficially owned by such persons, which shares are also shown
separately in the table.
(3) Represents shares that holder has the right to acquire pursuant to
exercise of currently exercisable options.
(4) Includes 320,000 shares that Mr. Shannon has the right to acquire
pursuant to currently exercisable options.
(5) Includes 104,165 shares Mr. Brattain has a right to acquire upon
exercise of currently exercisable warrants and 40,000 shares he has the
right to acquire pursuant to the exercise of currently exercisable
options.
(6) Includes 19,554 shares that Mr. Poppe has the right to acquire pursuant
to currently exercisable options.
(7) Includes 1,948,300 shares held by Perkins Capital Management, Inc.
("Perkins Capital") on behalf of clients for which Perkins Capital acts
as fiduciary; 67,000 shares that may be acquired upon exercise of
currently exercisable warrants held for clients of Perkins Capital;
600,000 shares owned by The Perkins Opportunity Fund (the "Perkins
Fund"), for which Perkins Capital acts as investment adviser. Perkins
Capital disclaims beneficial ownership of shares held by Perkins Fund.
Perkins Capital has sole power to vote 860,000 of the shares, including
the 600,000 shares owned by the Perkins Fund, and no power to vote the
remaining 1,822,300 shares. The Company has relied upon information set
forth in a Schedule 13G dated February 4, 1997 filed with the
Securities and Exchange Commission by Perkins Capital and the Perkins
Fund.
(8) Includes shares that holder has the right to acquire pursuant to
currently exercisable warrants: Mr. Albers - 109,090 shares; Aaron
Boxer Trust - 36,000 shares; Mr. Parker - 50,000 shares; VBS
Partnership - 50,000 shares; and Mr. Hanson - 40,000 shares.
(9) Includes 290,909 shares that Okabena Partnership K has the right to
acquire pursuant to a currently exercisable warrant. See "Certain
Transactions."
(10) Includes 60,000 shares held by Mr. Sowada's spouse and 5,000 shares
held by Mr. Sowada as a trustee of a trust.
(11) Includes 508,700 shares which could be acquired upon currently
exercisable options and 104,165 shares which could be acquired upon
exercise of currently exercisable warrants.
- 5 -
<PAGE>
ELECTION OF DIRECTORS
(Proposal #1)
Nomination
The Bylaws of the Company provide that the Board shall consist of four
members, or such other number as may be determined by the Board of Directors or
by the shareholders, and the Certificate of Designation for the Company's Series
A Convertible Preferred Stock ("Series A Preferred Stock") provides that the
Board shall consist of not more than seven members as long as any shares of
Series A Preferred Stock are outstanding. The Board of Directors has determined
that the Board will consist of five members. Four directors of the Company will
be elected at the Annual Meeting, and one seat on the Board will be left vacant
as described in the following paragraph. Nominees to the Board of Directors are
elected by a majority of the votes cast in person or by proxy, with the Common
Stock and Preferred Stock voting together as a single class.
In addition, the holders of a majority of the outstanding shares of
Series A Preferred Stock, voting as a single class, are entitled to elect one
director. Pursuant to the terms of the Company's Articles of Incorporation, the
holders of a majority of the outstanding shares of Series A Preferred Stock have
the right to designate an individual for one directorship on the Company's Board
of Directors. As of the date of this Proxy Statement, the Company has not been
advised that the holders of a majority of the Series A Preferred Stock want to
designate an individual as a nominee for election as a director at the 1997
Annual Meeting. A vacancy on the Board remains for this purpose. All of the
nominees are members of the current Board of Directors and were elected at last
year's Annual Meeting of Shareholders. If, prior to the Annual Meeting, it
should become known to the Board of Directors that any one of the nominees will
be unable or unwilling to serve as a director after the Annual Meeting, the
proxies will be voted for such substitute nominee as may be selected by the
Board of Directors. Alternatively, the proxies may, at the discretion of the
Board of Directors, be voted for such fewer number of nominees. The Board of
Directors has no reason to believe that any of the nominees will be unable or
unwilling to serve.
In the absence of other instructions, the proxies will be voted for
each of the individuals named below, each of whom the Company's Board of
Directors proposes for election as a director of the Company. If elected, such
individuals will serve until the next Annual Meeting of Shareholders and until
their successors are duly elected and qualified.
THE BOARD RECOMMENDS A VOTE FOR THE ELECTION
OF EACH OF THE NOMINEES LISTED BELOW.
- 6 -
<PAGE>
Information About Nominees
The following information has been furnished to the Company by the
respective nominees for the directorships.
Director
Name Age Position Since
David D. Koentopf 54 Chairman of the Board 1993
John L. Shannon, Jr. 43 President, Chief Executive 1993
Officer and Director
Donald R. Brattain 56 Director 1991
Richard J. Migliori, M.D. 40 Director 1995
David D. Koentopf has served as Chairman of the Board since May 1993.
Mr. Koentopf was Interim President and Chief Executive Officer from May 1993
through August 1993. From June 1985 to December 1992, he held various positions
with LIFETOUCH Inc., a school photography and portrait company, most recently as
President and Chief Executive Officer. Mr. Koentopf is a director of Arden
Industrial Products, Inc. and LifeRate Systems, Inc.
John L. Shannon, Jr. has served as President and Chief Executive
Officer since August 1993. Mr. Shannon was President and Chief Executive Officer
of EdenTec Corporation, a medical device manufacturer, from May 1989 to June
1993. From November 1985 to May 1989, Mr. Shannon served in various capacities
with Threshold Venture, Inc., a venture capital firm, most recently as
President.
Donald R. Brattain has been President of Brattain and Associates, LLC,
an investment management company, since May 1985. Mr. Brattain is a director of
Sunrise Resources, Inc., Barefoot Grass Lawn Service, Inc., Harmony Brook, Inc.
and Featherlite Mfg., Inc. Mr. Brattain was originally designated for election
to the Board by Miller, Johnson & Kuehn, Incorporated pursuant to an
Underwriting Agreement dated December 6, 1990 which arose from the Company's
initial public offering.
Richard J. Migliori, M.D. has served as Chief Executive Officer of
United Health Care of New England since September 1996. Dr. Migliori served as
Senior Vice President and Chief Operating Officer of Health Systems Minnesota
from August 1994 to September 1996 and as Staff Surgeon at Park Nicollet Medical
Center from April 1989 until September 1996.
Board and Committee Meetings
The Company's Board of Directors met four times and took action by
written consent three times during fiscal 1996. Each director attended 75% or
more of the meetings of the Board of Directors and committees on which such
director served during 1996.
The Board of Directors has established a Compensation Committee which
reviews general programs of compensation and benefits for all employees of the
Company and makes recommendations to the Board concerning such matters as
compensation to be paid to the Company's officers and directors. The
Compensation Committee consists of David D. Koentopf and Donald R. Brattain. The
Compensation Committee did not meet during 1996, but it took action by unanimous
written consent twice during 1996.
The Board of Directors has established a Stock Option Committee which
administers the Company's Stock Option Plans and the Employee Stock Purchase
Plan. The Stock Option Committee consists of David D. Koentopf and Donald R.
Brattain. The Stock Option Committee did not meet during 1996, but it took
action by unanimous written consent five times during 1996.
- 7 -
<PAGE>
The Board of Directors has established an Audit Committee which
provides assistance to the Board in satisfying its fiduciary responsibilities
relating to accounting, auditing, operating and reporting practices of the
Company. The Audit Committee reviews the annual financial statements of the
Company, the selection and work of the Company's independent auditors and the
adequacy of internal controls for compliance with corporate policies and
directives. David D. Koentopf and Donald R. Brattain are the current Audit
Committee members, and the Audit Committee met once during 1996.
The Board of Directors has not established a Nominating Committee.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth all cash compensation paid or to be paid
by the Company, as well as certain other compensation paid or accrued during
each of the Company's last three fiscal years, to the Company's Chief Executive
Officer and the only other person who served as an executive officer during
fiscal 1996 whose salary and bonus exceeded $100,000 for fiscal 1996.
<TABLE>
<CAPTION>
Long Term Compensation
---------------------------------
Awards Payouts
---------------------------------
Restricted LTIP All Other
Name and Principal Fiscal Stock Payouts Compensation
Position Year Annual Compensation Awards ($) Options ($) ($)
- ---------------------- ----- ------------------------------------ ---------- ------- ----- ----
Salary ($) Bonus ($) Other ($)
---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John L. Shannon, Jr. 1996 150,000 -- -- -- -- -- --
President and Chief 1995 150,000 -- -- -- -- -- --
Executive Officer 1994 129,269 -- -- -- 400,000 -- --
R. Keith Poppe 1996 85,181(1) 12,621 -- -- 19,554 -- 19,411(2)
Former Vice President 1995 90,000 8,224 -- -- 15,000 -- --
of Sales 1994 88,000 -- -- -- 25,000 -- --
</TABLE>
(1) Includes a payment for accrued vacation in the amount of $10,992.
(2) Represents payments made to Mr. Poppe after his resignation as an
officer and employee of the Company on October 25, 1996 in connection
with Mr. Poppe's agreement to not compete with the Company.
Option Grants During 1996 Fiscal Year
The following table provides information regarding stock options
granted during fiscal 1996 to the named executive officers in the Summary
Compensation Table. The Company has not granted any stock appreciation rights.
<TABLE>
<CAPTION>
Percent of
Total Options Exercise or
Options granted Base Price
Name Granted in Fiscal Year Per Share Expiration Date
<S> <C> <C> <C> <C>
John L. Shannon, Jr. -- -- -- --
R. Keith Poppe 19,554(1) 30.5% $3.31 10/27/01
</TABLE>
- -------------------
(1) Option became exercisable on October 26, 1996, the date of grant. The
exercise price is equal to 100% of the fair market value of the Common
Stock on the date of grant.
- 8 -
<PAGE>
Option Exercises During 1996 Fiscal Year and Fiscal Year-End Option Values
The following table provides information as to options exercised by the
executive officers named in the Summary Compensation Table during fiscal 1996
and the number and value of options at December 31, 1996. The Company has no
outstanding stock appreciation rights.
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Shares Options at Options at
Acquired December 31, 1996 December 31, 1996
on Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable(1)
<S> <C> <C> <C> <C>
John L. Shannon, Jr. -- -- 320,000 exercisable $296,000 exercisable
40,000 unexercisable $74,000 unexercisable
R. Keith Poppe -- -- 54,304 exercisable $42,833 exercisable
20,250 unexercisable $35,167 unexercisable
</TABLE>
(1) Value is calculated on the basis of the difference between the option
exercise price and $2.75, the closing price for the Company's Common
Stock at December 31, 1996 as quoted on the Nasdaq SmallCap Market,
multiplied by the number of shares of Common Stock underlying the
option.
Compensation of Directors
Each director who is not an employee of the Company ("Non-Employee
Director") was paid $250 for each Board meeting attended. The Company reimburses
directors for out-of-pocket expenses incurred while attending meetings. In
addition, Non-Employee Directors have been automatically granted options under
the 1992 Stock Option Plan to purchase 5,000 shares of Common Stock upon initial
election and upon re-election at each annual meeting of shareholders; provided,
however, that if a Non-Employee Director is initially elected by the Board or at
a special shareholders' meeting, the number of shares shall be equal to 5,000
multiplied by the number of months from the date of the initial election to the
next annual meeting, divided by 12. The automatic options have an exercise price
per share equal to 100% of the fair market value of the Company's Common Stock
on the date of grant. The automatic options expire on the earlier of (i) three
months after the optionee ceases to be a director (except by death) and (ii) ten
years after the date of grant. In the event of the death of a Non-Employee
Director, any option granted to such Non-Employee Director may be exercised at
any time within twelve (12) months of the death of such Non-Employee Director or
on the date on which the option, by its terms, expires, whichever is earlier.
On January 31, 1997, the Board adopted the 1997 Stock Option Plan,
subject to shareholder approval, which plan provides for the automatic grant of
options to purchase 10,000 shares with basically the same terms as the 1992 Plan
as set forth above. For a complete description of the formula grants provided in
the 1997 Plan, see Grants to Non-Employee Directors in Proposal #3.
Employment Contracts and Termination of Employment Arrangements
The Company entered into an employment agreement dated August 9, 1993
with John L. Shannon, Jr., which agreement was amended on May 10, 1994, August
25, 1995 and December 11, 1996. Pursuant to the terms of the agreement, as
amended, Mr. Shannon's annual base pay for each of 1996 and 1997 is $150,000,
and the agreement terminates on December 31, 1997. The agreement provides for
compensation in the event Mr. Shannon's employment with the Company is
terminated under certain circumstances. Upon termination of employment for any
- 9 -
<PAGE>
reason other than for cause or voluntary resignation, Mr. Shannon will receive a
severance payment equal to his base pay for six months following termination of
employment. In addition, such severance payment shall be payable to Mr. Shannon
if the Company does not extend Mr. Shannon's employment beyond December 31, 1997
and Mr. Shannon desires to continue such employment. Mr. Shannon has agreed to a
one-year non-compete provision following the term of his employment agreement
with the Company. If the Company is acquired by another entity, either pursuant
to a purchase of assets or the acquisition of 50% or more of the Company's
outstanding capital stock, Mr. Shannon will be paid $250,000.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "SEC"). Officers, directors and greater than ten-percent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on its review of the copies of such forms received by it,
the Company believes that, during fiscal year 1996, all officers, directors and
greater than ten-percent beneficial owners complied with the applicable filing
requirements.
Certain Transactions
Pursuant to an agreement dated February 18, 1994, the Company
restructured outstanding convertible promissory notes issued in February 1992 in
the principal amount of $965,000, including a note in the principal amount of
$100,000 to Donald R. Brattain, a director, to add the accrued interest to the
principal amount of the notes, increasing the principal amount due on Mr.
Brattain's note to $116,000. The note had an interest rate of 8% per year
through February 18, 1995, increasing to 13% per year on February 19, 1995.
Periodic principal and interest payments were made on the note; and, on February
16, 1996, the outstanding principal and interest was paid in full. In connection
with the initial 1992 transaction, Mr. Brattain was issued a warrant to purchase
7,272 shares at $2.75 per share for a period of five years, which warrant was
exercised by Mr. Brattain on February 18, 1997. Upon the restructuring in 1994,
the Company issued Mr. Brattain an additional five-year warrant to purchase
6,327 shares of Common Stock with an exercise price of $2.75, which warrant
automatically increased on the anniversary date of issuance in an amount equal
to 20% of the principal amount of the unpaid principal of the note divided by
the exercise price of the warrant. Thus, on February 19, 1995, the warrant
issued to Mr. Brattain upon the restructuring increased to permit the purchase
of 13,255 shares. The warrants provide for certain demand and incidental
registration rights with respect to any shares of Common Stock issuable upon
exercise of the warrants.
On February 16, 1996, the Company issued a $500,000, 13% Convertible
Note with principal due in full in February 1998 to Okabena Partnership K
("Okabena"), a principal shareholder of the Company. The proceeds from this
financing were used to pay off outstanding principal and interest in the amount
of $517,000 under the convertible notes which were originally issued by the
Company in February 1992 and restructured in 1994, including the convertible
note issued to Mr. Brattain discussed above. The note was secured by a security
interest in all of the assets of the Company, being subordinate only to senior
bank debt, if and when obtained. In connection with such financing, the Company
also issued Okabena a five-year warrant to purchase up to 290,909 shares of
Company Common Stock at an exercise price of $2.75 per share in exchange for the
cancellation of a warrant previously issued to Okabena to purchase 290,909
shares of Common Stock at an exercise price of $3.50 per share. In June 1996,
the note was converted into 200,000 shares of Common Stock of the Company at
$2.50 per share.
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<PAGE>
APPROVAL OF THE COMPANY'S 1997 STOCK OPTION PLAN
(Proposal #2)
General
On January 31, 1997, the Board of Directors adopted the 1997 Stock
Option Plan (the "1997 Plan") subject to shareholder approval, and reserved
500,000 shares of Common Stock for issuance pursuant to the 1997 Plan. The Board
has determined that no additional options shall be granted to non-employee
directors pursuant to the formula plan in the Company's 1992 Stock Option Plan
(the "1992 Plan") if the 1997 Plan is approved by the shareholders. There are
currently options to purchase 446,400 shares at exercise prices ranging from
$1.75 to $5.00 per share outstanding under the 1992 Plan, and there are
currently no shares available for future option grants under the 1992 Plan.
Summary of 1997 Stock Option Plan
A general description of the basic features of the 1997 Plan is
presented below, but such description is qualified in its entirety by reference
to the full text of the 1997 Plan, a copy of which may be obtained without
charge upon written request to Thomas F. Murphy, the Company's Chief Financial
Officer.
Purpose. The purpose of the 1997 Plan is to promote the success of the
Company by facilitating the employment and retention of competent personnel and
by furnishing incentive to directors, officers and employees of the Company and
consultants and advisors to the Company, upon whose efforts the success of the
Company will depend to a large degree.
Term. Incentive stock options may be granted pursuant to the 1997 Plan
during a period of ten (10) years from the date the 1997 Plan was adopted by the
Board of Directors (until January 31, 2007), and nonqualified stock options may
be granted until the 1997 Plan is discontinued or terminated by the Board of
Directors.
Administration. With the exception of the stock options automatically
issued to Non-Employee Directors as described below, the 1997 Plan is
administered by the Board of Directors or the Stock Option Committee of the
Board of Directors, all of the members of which are "Non-Employee Directors"
under Rule 16b-3 of the Securities Exchange Act of 1934 (collectively referred
to as the "Administrator"). The 1997 Plan gives broad powers to the
Administrator to administer and interpret the 1997 Plan, including the authority
to select the individuals to be granted options and to prescribe the particular
form and conditions of each option granted.
Eligibility. All employees of the Company or any subsidiary are
eligible to receive incentive stock options pursuant to the 1997 Plan. All
employees, officers and directors of and consultants and advisors to the Company
or any subsidiary are eligible to receive nonqualified stock options. As of
February 21, 1997, the Company had approximately 58 employees, of which five are
officers, and three directors who are not employees.
Options. When an option is granted under the 1997 Plan, the
Administrator, at its discretion, specifies the option price and the number of
shares of Common Stock which may be purchased upon exercise of the option. The
exercise price of an incentive stock option set by the Administrator may not be
less than 100% of the fair market value of the Company's Common Stock, as that
term is defined in the 1997 Plan, and, unless otherwise determined by the
Administrator, the exercise price of a nonqualified stock option will not be
less than 100% of the fair market value on the date of grant; provided, however,
that the exercise price may not be less than 85% of the fair market value on the
date of grant. The period during which an option may be exercised and whether
the option will be exercisable immediately, in stages, or otherwise is set by
the Administrator, but in no event may an incentive stock option be exercisable
more than ten (10) years from the date of grant. Optionees may pay for shares
upon exercise of options with cash, certified check or Common Stock of the
Company valued at the stock's then "fair market value" as defined in the 1997
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<PAGE>
Plan. Each option granted under the 1997 Plan is generally nontransferable
during the lifetime of the optionee; however, the Administrator may, in its sole
discretion, permit the transfer of a nonqualified stock option to immediate
family members or to certain trusts or partnerships.
Generally, under the form of option agreement which the Administrator
is currently using for options granted under the 1997 Plan, if the optionee's
affiliation with the Company terminates before expiration of the option for
reasons other than death or disability, the optionee has a right to exercise the
option for three months after termination of such affiliation or until the
option's original expiration date, whichever is earlier. If the termination is
because of death or disability, the option typically is exercisable until its
original stated expiration or until the 12-month anniversary of the termination
of such affiliation because of optionee's death or disability, whichever is
earlier. The Administrator may impose additional or alternative conditions and
restrictions on the incentive or nonqualified stock options granted under the
1997 Plan; however, each incentive option must contain such limitations and
restrictions upon its exercise as are necessary to ensure that the option will
be an incentive stock option as defined under the Internal Revenue Code.
Grants to Non-Employee Directors. The 1997 Plan will provide for
automatic option grants to each director who is not an employee of the Company
(a "Non-Employee Director"). Each NonEmployee Director who is elected for the
first time as a director on or after the date the 1997 Plan is approved by the
shareholders shall automatically be granted a nonqualified option to purchase
10,000 shares of the Common Stock at an option price per share equal to 100% of
the fair market value of the Common Stock on such date of the Non-Employee's
initial election, which options are immediately exercisable. Each Non-Employee
Director who is re-elected as a director of the Company or whose term of office
continues after a meeting of shareholders at which directors are elected shall,
as of the date of such re-election or shareholder meeting, automatically be
granted an immediately exercisable nonqualified option to purchase 10,000 shares
of the Common Stock at an option price per share equal to 100% of the fair
market value of the Common Stock on the date of such re-election or shareholder
meeting. All options granted pursuant to these provisions shall expire on the
earlier of (i) three months after the Optionee ceases to be a director (except
by death) and (ii) seven (7) years after the date of grant. Notwithstanding the
foregoing, in the event of the death of a Non-Employee Director, any option
granted to such Non-Employee Director pursuant to this formula plan may be
exercised at any time within twelve months of the death of such Non-Employee
Director or on the date on which the option, by its terms expires, whichever is
earlier.
In addition to the automatic grants of nonqualified options, the
Non-Employee Directors are entitled to receive additional options pursuant to
the 1997 Plan in the sole discretion of the Administrator.
Change of Control. In the event (i) the Company is acquired through the
sale of substantially all of its assets or through a merger or other transaction
(a "Transaction") or (ii) after the effective date of the 1997 Plan a person
becomes the holder of 25% or more the Company's outstanding Common Stock, or
(iii) individuals who constituted the Board on the effective date of the 1997
Plan ceased for any reason thereafter to constitute at least a majority of the
Board of Directors (with exceptions for individuals who are nominated by the
current Board of Directors), all outstanding options will become immediately
exercisable in full and will remain exercisable during the remaining terms of
such outstanding options, whether or not the participants to whom the options
have been granted remain employees of the Company or a subsidiary. The
acceleration of the exercisability of outstanding options may be limited,
however, if (i) the acquiring party seeks to account for a Transaction on a
"pooling of interests" basis which would be precluded if such options are
accelerated; (ii) the Board decides to take certain other actions, such as
termination of the 1997 Plan, providing cash or stock valued at the amount equal
to the excess of the fair market value of the stock over the exercise price, or
allow exercise of the options for stock of the succeeding company, or (iii) if
such acceleration would subject a participant to an excise tax imposed upon
"excess parachute payments."
Amendment. The Board of Directors may from time to time suspend or
discontinue the 1997 Plan or revise or amend it in any respect; provided,
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<PAGE>
however, that no such revision or amendment may impair the terms and conditions
of any outstanding option to the material detriment of the optionee without the
consent of the optionee, except as authorized in the event of a sale, merger,
consolidation or liquidation of the Company. The 1997 Plan may not, without the
approval of the shareholders, be amended in any manner that will cause incentive
stock options to fail to meet the requirements of Section 422 of the Internal
Revenue Code, or be amended in any manner that will: (i) materially increase the
number of shares subject to the 1997 Plan except as provided in the case of
stock splits, consolidations, stock dividends or similar events; (ii) change the
designation of the class of employees eligible to receive options; (iii)
decrease the price at which options will be granted; or (iv) materially increase
the benefits accruing to optionees under the 1997 Plan.
The Board of Directors will equitably adjust the maximum number of
shares of Common Stock reserved for issuance under the 1997 Plan, the number of
shares covered by each outstanding option and the option price per share in the
event of stock splits or consolidations, stock dividends or other transactions
in which the Company receives no consideration. The Board of Directors may also
provide for the protection of optionees in the event of a merger, liquidation or
reorganization of the Company.
Federal Income Tax Consequences of the 1997 Plan. Under present law, an
optionee will not realize any taxable income on the date a nonqualified stock
option is granted to the optionee pursuant to the 1997 Plan. Upon exercise of
the nonqualified stock option, however, the optionee will realize, in the year
of exercise, ordinary income to the extent of the difference between the option
price and the fair market value of the Company's Common Stock on the date of
exercise. Upon the sale of the shares, any resulting gain or loss will be
treated as capital gain or loss. The Company will receive a deduction in its
fiscal year in which nonqualified stock options are exercised, equal to the
amount of compensation required to be included as ordinary income by those
optionees exercising such options.
Incentive stock options granted pursuant to the 1997 Plan are intended
to qualify for favorable tax treatment to the optionee under Section 422 of the
Internal Revenue Code. Under Section 422, an employee realizes no taxable income
when the incentive stock option is granted. If the employee has been an employee
of the Company or any subsidiary at all times from the date of grant until three
months before the date of exercise, the employee will realize no taxable income
when the option is exercised. If the employee does not dispose of shares
acquired upon exercise for a period of two years from the granting of the
incentive stock option and one year after receipt of the shares, the employee
may sell the shares and report any gain as capital gain. No deduction is
allowable to the Company for federal income tax purposes in connection with
either the grant or exercise of an incentive stock option. If the employee
should dispose of the shares prior to the expiration of the two or one-year
periods described above, the employee will be deemed to have received
compensation taxable as ordinary income in the year of the early sale in an
amount equal to the lesser of (i) the difference between the fair market value
of the Company's Common Stock on the date of exercise and the option price of
the shares, or (ii) the difference between the sale price of the shares and the
option price of shares. In the event of such an early sale, the Company will be
entitled to a tax deduction equal to the amount recognized by the employee as
ordinary income. The foregoing discussion ignores the impact of the alternative
minimum tax, which may particularly be applicable to the year in which an
incentive stock option is exercised.
Plan Benefits. Because future grants of stock options are subject to
the discretion of the Administrator, the future benefits under the 1997 Plan
cannot be determined at this time, except for the automatic grants to
Non-Employee Directors as set forth above. No options have been granted pursuant
to the 1997 Plan.
Vote Required. The Board of Directors recommends that the shareholders
approve the 1997 Plan. Under applicable Minnesota law, approval of the 1997 Plan
requires the affirmative vote of the holders of the greater of (i) a majority of
the voting power of the shares represented in person or by proxy at the Annual
Meeting with authority to vote on such matter, or (ii) a majority of the voting
power of the minimum number of shares that would constitute a quorum for the
transaction of business at the Annual Meeting.
- 13 -
<PAGE>
SELECTION OF INDEPENDENT AUDITORS
(Proposal #3)
The Board of Directors has approved the selection of Ernst & Young LLP
("Ernst & Young") as independent auditors to audit the financial statements of
the Company for the fiscal year ending December 31, 1997 and to perform other
appropriate accounting services. Although it is not required to do so, the Board
of Directors wishes to submit the selection of Ernst & Young to the shareholders
for ratification. The Board recommends a vote FOR ratification of Ernst & Young
as independent auditors for the fiscal year ending December 31, 1997. Unless a
contrary choice is specified, proxies solicited by the Board will be voted FOR
the ratification of Ernst & Young. The ratification of Ernst & Young as
independent auditors for the Company requires the affirmative vote of a majority
of the shares represented in person or by proxy at the Annual Meeting. If the
selection of Ernst & Young is not ratified, the Board of Directors will
reconsider its selection.
The Company has requested and expects a representative of Ernst & Young
to be present at the Annual Meeting to make a statement if he or she so desires
and to respond to appropriate questions.
PROPOSALS FOR THE NEXT ANNUAL MEETING
Shareholder proposals intended to be presented in the proxy materials
relating to the next Annual Meeting of Shareholders must be received by the
Company on or before November 10, 1997.
OTHER BUSINESS
The Company knows of no business that will be presented for
consideration at the Annual Meeting other than as described in this Proxy
Statement. As to other business, if any, that may properly come before the
Annual Meeting, it is intended that proxies solicited by the Board will be voted
in accordance with the judgment of the person or persons voting the proxies.
ANNUAL REPORT
THE COMPANY WILL FURNISH WITHOUT CHARGE A COPY OF ITS ANNUAL REPORT ON
FORM 10-KSB (EXCLUSIVE OF EXHIBITS) FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
TO EACH PERSON WHO WAS A SHAREHOLDER OF THE COMPANY AS OF MARCH 5, 1997, UPON
RECEIPT FROM ANY SUCH PERSON OF A WRITTEN REQUEST FOR SUCH AN ANNUAL REPORT.
SUCH REQUEST SHOULD BE SENT TO: EVEREST MEDICAL CORPORATION, 13755 FIRST AVENUE
NORTH, MINNEAPOLIS, MINNESOTA, 55441; ATTN: SHAREHOLDER INFORMATION.
By Order of the Board of Directors
David D. Koentopf
Chairman of the Board
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<PAGE>
Everest Medical Corporation
13755 First Avenue North
Minneapolis, Minnesota 55441
Proxy
This Proxy is Solicited on Behalf of the Board of Directors. The undersigned
hereby appoints JOHN L. SHANNON, JR. and THOMAS F. MURPHY, and each of them, as
Proxies, each with the power of substitution, and hereby authorizes each of them
to represent and to vote, as designated below, all the shares of voting stock of
Everest Medical Corporation held of record by the undersigned on March 5, 1997,
at the Annual Meeting of Shareholders to be held on April 21, 1997, or any
adjournment thereof.
1. ELECTION OF FOR all nominees listed below
DIRECTORS. (except as marked to the contrary below) / /
WITHHOLD AUTHORITY
to vote for the nominees listed below / /
(INSTRUCTIONS: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name)
DAVID D. KOENTOPF DONALD R. BRATTAIN
JOHN L. SHANNON, JR. RICHARD J. MIGLIORI, M.D.
2. APPROVAL OF 1997 STOCK OPTION PLAN.
FOR / / AGAINST / / ABSTAIN / /
2. RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS OF
THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 1997.
FOR / / AGAINST / / ABSTAIN / /
3. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
This proxy, when properly executed, will be voted in the manner directed herein
by the undersigned shareholder. If no direction is made, this proxy will be
voted for Proposals 2 and 3 and will grant authority to vote for all nominees
named in Proposal 1 above. Please sign exactly as name appears below. When
shares are held by joint tenants, both should sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such. If
a corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
Dated: , 1997
----------------------
----------------------------------------
Signature
----------------------------------------
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE
<PAGE>
EVEREST MEDICAL CORPORATION
1997 STOCK OPTION PLAN
SECTION 1.
DEFINITIONS
As used herein, the following terms shall have the meanings indicated
below:
(a) "Committee" shall mean a Committee of two or more directors who
shall be appointed by and serve at the pleasure of the Board. As long
as the Company's securities are registered pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended, then, to the extent
necessary for compliance with Rule 16b-3, or any successor provision,
each of the members of the Committee shall be a "Non-Employee
Director." For purposes of this Section 1(a) "Non-Employee Director"
shall have the same meaning as set forth in Rule 16b-3, or any
successor provision, as then in effect, of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended.
(b) The "Company" shall mean Everest Medical Corporation, a Minnesota
corporation.
(c) "Fair Market Value" of stock as of any date shall have the
following meanings: (i) if such stock is reported by the Nasdaq
National Market or Nasdaq SmallCap Market or is listed upon an
established stock exchange or exchanges, the reported closing price of
such stock by the Nasdaq National Market or Nasdaq SmallCap Market or
on such stock exchange or exchanges on such date or, if no sale of such
stock shall have occurred on that date, on the next preceding day on
which there was a sale of stock; (ii) if such stock is not so reported
by the Nasdaq National Market or Nasdaq SmallCap Market or listed upon
an established stock exchange, the average of the closing "bid" and
"asked" prices quoted by the National Quotation Bureau, Inc. (or any
comparable reporting service) on such date, or if there are no quoted
"bid" and "asked" prices on such date, on the next preceding date for
which there are such quotes; or (iii) if such stock is not publicly
traded as of such date, the per share value as determined by the Board,
or the Committee, in its sole discretion by applying principles of
valuation with respect to all such options.
(d) The "Internal Revenue Code" is the Internal Revenue Code of 1986,
as amended from time to time.
(e) "Non-Employee Director" shall mean members of the Board who are not
employees of the Company or any subsidiary.
<PAGE>
(f) "Option Stock" shall mean Common Stock of the Company (subject to
adjustment as described in Section 13) reserved for options pursuant to
this Plan.
(g) The "Optionee" means an employee of the Company or any Subsidiary
to whom an incentive stock option has been granted pursuant to Section
9; a consultant or advisor to or director (including a Non-Employee
Director), employee or officer of the Company or any Subsidiary to whom
a nonqualified stock option has been granted pursuant to Section 10; or
a Non-Employee Director to whom a nonqualified stock option has been
granted pursuant to Section 11.
(h) "Parent" shall mean any corporation which owns, directly or
indirectly in an unbroken chain, fifty percent (50%) or more of the
total voting power of the Company's outstanding stock.
(i) The "Plan" means the Everest Medical Corporation 1997 Stock Option
Plan, as amended hereafter from time to time, including the form of
Option Agreements as they may be modified by the Board from time to
time.
(j) A "Subsidiary" shall mean any corporation of which fifty percent
(50%) or more of the total voting power of outstanding stock is owned,
directly or indirectly in an unbroken chain, by the Company.
SECTION 2.
PURPOSE
The purpose of the Plan is to promote the success of the Company and
its Subsidiaries by facilitating the retention of competent personnel and by
furnishing incentive to officers, directors, employees, consultants, and
advisors upon whose efforts the success of the Company and its Subsidiaries will
depend to a large degree.
It is the intention of the Company to carry out the Plan through the
granting of stock options which will qualify as "incentive stock options" under
the provisions of Section 422 of the Internal Revenue Code, or any successor
provision, pursuant to Section 9 of this Plan, and through the granting of
"nonqualified stock options" pursuant to Sections 10 and 11 of this Plan.
Adoption of this Plan shall be and is expressly subject to the condition of
approval by the shareholders of the Company within twelve (12) months before or
after the adoption of the Plan by the Board of Directors. Any incentive stock
options granted after adoption of the Plan by the Board of Directors shall be
treated as nonqualified stock options if shareholder approval is not obtained
within such twelve-month period.
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<PAGE>
SECTION 3.
EFFECTIVE DATE OF PLAN
The Plan shall be effective as of the date of adoption by the Board of
Directors, subject to approval by the shareholders of the Company as required in
Section 2.
SECTION 4.
ADMINISTRATION
The Plan shall be administered by the Board of Directors of the Company
(hereinafter referred to as the "Board") or by a Committee which may be
appointed by the Board from time to time (collectively referred to as the
"Administrator"). The Administrator shall have all of the powers vested in it
under the provisions of the Plan, including but not limited to exclusive
authority (where applicable and within the limitations described herein) to
determine, in its sole discretion, whether an incentive stock option or
nonqualified stock option shall be granted, the individuals to whom, and the
time or times at which, options shall be granted, the number of shares subject
to each option and the option price and terms and conditions of each option. The
Administrator shall have full power and authority to administer and interpret
the Plan, to make and amend rules, regulations and guidelines for administering
the Plan, to prescribe the form and conditions of the respective stock option
agreements (which may vary from Optionee to Optionee) evidencing each option and
to make all other determinations necessary or advisable for the administration
of the Plan. The Administrator's interpretation of the Plan, and all actions
taken and determinations made by the Administrator pursuant to the power vested
in it hereunder, shall be conclusive and binding on all parties concerned.
No member of the Board or the Committee shall be liable for any action
taken or determination made in good faith in connection with the administration
of the Plan. In the event the Board appoints a Committee as provided hereunder,
any action of the Committee with respect to the administration of the Plan shall
be taken pursuant to a majority vote of the Committee members or pursuant to the
written resolution of all Committee members.
SECTION 5.
PARTICIPANTS
The Administrator shall from time to time, at its discretion and
without approval of the shareholders, designate those employees, officers,
directors (including Non-Employee Directors), consultants, and advisors of the
Company or of any Subsidiary to whom nonqualified stock options shall be granted
pursuant to Section 10 of the Plan; provided, however, that consultants or
advisors shall not be eligible to receive stock options hereunder unless such
consultant or advisor renders bona fide services to the Company or Subsidiary
and such services are not in connection with the offer or sale of securities in
a capital raising transaction; and, provided further, that Non-Employee
Directors will be granted nonqualified stock options pursuant to Section 11 of
the Plan without any further action by the Administrator. The Administrator
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<PAGE>
shall, from time to time, at its discretion and without approval of the
shareholders, designate those employees of the Company or any Subsidiary to whom
incentive stock options shall be granted pursuant to Section 9 of the Plan. The
Administrator may grant additional incentive stock options or nonqualified stock
options under this Plan to some or all participants then holding options or may
grant options solely or partially to new participants. In designating
participants, the Administrator shall also determine the number of shares to be
optioned to each such participant. The Board may from time to time designate
individuals as being ineligible to participate in the Plan.
SECTION 6.
STOCK
The Stock to be optioned under this Plan shall consist of authorized
but unissued shares of Option Stock. Five Hundred Thousand (500,000) shares of
Option Stock shall be reserved and available for options under the Plan;
provided, however, that the total number of shares of Option Stock reserved for
options under this Plan shall be subject to adjustment as provided in Section 13
of the Plan. In the event that any outstanding option under the Plan for any
reason expires or is terminated prior to the exercise thereof, the shares of
Option Stock allocable to the unexercised portion of such option shall continue
to be reserved for options under the Plan and may be optioned hereunder.
SECTION 7.
DURATION OF PLAN
Incentive stock options may be granted pursuant to the Plan from time
to time during a period of ten (10) years from the effective date as defined in
Section 3. Nonqualified stock options may be granted pursuant to the Plan from
time to time after the effective date of the Plan and until the Plan is
discontinued or terminated by the Board. Any incentive stock option granted
during such ten-year period and any nonqualified stock option granted prior to
the termination of the Plan by the Board shall remain in full force and effect
until the expiration of the option as specified in the written stock option
agreement and shall remain subject to the terms and conditions of this Plan.
SECTION 8.
PAYMENT
Optionees may pay for shares upon exercise of options granted pursuant
to this Plan with cash, personal check, certified check or, if approved by the
Administrator in its sole discretion, Common Stock of the Company valued at such
stock's then Fair Market Value, or such other form of payment as may be
authorized by the Administrator. The Administrator may, in its sole discretion,
limit the forms of payment available to the Optionee and may exercise such
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<PAGE>
discretion any time prior to the termination of the option granted to the
Optionee or upon any exercise of the option by the Optionee.
With respect to payment in the form of Common Stock of the Company, the
Administrator may require advance approval or adopt such rules as it deems
necessary to assure compliance with Rule 16b-3, or any successor provision, as
then in effect, of the General Rules and Regulations under the Securities
Exchange Act of 1934, if applicable.
SECTION 9.
TERMS AND CONDITIONS OF INCENTIVE STOCK OPTIONS
Each incentive stock option granted pursuant to this Section 9 shall be
evidenced by a written stock option agreement (the "Option Agreement"). The
Option Agreement shall be in such form as may be approved from time to time by
the Administrator and may vary from Optionee to Optionee; provided, however,
that each Optionee and each Option Agreement shall comply with and be subject to
the following terms and conditions:
(a) Number of Shares and Option Price. The Option Agreement shall state
the total number of shares covered by the incentive stock option. To
the extent required to qualify the Option as an incentive stock option
under Section 422 of the Internal Revenue Code, or any successor
provision, the option price per share shall not be less than one
hundred percent (100%) of the Fair Market Value of the Common Stock per
share on the date the Administrator grants the option; provided,
however, that if an Optionee owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of
stock of the Company or of its Parent or any Subsidiary, the option
price per share of an incentive stock option granted to such Optionee
shall not be less than one hundred ten percent (110%) of the Fair
Market Value of the Common Stock per share on the date of the grant of
the option. The Administrator shall have full authority and discretion
in establishing the option price and shall be fully protected in so
doing.
(b) Term and Exercisability of Incentive Stock Option. The term during
which any incentive stock option granted under the Plan may be
exercised shall be established in each case by the Administrator. To
the extent required to qualify the Option as an incentive stock option
under Section 422 of the Internal Revenue Code, or any successor
provision, in no event shall any incentive stock option be exercisable
during a term of more than ten (10) years after the date on which it is
granted; provided, however, that if an Optionee owns stock possessing
more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or of its parent or any Subsidiary, the
incentive stock option granted to such Optionee shall be exercisable
during a term of not more than five (5) years after the date on which
it is granted.
The Option Agreement shall state when the incentive stock option
becomes exercisable and shall also state the maximum term during which
the option may be exercised. In the event an incentive stock option is
exercisable immediately, the manner of exercise of the option in the
event it is not exercised in full immediately shall be specified in the
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<PAGE>
Option Agreement. The Administrator may accelerate the exercisability
of any incentive stock option granted hereunder which is not
immediately exercisable as of the date of grant.
(c) Other Provisions. The Option Agreement authorized under this
Section 9 shall contain such other provisions as the Administrator
shall deem advisable. Any such Option Agreement shall contain such
limitations and restrictions upon the exercise of the option as shall
be necessary to ensure that such option will be considered an
"incentive stock option" as defined in Section 422 of the Internal
Revenue Code or to conform to any change therein.
SECTION 10.
TERMS AND CONDITIONS OF NONQUALIFIED STOCK OPTIONS
Each nonqualified stock option granted pursuant to this Section 10
shall be evidenced by a written Option Agreement. The Option Agreement shall be
in such form as may be approved from time to time by the Administrator and may
vary from Optionee to Optionee; provided, however, that each Optionee and each
Option Agreement shall comply with and be subject to the following terms and
conditions:
(a) Number of Shares and Option Price. The Option Agreement shall state
the total number of shares covered by the nonqualified stock option.
Unless otherwise determined by the Administrator, the option price per
share shall be one hundred percent (100%) of the Fair Market Value of
the Common Stock per share on the date the Administrator grants the
option; provided, however, that the option price may not be less than
eighty-five percent (85%) of the Fair Market Value of the Common Stock
on the date of grant.
(b) Term and Exercisability of Nonqualified Stock Option. The term
during which any nonqualified stock option granted under the Plan may
be exercised shall be established in each case by the Administrator.
The Option Agreement shall state when the nonqualified stock option
becomes exercisable and shall also state the maximum term during which
the option may be exercised. In the event a nonqualified stock option
is exercisable immediately, the manner of exercise of the option in the
event it is not exercised in full immediately shall be specified in the
stock option agreement. The Administrator may accelerate the
exercisability of any nonqualified stock option granted hereunder which
is not immediately exercisable as of the date of grant.
(c) Withholding. The Company or its Subsidiary shall be entitled to
withhold and deduct from future wages of the Optionee all legally
required amounts necessary to satisfy any and all withholding and
employment-related taxes attributable to the Optionee's exercise of a
nonqualified stock option. In the event the Optionee is required under
the Option Agreement to pay the Company, or make arrangements
satisfactory to the Company respecting payment of, such withholding and
employment-related taxes, the Administrator may, in its discretion and
pursuant to such rules as it may adopt, permit the Optionee to satisfy
such obligation, in whole or in part, by electing to have the Company
withhold shares of Common Stock otherwise issuable to the Optionee as a
result of the option's exercise equal to the amount required to be
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withheld for tax purposes. Any stock elected to be withheld shall be
valued at its Fair Market Value, as of the date the amount of tax to be
withheld is determined under applicable tax law. The Optionee's
election to have shares withheld for this purpose shall be made on or
before the date the option is exercised or, if later, the date that the
amount of tax to be withheld is determined under applicable tax law.
Such election shall be approved by the Administrator and otherwise
comply with such rules as the Administrator may adopt to assure
compliance with Rule 16b-3, or any successor provision, as then in
effect, of the General Rules and Regulations under the Securities
Exchange Act of 1934, if applicable.
(d) Other Provisions. The Option Agreement authorized under this
Section 10 shall contain such other provisions as the Administrator
shall deem advisable.
SECTION 11.
GRANTING OF OPTIONS TO NON-EMPLOYEE DIRECTORS
(a) Upon Joining Board. Each Non-Employee Director of the Company whose
initial election or appointment to the Board of Directors occurs on or
after the date this Plan is approved by the Company's shareholders
shall, as of the date of such election, automatically be granted an
option to purchase 10,000 shares of the Common Stock; provided,
however, that if such initial election is by the Board or by the
shareholders at a special meeting of shareholders, the Non-Employee
Director shall receive an option to purchase a number of shares equal
to 10,000 multiplied by the number of months from the date of such
initial election to the anniversary date of the preceding annual
meeting. The option shall have an exercise price per share equal to
100% of the Fair Market Value of the Common Stock on the date of such
election.
(b) Upon Re-election to Board. Each Non-Employee Director who, on and
after the date this Plan is approved by the Company's shareholders, is
re-elected as a director of the Company or whose term of office
continues after a meeting of shareholders at which directors are
elected shall, as of the date of such re-election or shareholder
meeting, automatically be granted an option to purchase 10,000 shares
of the Common Stock at an option price per share equal to 100% of the
Fair Market Value of the Common Stock on the date of such re-election
or shareholder meeting.
(c) General. All options granted pursuant to this Section 11 shall be
designated as nonqualified options and shall be subject to the same
terms and provisions as are then in effect with respect to granting of
nonqualified options to officers and employees of the Company,
including the provisions in Section 13 of the Plan, except that the
option shall be immediately exercisable and shall expire on the earlier
of (i) three months after the Optionee ceases to be a director (except
as otherwise provided) and (ii) seven (7) years after the date of
grant. Notwithstanding the foregoing, in the event of the death of a
Non-Employee Director, any option granted to such Non-Employee Director
pursuant to this Section 11 may be exercised at any time within twelve
months of the death of such Non-Employee Director or on the date on
which the option, by its terms expires, whichever is earlier.
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SECTION 12.
TRANSFER OF OPTION
No incentive stock option shall be transferable, in whole or in part,
by the Optionee other than by will or by the laws of descent and distribution
and, during the Optionee's lifetime, the option may be exercised only by the
Optionee. If the Optionee shall attempt any transfer of any incentive stock
option granted under the Plan during the Optionee's lifetime, such transfer
shall be void and the incentive stock option, to the extent not fully exercised,
shall terminate.
The Administrator may, in its sole discretion, permit the Optionee to
transfer any or all nonqualified stock options to any member of the Optionee's
"immediate family" as such term is defined in Rule 16a-1(e) promulgated under
the Securities Exchange Act of 1934, or any successor provision, or to one or
more trusts whose beneficiaries are members of such Optionee's "immediate
family" or partnerships in which such family members are the only partners;
provided, however, that the Optionee receives no consideration for the transfer
and such transferred nonqualified stock option shall continue to be subject to
the same terms and conditions as were applicable to such nonqualified stock
option immediately prior to its transfer.
SECTION 13.
RECAPITALIZATION, SALE, MERGER, EXCHANGE
OR LIQUIDATION
In the event of an increase or decrease in the number of shares of
Common Stock resulting from a subdivision or consolidation of shares or the
payment of a stock dividend or any other increase or decrease in the number of
shares of Common Stock effected without receipt of consideration by the Company,
the number of shares of Option Stock reserved under Section 6 hereof and the
number of shares of Option Stock covered by each outstanding option and the
price per share thereof shall be adjusted by the Board to reflect such change.
Additional shares which may be credited pursuant to such adjustment shall be
subject to the same restrictions as are applicable to the shares with respect to
which the adjustment relates.
Unless otherwise provided in the stock option agreement, in the event
of
(i) an acquisition of the Company by a corporation not controlled
by the Company (A) through the sale of substantially all of
the Company's assets and the consequent discontinuance of its
business, or (B) through a merger, consolidation, exchange,
reorganization, reclassification, extraordinary dividend,
divestiture or liquidation of the Company with (A) and (B)
each referred to as a "transaction"), or
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(ii) a change of control such that (A) any person becomes after the
effective date of the Plan the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly,
of 25% or more of the combined voting power of the Company's
outstanding securities ordinarily having the right to vote at
elections of directors of the Company, or (B) individuals who
constitute the board of directors of the Company on the
effective date of the Plan cease for any reason to constitute
at least a majority thereof, provided that any person becoming
a director subsequent to the effective date of the Plan whose
election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of
the directors comprising the board of directors of the Company
on the effective date of the Plan (either by a specific vote
or by approval of the proxy statement of the Company in which
such person is named as a nominee for director, without
objection to such nomination) shall be, for purposes of this
clause (B) considered as though such person were a member of
the board of directors of the Company on the effective date of
the Plan, (collectively referred to as a "change of control"),
all outstanding options shall become immediately exercisable, whether or not
such options had become exercisable prior to the transaction or change of
control; provided, however, that if the acquiring party seeks to have the
transaction accounted for on a "pooling of interests" basis and, in the opinion
of the Company's independent certified public accountants, accelerating the
exercisability of such options would preclude a pooling of interests under
generally accepted accounting principles, the exercisability of such options
shall not accelerate. In addition to the foregoing, in the event of such a
transaction or change of control, the Board may provide for one or more of the
following:
(a) the complete termination of this Plan and cancellation of
outstanding options not exercised prior to a date specified by the
Board (which date shall give Optionees a reasonable period of time in
which to exercise the options prior to the effectiveness of such
transaction);
(b) that Optionees holding outstanding incentive or nonqualified
options shall receive, with respect to each share of Option Stock
subject to such options, as of the effective date of any such
transaction, cash in an amount equal to the excess of the Fair Market
Value of such Option Stock on the date immediately preceding the
effective date of such transaction over the option price per share of
such options; provided that the Board may, in lieu of such cash
payment, distribute to such Optionees shares of stock of the Company or
shares of stock of any corporation succeeding the Company by reason of
such transaction, such shares having a value equal to the cash payment
herein; or
(c) the continuance of the Plan with respect to the exercise of options
which were outstanding as of the date of adoption by the Board of such
plan for such transaction and provide to Optionees holding such options
the right to exercise their respective options as to an equivalent
number of shares of stock of the corporation succeeding the Company by
reason of such transaction.
The Board may restrict the rights of or the applicability of this Section 13 to
the extent necessary to comply with Section 16(b) of the Securities Exchange Act
of 1934, the Internal Revenue Code or any other applicable law or regulation.
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The grant of an option pursuant to the Plan shall not limit 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, exchange or
consolidate or to dissolve, liquidate, sell or transfer all or any part of its
business or assets.
SECTION 14.
SECURITIES LAW COMPLIANCE
No shares of Common Stock shall be issued pursuant to the Plan unless
and until there has been compliance, in the opinion of Company's counsel, with
all applicable legal requirements, including without limitation, those relating
to securities laws and stock exchange listing requirements. As a condition to
the issuance of Option Stock to Optionee, the Administrator may require Optionee
to (i) represent that the shares of Option Stock are being acquired for
investment and not resale and to make such other representations as the
Administrator shall deem necessary or appropriate to qualify the issuance of the
shares as exempt from the Securities Act of 1933 and any other applicable
securities laws, and (ii) represent that Optionee shall not dispose of the
shares of Option Stock in violation of the Securities Act of 1933 or any other
applicable securities laws.
As a further condition to the grant of any incentive or nonqualified
stock option or the issuance of Option Stock to Optionee, Optionee agrees to the
following:
(a) In the event the Company advises Optionee that it plans an
underwritten public offering of its Common Stock in compliance with the
Securities Act of 1933, as amended, and the underwriter(s) seek to
impose restrictions under which certain shareholders may not sell or
contract to sell or grant any option to buy or otherwise dispose of
part or all of their stock purchase rights of the underlying Common
Stock, Optionee will not, for a period not to exceed 180 days from the
prospectus, sell or contract to sell or grant an option to buy or
otherwise dispose of any incentive or nonqualified stock option granted
to Optionee pursuant to the Plan or any of the underlying shares of
Common Stock without the prior written consent of the underwriter(s) or
its representative(s).
(b) In the event the Company makes any public offering of its
securities and determines in its sole discretion that it is necessary
to reduce the number of issued but unexercised stock purchase rights so
as to comply with any states securities or Blue Sky law limitations
with respect thereto, the Board of Directors of the Company shall have
the right (i) to accelerate the exercisability of any incentive or
nonqualified stock option and the date on which such option must be
exercised, provided that the Company gives Optionee prior written
notice of such acceleration, and (ii) to cancel any options or portions
thereof which Optionee does not exercise prior to or contemporaneously
with such public offering.
(c) In the event of a transaction (as defined in Section 13 of the
Plan) which is treated as a "pooling of interests" under generally
accepted accounting principles, Optionee will comply with Rule 145 of
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the Securities Act of 1933 and any other restrictions imposed under
other applicable legal or accounting principles if Optionee is an
"affiliate" (as defined in such applicable legal and accounting
principles) at the time of the transaction, and Optionee will execute
any documents necessary to ensure compliance with such rules.
The Company reserves the right to place a legend on any stock
certificate issued upon exercise of an option granted pursuant to the Plan to
assure compliance with this Section 14.
SECTION 15.
RIGHTS AS A SHAREHOLDER
An Optionee (or the Optionee's successor or successors) shall have no
rights as a shareholder with respect to any shares covered by an option until
the date of the issuance of a stock certificate evidencing such shares. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property), distributions or other rights for which the
record date is prior to the date such stock certificate is actually issued
(except as otherwise provided in Section 13 of the Plan).
SECTION 16.
AMENDMENT OF THE PLAN
The Board may from time to time, insofar as permitted by law, suspend
or discontinue the Plan or revise or amend it in any respect; provided, however,
that no such revision or amendment, except as is authorized in Section 13, shall
impair the terms and conditions of any option which is outstanding on the date
of such revision or amendment to the material detriment of the Optionee without
the consent of the Optionee. Notwithstanding the foregoing, no such revision or
amendment shall (i) materially increase the number of shares subject to the Plan
except as provided in Section 13 hereof, (ii) change the designation of the
class of employees eligible to receive options, (iii) decrease the price at
which options may be granted, or (iv) materially increase the benefits accruing
to Optionees under the Plan without the approval of the shareholders of the
Company if such approval is required for compliance with the requirements of any
applicable law or regulation. Furthermore, the Plan may not, without the
approval of the shareholders, be amended in any manner that will cause incentive
stock options to fail to meet the requirements of Section 422 of the Internal
Revenue Code.
SECTION 17.
NO OBLIGATION TO EXERCISE OPTION
The granting of an option shall impose no obligation upon the Optionee
to exercise such option. Further, the granting of an option hereunder shall not
impose upon the Company or any Subsidiary any obligation to retain the Optionee
in its employ for any period.
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