<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (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
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
Cholestech 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> 2
CHOLESTECH CORPORATION
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 17, 2000
------------------------
TO THE SHAREHOLDERS OF CHOLESTECH CORPORATION:
Notice is hereby given that the Annual Meeting of Shareholders of
CHOLESTECH CORPORATION, a corporation organized under the laws of the State of
California, will be held at the Hotel Sofitel San Francisco Bay located at 223
Twin Dolphin Drive, Redwood City, California 94065, on Thursday, August 17,
2000, at 10:00 a.m. Pacific Time, for the following purposes:
1. To elect six (6) directors to serve until the next Annual Meeting of
Shareholders or until their successors are elected.
2. To approve the adoption of the Company's 2000 Stock Incentive Program
and to authorize the reservation of 590,000 shares of Common Stock for
issuance thereunder.
3. To approve an amendment to the Company's 1992 Employee Stock Purchase
Plan, to increase the aggregate number of shares of Common Stock
authorized for issuance under such plan by 200,000.
4. To ratify the appointment of PricewaterhouseCoopers LLP as independent
accountants of the Company for the fiscal year ending March 30, 2001.
5. To transact such other business as may properly come before the meeting
or any adjournments thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. Only shareholders of record at the close of
business on June 30, 2000 are entitled to notice of, and to vote at, the Annual
Meeting and any adjournments thereof.
All shareholders are cordially invited to attend the Annual Meeting in
person. However, to ensure your representation at the meeting, you are urged to
mark, sign, date and return the enclosed proxy card as promptly as possible in
the postage prepaid envelope enclosed for that purpose. You may revoke your
proxy in the manner described in the accompanying Proxy Statement at any time
before it has been voted at the Annual Meeting. Any shareholder attending the
Annual Meeting may vote in person even if he or she has returned a proxy.
By Order of the Board of Directors,
Andrea J. Tiller
Chief Financial Officer
July 10, 2000
YOUR VOTE IS IMPORTANT
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE REQUESTED TO
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE AND RETURN IT
IN THE ENCLOSED ENVELOPE.
<PAGE> 3
CHOLESTECH CORPORATION
------------------------
PROXY STATEMENT
------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
This Proxy Statement and the accompanying Notice of Annual Meeting of
Shareholders and Proxy Card are being furnished to the shareholders of
Cholestech Corporation ("Cholestech" or the "Company") in connection with the
solicitation of proxies by the Board of Directors of the Company for use at the
2000 Annual Meeting of Shareholders of the Company (the "Annual Meeting") to be
held at the Hotel Sofitel San Francisco Bay located at 223 Twin Dolphin Drive,
Redwood City, California 94065, on Thursday, August 17, 2000, at 10:00 a.m.
Pacific Time. The Company's principle executive office is located at 3347
Investment Boulevard, Hayward, California 94545, and its telephone number at
that address is (510) 732-7200.
These proxy solicitation materials and the Annual Report to Shareholders
for the fiscal year ended March 31, 2000, including financial statements, were
first mailed on or about July 17, 2000 to all shareholders entitled to vote at
the meeting.
RECORD DATE AND VOTING SECURITIES
Shareholders of record at the close of business on June 30, 2000 of the
Company's Common Stock, no par value ("Common Stock"), are entitled to notice of
and to vote at the Annual Meeting and any adjournment thereof. On that date,
11,984,552 shares of Common Stock were outstanding and entitled to vote and held
by approximately 227 shareholders of record. No shares of the Company's
Preferred Stock were outstanding.
REVOCABILITY OF PROXY
A proxy may be revoked by a shareholder prior to the voting at the Annual
Meeting by written notice to the Secretary of the Company, by submission of
another proxy bearing a later date or by voting in person at the Annual Meeting.
Such notice or later proxy will not affect a vote on any matter taken prior to
the receipt thereof by the Company. The mere presence at the Annual Meeting of
the shareholder who has appointed a proxy will not revoke the prior appointment.
VOTING AND SOLICITATION
Each shareholder is entitled to one vote for each share held. Each
shareholder voting in the election of directors (Proposal One) may cumulate such
shareholder's votes. This means a shareholder may give one candidate a number of
votes equal to the number of directors to be elected multiplied by the number of
shares held by such shareholder, or distribute such shareholder's votes on the
same principle among as many candidates as the shareholder may select, provided
that votes cannot be cast for more candidates than the number of directors to be
elected (six). However, no shareholder shall be entitled to cumulate votes
unless the candidate's name has been placed in nomination prior to the voting
and the shareholder, or any other shareholder, has given notice at the meeting,
prior to the voting, of the intention to cumulate the shareholder's votes. On
all other matters, each share has one vote. A quorum comprising the holders of
the majority of the outstanding shares of Common Stock on the record date must
be present or represented for the transaction of business at the Annual Meeting.
Abstentions and broker non-votes will be counted in establishing the quorum.
The cost of soliciting votes will be borne by the Company. The Company may
reimburse brokerage firms and other persons representing beneficial owners for
their expenses in forwarding solicitation material to such beneficial owners.
Proxies may also be solicited by certain of the Company's directors, officers
and regular employees, without additional compensation, personally or by
telephone or by facsimile.
<PAGE> 4
DEADLINE OF RECEIPT OF SHAREHOLDER PROPOSALS
Proposals of shareholders of the Company that are intended to be presented
by such shareholders at the Company's 2001 Annual Meeting of Shareholders must
be received by the Company no later than March 14, 2001 in order that they may
be considered for inclusion in the proxy statement and form of proxy relating to
the meeting.
The attached proxy card grants proxy holders discretionary authority to
vote on any matter raised at the Annual Meeting of Shareholders. If a
shareholder intends to submit a proposal at the Company's Annual Meeting of
Shareholders which is not eligible for inclusion in the proxy statement relating
to that meeting, the shareholder must do so no later than May 28, 2001. If such
shareholder fails to comply with the foregoing notice provision, the proxy
holders will be allowed to use their discretionary authority when and if the
proposal is raised at the Company's Annual Meeting of Shareholders in the year
2001.
PROPOSAL ONE
ELECTION OF DIRECTORS
GENERAL
A Board of six (6) members is to be elected at the Annual Meeting. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for management's six (6) nominees named below, all of who are presently
directors of the Company. In any event, the proxy holders cannot vote the
proxies for a greater number of persons than six (6). In the event that any
management nominee is unable or declines to serve as a director at the time of
the Annual Meeting, the proxies will be voted for a nominee who shall be
designated by the present Board of Directors to fill the vacancy. In the event
that additional persons are nominated for election as directors, the proxy
holders intend to vote all proxies received by them in such a manner (in
accordance with cumulative voting) as will assure the election of as many of the
nominees listed below as possible, and, in such event, the specific nominees to
be voted for will be determined by the proxy holders. The Company is not aware
of any nominee who will be unable or will decline to serve as a director. The
term of office for each person elected as a director will continue until the
next Annual Meeting of Shareholders or until such director's successor has been
duly elected and qualified.
VOTE REQUIRED AND BOARD RECOMMENDATION
If a quorum is present and voting, the six (6) nominees receiving the
highest number of affirmative votes of the shares entitled to be voted shall be
elected to the Board of Directors. Abstentions and "broker non-votes" are not
counted in the election of directors.
NOMINEES
The names of the nominees and certain information about them are set forth
below.
<TABLE>
<CAPTION>
NAME OF NOMINEE AGE POSITION WITH THE COMPANY DIRECTOR SINCE
--------------- --- ------------------------- --------------
<S> <C> <C> <C>
John H. Landon(1)(2)(4)............ 59 Chairman of the Board 1997
Warren E. Pinckert II(3)(4)........ 56 President, Chief Executive Officer 1993
and Director
John L. Castello(2)(3)(4).......... 64 Director 1993
Molly J. Coye MD................... 53 Director 2000
Harvey S. Sadow, 77 Director 1990
Ph.D.(1)(2)(3)(4)................
Larry Y. Wilson(1)................. 50 Director 1998
</TABLE>
---------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Governance Committee
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<PAGE> 5
(4) Member of the Nominating Committee
There is no family relationship between any director or executive officer
of the Company.
John H. Landon has been a director of the Company since December of 1997
and has been selected as the incoming Chairman of the Board. Mr. Landon served
as Vice President and General Manager, Medical Products, E.I. DuPont de Nemours
and Company from 1992 to 1996. Prior to that, Mr. Landon served in various
capacities at DuPont, including Vice President and General Manager, Diagnostics
and Biotechnology from 1990 to 1992, Director of Diagnostics from 1988 to 1990,
Business Director of Diagnostic Imaging from 1985 to 1988 and in various other
professional and management positions at DuPont from 1962 to 1985. Mr. Landon is
also a director of Digene Corporation and a director and member of the Executive
Committee of Christiana Care Corporation, a firm created by the merger of the
Medical Center of Delaware, Mid-Atlantic Health Systems, and several other
healthcare entities. Previously, Mr. Landon served as a director of The DuPont
Merck Pharmaceutical Company and the Health Industry Manufacturers Association.
Mr. Landon earned a B.S. in Chemical Engineering from the University of Arizona.
Warren E. Pinckert II has served as President, Chief Executive Officer and
a director of the Company since June 1993. Mr. Pinckert served as Executive Vice
President of Operations of the Company from 1991 to June 1993 and as Chief
Financial Officer and Vice President of Business Development of the Company from
1989 to June 1993. Mr. Pinckert also served as Secretary of the Company from
1989 to January 1997. Prior to joining the Company, Mr. Pinckert was Chief
Financial Officer of Sunrise Medical Inc., an international durable medical
equipment manufacturer, from 1983 to 1989. Mr. Pinckert also serves on the Board
of Directors of PacifiCare Health Systems, Inc., a managed care organization.
Mr. Pinckert earned a B.S. in Accounting and a M.B.A. from the University of
Southern California and is a certified public accountant.
John L. Castello has been a director of the Company since August 1993. Mr.
Castello is the President, Chief Executive Officer, and Chairman of the Board of
XOMA Ltd. ("XOMA"), a biotechnology company. Mr. Castello joined XOMA in April
1992 as President and Chief Executive Officer after serving as President of the
Ares Serono Group, Inc., a Swiss ethical pharmaceutical company, from 1986 to
1991, and prior to that Mr. Castello was Chairman and Chief Executive Officer
from August 1991 to April 1992. From 1977 to 1986, Mr. Castello held senior
management positions at Amersham International PLC and Abbott Laboratories. Mr.
Castello earned a B.S. in Mechanical and Industrial Engineering from Notre Dame
University.
Molly J. Coye, MD is the founder of the Health Technology Center, a
non-profit organization sponsored by the Institute for the Future that is
dedicated to advancing the use of beneficial technologies for healthier people
and communities. From September 1997 to April 2000, Dr. Coye was the director of
the west coast office for The Lewin Group, a leader in health care policy,
strategic planning and management consulting, and served as an advisor to
venture capital firms in their investment planning for health technology and
communications. Dr. Coye has also directed product development and marketing for
HealthDesk Corporation, a developer of consumer software for interactive health
communication and disease management, and was EVP for Managed Care in the Good
Samaritan Health System, a non-profit integrated health care system and the
largest provider system in the Santa Clara Valley. From 1991 to 1993 Dr. Coye
was the Director of the California Department of Health Services. Dr. Coye also
directed the Division of Public Health at the Johns Hopkins School of Hygiene
and Public Health, and served as Commissioner of Health for the State of New
Jersey from 1986 to 1990. Dr. Coye received a Master of Arts degree in Asian
History from Stanford University and both a Doctor of Medicine and Master of
Public Health degrees from John Hopkins University.
Harvey S. Sadow, Ph.D. has been a director of the Company since January
1990 and has served as Chairman of the Board from 1992 to 2000. Dr. Sadow was
President and Chief Executive Officer of Boehringer Ingelheim Corporation, a
health care company, from 1971 to 1988, and of Boehringer Ingelheim
Pharmaceuticals, Inc., an ethical specialty pharmaceutical company, from 1984 to
1988. In 1988, upon his retirement, Dr. Sadow became Chairman of the Board of
Directors of both Boehringer Ingelheim Corporation and Boehringer Ingelheim
Pharmaceuticals, Inc. Dr. Sadow retired as Chairman of both companies in 1990
but remained on their Boards of Directors until 1992. Dr. Sadow is a director of
Anika Therapeutics, Inc., a hyaluronic acid technology specialty company; a
director of Trega Biosciences, Inc., a drug discovery company and a director of
several privately held companies in the health care field. Dr. Sadow earned a
B.S. from the
3
<PAGE> 6
Virginia Military Institute, a M.S. from the University of Kansas and a Ph.D.
from the University of Connecticut.
Larry Y. Wilson has been a director of the Company since May 1998. Since
1987, Mr. Wilson has served as the Executive Vice President and Chief Operating
Officer of Catholic Healthcare West ("Catholic Healthcare"), a health care
system that operates 38 acute care facilities and eight medical groups of the
CHW Medical Foundation in Arizona, California and Nevada. Prior to that time,
Mr. Wilson served as the Executive Vice President and Chief Financial Officer of
Mercy Health System, a predecessor of Catholic Healthcare, from 1983 to 1986 and
as a principal of the Health and Medical Division of Booz Allen & Hamilton, a
consulting company, from 1979 to 1983. Mr. Wilson also serves as a director of
PriMed Medical Management, Inc., the entity that operates the Hill Physicians
Medical Group. Mr. Wilson earned a B.A. in English from Harvard University and
an M.B.A. from Stanford University.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held five (5) meetings in fiscal 2000 and all
directors attended at least 75 percent of the meetings of the Board and
Committees of which they were members at the time of such meetings. The Board of
Directors has an Audit Committee, a Compensation Committee, a Governance
Committee and a Nominating Committee. The Audit Committee is comprised of
Messrs. Wilson, Sadow and Landon. The Compensation Committee is comprised of
Messrs. Castello, Sadow and Landon. The Governance Committee is comprised of
Messrs. Pinckert, Sadow and Castello. The Nominating Committee is comprised of
Messrs. Landon, Sadow, Pinckert and Castello.
The Audit Committee held three (3) meetings during fiscal 2000. The
responsibilities of the Audit Committee include recommending to the Board the
selection of the independent accountants and reviewing the Company's internal
accounting controls. The Audit Committee is authorized to conduct such reviews
and examinations as it deems necessary or desirable with respect to the
practices and procedures of the independent accountants, the scope of the annual
audit, accounting controls, practices and policies, and the relationship between
the Company and its independent accountants, including the availability of
Company records, information and personnel.
The Compensation Committee of the Board of Directors held three (3)
meetings during fiscal 2000. The Compensation Committee focuses on executive
compensation, incentive and other forms of compensation for directors, officers
and other employees and the administration of the Company's various compensation
and benefit plans.
The Governance Committee of the Board of Directors was formed by the Board
in June 1998 and did not meet in fiscal 2000. The purpose of the Governance
Committee is to ensure that the Board is operating efficiently and effectively.
The Nominating Committee of the Board of Directors held two (2) meetings
during fiscal 2000. The Nominating Committee recommends to the Board of
Directors candidates for nomination to the Board of Directors. The Nominating
Committee will consider nominees recommended by shareholders. Shareholders
making such recommendations should follow the procedures outlined above under
"Deadline of Receipt of Shareholder Proposals."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of directors Castello and Landon. There
are no interlocking relationships, as described by the Securities and Exchange
Commission, between the Compensation Committee members. Mr. Pinckert, President,
Chief Executive Officer and director of the Company, a nonmember of the
committee, participated in all discussions and decisions regarding salaries and
incentive compensation for all employees and consultants to the Company, except
that Mr. Pinckert was excluded from discussions regarding his own salary and
incentive compensation.
4
<PAGE> 7
RECORD DATE AND PRINCIPAL SHARE OWNERSHIP
The following table sets forth, as of June 30, 2000 information relating to
the beneficial ownership of the Company's Common Stock as to (i) each person
known to the Company to be the beneficial owner of more than five percent of the
outstanding shares of Common Stock, (ii) by each director, (iii) by each of the
executive officers and non-executive officers named in the table under
"Executive Compensation -- Summary Compensation Table" and (iv) by all directors
and officers as a group. Except as otherwise noted, the shareholders named in
the table have sole voting, and investment power with respect to all shares of
Common Stock shown as beneficially owned by them, subject to applicable common
property laws.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK PERCENT OF
BENEFICIALLY OWNED OUTSTANDING SHARES(1)
---------------------- ---------------------
<S> <C> <C>
Kopp Investments Advisors,
Inc.(2)........................... 1,753,146 14.6%
6600 France Avenue South
Suite 672
Edina, MN 55433
Warren E. Pinckert II(3)............ 420,002 3.4%
Robert J. Dominici(4)............... 146,248 *
Andrea J. Tiller(5)................. 116,644 *
Harvey S. Sadow(6).................. 88,224 *
John L. Castello(7)................. 52,000 *
Timothy I. Still(8)................. 25,456 *
John H. Landon(9)................... 25,000 *
Larry Y. Wilson(10)................. 25,000 *
Thomas E. Worthy(11)................ 20,820 *
Molly J. Coye....................... 0 *
All current Directors and executive
officers as a group (14
persons)(12)...................... 919,844 7.2%
</TABLE>
---------------
* Less than one percent.
(1) This table is based upon information supplied by officers, directors and
principal shareholders. Applicable percentage of ownership is based on
11,984,552 shares of Common Stock outstanding as of June 30, 2000 together
with applicable options for such shareholders. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission, and includes voting and investment power with respect to
shares. Shares of Common Stock subject to options or warrants currently
exercisable or exercisable within 60 days after June 30, 2000 are deemed
outstanding for computing the percentage ownership of the person holding
such options or warrants, but are not deemed outstanding for computing the
percentage of any other person.
(2) Reflects ownership as reported on Schedule 13G/A dated February 7, 2000
with the Commission by Kopp Investment Advisors, Inc. ("KIA"). Represents
shares beneficially owned by (i) KIA, a registered investment advisor, (ii)
Kopp Holding Company ("Holding") and (iii) LeRoy C. Kopp individually and
through his ownership of a controlling interest in KIA, his position as
sole stockholder of Holding and his individual interests. KIA has sole
voting power over 607,500 shares of the Company's Common Stock, sole
dispositive power over 410,000 shares and shared dispositive power over
985,950 shares of the Company's Common Stock. Holding has beneficial
ownership over 1,395,950 shares of the Company's Common Stock. Mr. Kopp has
sole voting and dispositive power over 265,000 shares of Common Stock and
beneficial ownership over 1,753,146 shares of Common Stock.
(3) Includes 343,266 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days after June 30, 2000.
(4) Includes 141,248 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days after June 30, 2000.
(5) Includes 108,644 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days after June 30, 2000.
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<PAGE> 8
(6) Includes 70,000 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days after June 30, 2000.
(7) Includes 50,000 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days after June 30, 2000.
(8) Represents 25,456 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days after June 30, 2000.
(9) Represents 25,000 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days after June 30, 2000.
(10) Represents 25,000 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days after June 30, 2000
(11) Includes 17,820 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days after June 30, 2000.
(12) Includes 806,434 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days after June 30, 2000.
PROPOSAL TWO
ADOPTION OF 2000 STOCK INCENTIVE PROGRAM
To ensure the company can continue to grant stock options to employees at
levels determined appropriate by the Board and the Compensation Committee of the
Board, the shareholders are being asked to approve the Company's 2000 Stock Plan
(the "2000 Plan"). The total number of shares authorized for issuance under the
2000 Plan is 590,000 shares. As of the record date, no options had been granted
under the 2000 Plan. The 2000 Plan was adopted by the Board of Directors on
March 30, 2000.
The 2000 Plan permits the Company to grant incentive stock options,
nonqualified stock options and stock purchase rights to employees, directors and
consultants in order to assist the Company in attracting, retaining and
motivating the best available personnel for the successful conduct of the
Company's business.
The plan also provides for nondiscretionary grants of nonqualified options
to outside directors. Under this nondiscretionary grant mechanism, each outside
director will receive an option to purchase 10,000 shares of common stock at the
time he or she first becomes a director. This initial grant will vest over one
year in four equal quarterly installments. In addition, beginning with the first
annual meeting of stockholders after the 2000 Plan becomes effective, each
outside director who has served as a director for at least the six preceding
months will receive an option to acquire an additional 10,000 shares. Each of
these incremental option grants will vest over one year, in four equal quarterly
installments. All options granted to outside directors under this
nondiscretionary grant mechanism will have an exercise price equal to the fair
market value of our common stock on the date of grant.
The Board believes the 2000 Plan is necessary in order to continue the
Company's policy of equity ownership by employees as an incentive for employees
to exert maximum efforts. The Board of Directors believes that stock options are
a competitive necessity in the medical diagnostic industry. The Company's
existing equity plans have the following shares reserved for issuance:
- The Company's 1988 Stock Incentive Program (the "1988 Plan") terminated
in February 1998. Options to purchase 662,433 shares of common stock are
outstanding under the 1998 Plan. There are no shares reserved for future
option grants.
- Options to purchase 776,336 shares are outstanding under the 1997 Plan,
and 108,943 shares are reserved for future option grants, 70,000 of which
are reserved for grants to directors.
- Options to purchase 541,402 shares are outstanding under the Company's
1999 Nonstatutory Stock Option Plan (the "1999 Plan"), and 457,837 shares
are reserved for future grants. Officers and directors are not eligible
for grants under the 1999 Plan except in connection with their
commencement of services for the Company.
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<PAGE> 9
This proposal provides a number of shares authorized for issuance under the
2000 Plan which, together with the reserves under the 1997 Plan and the 1999
Plan, the Company believes will provide sufficient shares for anticipated grants
to be issued to both new and existing employees until at least fiscal 2002. The
Company intends to utilize the options available for grant to attract and retain
both executive level and other employees as well as directors.
VOTE REQUIRED
The affirmative vote of a majority of the Votes Cast will be required under
California law to approve the amendment to the Incentive Program. For this
purpose, the "Votes Cast" are defined under California law to be the shares of
the Company's Common Stock represented and "voting" at the Annual Meeting of
Shareholders. In addition, the affirmative votes must constitute at least a
majority of the required quorum, which quorum is a majority of the shares
outstanding on the Record Date. Votes that are cast against the proposal will be
counted for purposes of determining (i) the presence or absence of a quorum and
(ii) the total number of Votes Cast with respect to the proposal. Abstentions
will be counted for purposes of determining the presence or absence of a quorum
for the transaction of business, but shall not be counted for the purpose of
determining the total number of Votes Cast with respect to the proposal. Broker
non-votes will be counted for purposes of determining the presence or absence of
a quorum for the transaction of business, but will not be counted for purposes
of determining the number of Votes Cast with respect to the proposal.
SUMMARY OF THE 2000 PLAN
General. The purpose of the 2000 Plan is to attract and retain the best
available personnel for positions of substantial responsibility with the
Company, to provide additional incentive to the employees, directors and
consultants of the Company and to promote the success of the Company's business.
Options and stock purchase rights may be granted under the 2000 Plan. Options
granted under the 2000 Plan may be either "incentive stock options," as defined
in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
nonstatutory stock options.
Administration. The 2000 Plan may generally be administered by the Board or
the Committee appointed by the Board (as applicable, the "Administrator").
Eligibility; Limitations. Nonstatutory stock options and stock purchase
rights may be granted under the 2000 Plan to employees, directors and
consultants of the Company and any parent or subsidiary of the Company.
Incentive stock options may be granted only to employees. The Administrator, in
its discretion, selects the employees, directors and consultants to whom options
and stock purchase rights may be granted, the time or times at which such
options and stock purchase rights shall be granted, and the number of shares
subject to each such grant.
Section 162(m) of the Code places limits on the deductibility for federal
income tax purposes of compensation paid to certain executive officers of the
Company. In order to preserve the Company's ability to deduct the compensation
income associated with options and stock purchase rights granted to such
persons, the 2000 Plan provides that no employee, director or consultant may be
granted, in any fiscal year of the Company, options and stock purchase rights to
purchase more than 300,000 shares of Common Stock. Notwithstanding this limit,
however, in connection with such individual's initial employment with the
Company, he or she may be granted options or stock purchase rights to purchase
up to an additional 300,000 shares of Common Stock.
Terms and Conditions of Options. Each option is evidenced by a stock option
agreement between the Company and the optionee, and is subject to the following
additional terms and conditions:
(a) Exercise Price. The Administrator determines the exercise price of
options at the time the options are granted. The exercise price of an
incentive stock option may not be less than 100% of the fair market value
of the Common Stock on the date such option is granted; provided, however,
the exercise price of an incentive stock option granted to a 10%
shareholder may not be less than 110% of the fair market value of the
Common Stock on the date such option is granted. The fair market value of
the
7
<PAGE> 10
Common Stock is generally determined with reference to the closing sale
price for the Common Stock (or the closing bid if no sales were reported)
on the last market trading day prior to the date the option is granted.
(b) Exercise of Option; Form of Consideration. The Administrator
determines when options become exercisable, and may in its discretion,
accelerate the vesting of any outstanding option. Stock options granted
under the 2000 Plan generally vest and become exercisable over four years.
The means of payment for shares issued upon exercise of an option is
specified in each option agreement. The 2000 Plan permits payment to be
made by cash, check, promissory note, other shares of Common Stock of the
Company (with some restrictions), cashless exercises, a reduction in the
amount of any Company liability to the optionee, any other form of
consideration permitted by applicable law, or any combination thereof.
(c) Term of Option. The term of an incentive stock option may be no
more than ten (10) years from the date of grant; provided that in the case
of an incentive stock option granted to a 10% shareholder, the term of the
option may be no more than five (5) years from the date of grant. No option
may be exercised after the expiration of its term.
(d) Termination of Employment. If an optionee's employment or
consulting relationship terminates for any reason (other than death or
disability), then all options held by the optionee under the 2000 Plan
expire on the earlier of (i) the date set forth in his or her notice of
grant or (ii) the expiration date of such option. To the extent the option
is exercisable at the time of such termination, the optionee may exercise
all or part of his or her option at any time before termination.
(e) Death or Disability. If an optionee's employment or consulting
relationship terminates as a result of death or disability, then all
options held by such optionee under the 2000 Plan expire on the earlier of
(i) 12 months from the date of such termination or (ii) the expiration date
of such option. The optionee (or the optionee's estate or the person who
acquires the right to exercise the option by bequest or inheritance), may
exercise all or part of the option at any time before such expiration to
the extent that the option was exercisable at the time of such termination.
(f) Nontransferability of Options. Options granted under the 2000 Plan
are not transferable other than by will or the laws of descent and
distribution, and may be exercised during the optionee's lifetime only by
the optionee.
(g) Other Provisions. The stock option agreement may contain other
terms, provisions and conditions not inconsistent with the 2000 Plan as may
be determined by the Administrator.
Stock Purchase Rights. In the case of SPRs, unless the Administrator
determines otherwise, the Restricted Stock Purchase Agreement shall grant the
Company a repurchase option exercisable upon the voluntary or involuntary
termination of the purchaser's employment with the Company for any reason
(including death or disability). The purchase price for Shares repurchased
pursuant to the Restricted Stock Purchase Agreement shall be the original price
paid by the purchaser and may be paid by cancellation of any indebtedness of the
purchaser to the Company. The repurchase option shall lapse at a rate determined
by the Administrator.
Adjustments Upon Changes in Capitalization. In the event that the stock of
the Company changes by reason of any stock split, reverse stock split, stock
dividend, combination, reclassification or other similar change in the capital
structure of the Company effected without the receipt of consideration,
appropriate adjustments shall be made in the number and class of shares of stock
subject to the 2000 Plan, the number and class of shares of stock subject to any
option or stock purchase right outstanding under the 2000 Plan, and the exercise
price of any such outstanding option or stock purchase right.
In the event of a liquidation or dissolution, any unexercised options or
stock purchase rights will terminate. The Administrator may, in its discretion
provide that each optionee shall have the right to exercise all of the
optionee's options and stock purchase rights, including those not otherwise
exercisable, until the date ten (10) days prior to the consummation of the
liquidation or dissolution.
8
<PAGE> 11
In connection with any merger, consolidation, acquisition of assets or like
occurrence involving the Company, each outstanding option or stock purchase
right shall be assumed or an equivalent option or right substituted by the
successor corporation. If the successor corporation refuses to assume the
options and stock purchase rights or to substitute substantially equivalent
options and stock purchase rights, the optionee shall have the right to exercise
the option or stock purchase right as to all the optioned stock, including
shares not otherwise exercisable. In such event, the Administrator shall notify
the optionee that the option or stock purchase right is fully exercisable for
fifteen (15) days from the date of such notice and that the option or stock
purchase right terminates upon expiration of such period.
Amendment and Termination of the 2000 Plan. The Board may amend, alter,
suspend or terminate the 2000 Plan, or any part thereof, at any time and for any
reason. However, the Company shall obtain shareholder approval for any amendment
to the 2000 Plan to the extent necessary to comply with Section 162(m) and
Section 422 of the Code, or any similar rule or statute. No such action by the
Board or shareholders may alter or impair any option or stock purchase right
previously granted under the 2000 Plan without the written consent of the
optionee. Unless terminated earlier, the 2000 Plan shall terminate ten years
from the date of its approval by the shareholders or the Board of the Company,
whichever is earlier.
FEDERAL INCOME TAX CONSEQUENCES
Incentive Stock Options. An optionee who is granted an incentive stock
option does not recognize taxable income at the time the option is granted or
upon its exercise, although the exercise may subject the optionee to the
alternative minimum tax. Upon a disposition of the shares more than two years
after grant of the option and one year after exercise of the option, any gain or
loss is treated as long-term capital gain or loss. Net capital gains on shares
held between 12 and 18 months are currently taxed at a maximum federal rate of
28%. Net capital gains on shares held for more than 18 months are capped at 20%.
Capital losses are allowed in full against capital gains and up to $3,000
against other income. If these holding periods are not satisfied, the optionee
recognizes ordinary income at the time of disposition equal to the difference
between the exercise price and the lower of (i) the fair market value of the
shares at the date of the option exercise or (ii) the sale price of the shares.
Any gain or loss recognized on such a premature disposition of the shares in
excess of the amount treated as ordinary income is treated as long-term or
short-term capital gain or loss, depending on the holding period. A different
rule for measuring ordinary income upon such a premature disposition may apply
if the optionee is also an officer, director, or 10% shareholder of the Company.
The Company is entitled to a deduction in the same amount as the ordinary income
recognized by the optionee.
The exercise of an incentive stock option may subject the optionee to
alternative minimum tax under Section 55 of the Internal Revenue Code.
Nonstatutory Stock Options. An optionee does not recognize any taxable
income at the time he or she is granted a nonstatutory stock option. Upon
exercise, the optionee recognizes taxable income generally measured by the
excess of the then fair market value of the shares over the exercise price. Any
taxable income recognized in connection with an option exercise by an employee
of the Company is subject to tax withholding by the Company. The Company is
entitled to a deduction in the same amount as the ordinary income recognized by
the optionee. Upon a disposition of such shares by the optionee, any difference
between the sale price and the optionee's exercise price, to the extent not
recognized as taxable income as provided above, is treated as long-term or
short-term capital gain or loss, depending on the holding period. Net capital
gains on shares held between 12 and 18 months are currently taxed at a maximum
federal rate of 28%. Net capital gains on shares held for more than 18 months
are capped at 20%. Capital losses are allowed in full against capital gains and
up to $3,000 against other income.
Stock Purchase Rights. Stock purchase rights will generally be taxed in the
same manner as nonstatutory stock options. However, restricted stock is
generally purchased upon the exercise of a stock purchase right. At the time of
purchase, restricted stock is subject to a "substantial risk of forfeiture"
within the meaning of Section 83 of the Code. As a result, the purchaser will
not recognize ordinary income at the time of purchase. Instead, the purchaser
will recognize ordinary income on the dates when a stock ceases to be subject to
a substantial risk of forfeiture. The stock will generally cease to be subject
to a substantial risk of forfeiture when
9
<PAGE> 12
it is no longer subject to the Company's right to repurchase the stock upon the
purchaser's termination of employment with the Company. At such times, the
purchaser will recognize ordinary income measured as the difference between the
purchase price and the fair market value of the stock on the date the stock is
no longer subject to a substantial risk of forfeiture.
The purchaser may accelerate to the date of purchase his or her recognition
of ordinary income, if any, and the beginning of any capital gain holding period
by timely filing an election pursuant to Section 83(b) of the Code. In such
event, the ordinary income recognized, if any, is measured as the difference
between the purchase price and the fair market value of the stock on the date of
purchase, and the capital gain holding period commences on such date. The
ordinary income recognized by a purchaser who is an employee will be subject to
tax withholding by the Company. Different rules may apply if the purchaser is
also an officer, director, or 10% shareholder of the Company.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION
UPON OPTIONEES, HOLDERS OF STOCK PURCHASE RIGHTS, AND THE COMPANY WITH RESPECT
TO THE GRANT AND EXERCISE OF OPTIONS AND STOCK PURCHASE RIGHTS UNDER THE 2000
PLAN. IT DOES NOT PURPORT TO BE COMPLETE, AND DOES NOT DISCUSS THE TAX
CONSEQUENCES OF THE EMPLOYEE'S OR CONSULTANT'S DEATH OR THE PROVISIONS OF THE
INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE
EMPLOYEE OR CONSULTANT MAY RESIDE.
PARTICIPATION IN THE INCENTIVE PROGRAM
The grant of options under the Incentive Program to executive officers,
including the officers named in the Summary Compensation Table, is subject to
the discretion of the Administrator. As of the date of this proxy statement,
there has been no determination by the Administrator with respect to future
awards under the Incentive Program. The Administrator of the 2000 Incentive
Program currently plans to make grants to nonemployee directors of 10,000 shares
per nonemployee director granted at the Annual Shareholder Meeting. Accordingly,
future awards are not determinable. The table of option grants under "Executive
Compensation -- Stock Option Grants in Fiscal Year 2000" provides information
with respect to the grant of options to the named executive officers during
fiscal 2000. Information regarding options granted to nonemployee directors
during fiscal 2000 is set forth under the heading "Executive
Compensation -- Director Compensation." During fiscal 2000, all current
executive officers as a group and all employees as a group received options to
purchase 161,000 shares and 490,005 shares.
PROPOSAL THREE
AMENDMENT OF EMPLOYEE STOCK PURCHASE PLAN
In June 1992, the Board of Directors adopted the Employee Stock Purchase
Plan (the "Purchase Plan") authorizing the issuance of 75,000 shares of Common
Stock. The Purchase Plan is intended to qualify as an employee stock purchase
plan within the meaning of Section 423 of the Internal Revenue Code of 1986, as
amended (the "Code"). Under the Purchase Plan, the Board may authorize
participation by eligible employees, including officers, in periodic offerings
following the commencement of the Purchase Plan.
In August 1995, the Employee Stock Purchase Plan was amended to increase
the number of shares of Common Stock reserved for issuance thereunder by 125,000
shares. In August, 1997, the Employee Stock Purchase Plan was amended to
increase the number of shares of Common Stock reserved for issuance thereunder
by 200,000 shares. As of July 8, 2000, 85,000 shares of Common Stock (excluding
the additional 200,000 shares to be approved hereunder) were available for
purchase under the Purchase Plan. The purpose of the amendment is to increase
the number of shares authorized for issuance under the Purchase Plan by 200,000
shares from a total of 400,000 shares to a total of 600,000 shares. This
amendment is intended to afford the Company greater flexibility in providing
employees with stock incentives and ensures the Company can continue to provide
such incentives determined appropriate by the Board. During fiscal 2000,
eligible employees, including officers, purchased 74,188 shares of the Company's
Common Stock raising $149,838 in additional funds.
10
<PAGE> 13
VOTE REQUIRED
The affirmative vote of a majority of the Votes Cast will be required by
law to approve the amendment to the Purchase Plan. For this purpose, the "Votes
Cast" are defined to be the shares of the Company's Common Stock represented and
"voting" at the Annual Meeting. In addition, the affirmative votes must
constitute at least a majority of the required quorum, which quorum is a
majority of the shares outstanding at the record date. Votes that are cast
against the proposal will be counted for purposes of determining both (i) the
presence or absence of a quorum and (ii) the total number of Votes Cast with
respect to the proposal. Abstentions will be counted for purposes of determining
the presence or absence of a quorum for the transaction of business but shall
not be counted for determining the total number of Votes Cast with respect to
the proposal. Broker non-votes will be counted for purposes of determining the
presence of absence of a quorum for the transaction of business, but will not be
counted for purposes of determining the number of Votes Cast with respect to
this proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE AMENDMENT
TO THE PURCHASE PLAN.
The essential terms of the Purchase Plan, as amended, are summarized as
follows:
PURPOSE
The purposes of the Purchase Plan is to provide employees of the Company
which are designated by the Board of Directors to participate in the Purchase
Plan with an opportunity to purchase Common Stock of the Company through
accumulated payroll deductions. The Purchase Plan is intended to qualify under
Section 423 of the Internal Revenue Code of 1986, as amended (the "Code").
ADMINISTRATION
The Purchase Plan provides for administration by the Board of Directors of
the Company or a committee appointed by the Board and is currently administered
by the Board of Directors. All questions of interpretation or application of the
Purchase Plan are determined by the Board of Directors or its appointed
committee, and its decisions are final and binding upon all participants. No
charge for administrative or other costs may be made against the payroll
deductions of a participant in the Purchase Plan. Members of the Board receive
no additional compensation for their services in connection with the
administration of the Purchase Plan.
OFFERING PERIODS
The Purchase Plan has offering periods of approximately six-month periods.
The offering periods commence on or after January 1 and July 1 of each year. The
Board of Directors has the power to alter the duration of the offering periods
without shareholder approval.
ELIGIBILITY
Any person who (i) is a regular employee scheduled to work at least twenty
hours per week and at least three months per year and (ii) was employed by the
Company on the 1st day of April or the 1st day of October immediately preceding
the enrollment date is eligible to participate in the Purchase Plan. Eligible
employees become participants in the Purchase Plan by delivering to the
Company's payroll office a subscription agreement authorizing payroll
deductions. An employee who becomes eligible to participate in the Purchase Plan
after the commencement of an offering may not participate in the Purchase Plan
until the commencement of the next offering period.
PURCHASE PRICE
The price at which share are sold to participating employees is eighty-five
percent (85%) of the lower of the fair market value per share of the Common
Stock on (i) the first day of the offering period or (ii) the last day of the
purchase period. The fair market value of Common Stock on a given date is
determined by reference to the closing sales price of the Nasdaq National
Market. The closing sale price per share of the Company's Common Stock on the
Nasdaq National Market on June 30, 2000 was $7.63.
11
<PAGE> 14
PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS
The purchase price of the shares is accumulated by payroll deductions over
the offering period. The deductions may not exceed 15% of a participant's
compensation. A participant may discontinue his or her participation in the
Purchase Plan and may decrease the rate of payroll deductions at any time during
the offering period. A participant may increase the rate of payroll deductions
at the beginning of each purchase period. Payroll deductions shall commence on
the first payday following the offering date and shall continue at the same rate
until the end of the offering period unless sooner terminated as provided in the
Purchase Plan.
PURCHASE OF STOCK; EXERCISE OF OPTION
By executing a subscription agreement to participate in the Purchase Plan,
the employee is entitled to have shares placed under option to him or her. The
maximum number of shares placed under option to a participant in an offering is
that number arrived at by dividing the amount of his or her compensation which
he or she has elected to have withheld for the purchase period by the lower of
(i) 85% of the fair market value of a share of Common Stock at the beginning of
the offering period, or (ii) 85% of the fair market value of a share of Common
Stock on the last day of the purchase period as long as the total number of
shares issued to a participant for any purchase period does not exceed a number
determined by dividing $12,500 by the market value of a share of Common Stock at
the beginning of the offering period. Unless the employee's participation is
discontinued, the option for the purchase of shares will be exercised
automatically at the end of the offering period at the applicable price.
Notwithstanding the forgoing, no employee shall be permitted to subscribe
for shares under the Purchase Plan (a) if, immediately after the grant of the
option, the employee would own, and/or hold outstanding options to purchase, 5%
or more of the voting stock or value of all classes of stock of the Company or
(b) which permits his or her rights to purchase stock under all employees stock
purchase plans of the Company to accrue at a rate which exceeds twenty-five
thousand dollars ($25,000) worth of stock (determined at the fair market value
of the shares at the time such option is granted) for each calendar year in
which such option is outstanding at any time. Furthermore, if the number of
shares which would otherwise be placed under option at the beginning of an
offering period exceeds the number of shares then available under the Purchase
Plan, a pro rata allocation of the share remaining shall be made in as equitable
a manner as is practicable.
WITHDRAWAL
While each participant in the Purchase Plan is required to sign a
subscription agreement authorizing payroll deductions, the participant's
interest in a given offering may be terminated in whole, but not in part, by
signing and delivering to the Company a notice of withdrawal from the Purchase
Plan. Such withdrawal may be elected at any time prior to the end of the
applicable offering period. Any withdrawal by the employee during a given
offering automatically terminates the employee's interest in that offering.
TERMINATION OF EMPLOYMENT
Termination of a participant's employment for any reason, including
retirement or death, cancels his or her participation in the Purchase Plan
immediately. In such event, the payroll deductions credited to the participant's
account will be returned without interest to such participant, or, in the case
of death, to the person or person entitled thereto as specified by the employee
in the subscription agreement.
CAPITAL CHANGES
In the event of any changes in the capitalization of the Company, such as
stock splits or stock dividends, resulting in an increase or decrease in the
number of shares of Common Stock, effected without receipt of consideration by
the Company, appropriate adjustment will be made by the Company in the shares
subject to purchase and in the purchase price per share.
12
<PAGE> 15
NONASSIGNABILITY
No rights or accumulated payroll deductions of an employee under the
Purchase Plan may be pledged, assigned, or transferred for any reason and any
such attempt may be treated by the Company as an election to withdraw from the
Purchase Plan.
AMENDMENT AND TERMINATION OF THE PURCHASE PLAN
The Board of Directors may at any time amend or terminate the Purchase
Plan, except that such termination shall not affect options previously granted
nor may any amendment make any changes in an option granted prior thereto which
adversely affects the rights of any participant. No amendment may be made to the
Purchase Plan without prior approval of the shareholders of the Company if such
amendment would increase the number of shares reserved under the Purchase Plan,
materially modify the eligibility requirements, or materially increase the
benefits which may accrue to participants under the Purchase Plan.
CERTAIN UNITED STATES FEDERAL INCOME TAX INFORMATION
The Purchase Plan, and the right of Participants to make purchases
thereunder, is intended to qualify under the provisions of Sections 421 and 423
of the Code. Under these provisions, no income will be taxable to a participant
until the shares purchased under the Purchase Plan are sold or otherwise
disposed of. Upon sale or other disposition of the shares, the participant will
generally be subject to tax and the amount of the tax will depend upon the
holding period. If the shares are sold or otherwise disposed of more than two
years from the first day of the offering period and more than one year from the
date of the shares are purchased, the participant will recognize ordinary income
measured as the lesser of (a) the excess of the fair market value of the shares
at the time of such sales or disposition over the purchase price, or (b) an
amount equal to 15% of the fair market value of the shares as of the first day
of the offering period. Any additional gain will be treated as long-term capital
gain. If the shares are sold or otherwise disposed of on before the expiration
of these holding periods, the participant will recognize ordinary income
generally measured as the excess of the fair market value of the shares on the
date the shares are purchased over the purchase price. Any additional gain or
loss of such sale or disposition will be long-term or short-term capital gain or
loss, depending on the holding period. The Company is not entitled to a
deduction for amounts taxed as ordinary income or capital gain to a participant
except to the extent that it is entitled to a deduction for ordinary income
recognized by participants upon a sale or disposition of shares prior to the
expiration of the holding period(s) described above.
The foregoing is only a summary of the effect of federal income taxation
upon the participant and the Company with respect to the shares purchased under
the Purchase Plan. Reference should be made to the applicable provisions of the
Code. In additional, the summary does not discuss the tax consequences of a
participant's death or the income tax laws of any state or foreign country in
which the participant may reside.
PARTICIPATION IN THE PURCHASE PLAN
Participation in the Purchase Plan is voluntary and is dependent on each
eligible employee's election to participate and his or her determination as to
the level of payroll deductions. Accordingly, future purchases under the
Purchase Plan are not determinable. Non-employee directors are not eligible to
participate in the Purchase Plan.
13
<PAGE> 16
The following table sets forth certain information regarding shares
purchased during the fiscal year ended March 31, 2000 by each of the executive
officers named in the Summary Compensation Table below who participated in the
Purchase Plan, all current executive officers as a group, and all other
employees who participated in the Purchase Plan as a group:
<TABLE>
<CAPTION>
NUMBER OF
NAME OF INDIVIDUAL OR SHARES DOLLAR
IDENTITY OF GROUP PURCHASED(#) VALUED($)(1)
--------------------- ------------ ------------
<S> <C> <C>
Warren E. Pinckert II....................................... -- $ --
Robert J. Dominici.......................................... -- --
Timothy I. Still............................................ -- --
Andrea J. Tiller............................................ -- --
Thomas E. Worthy............................................ 2,712 7,729
All current executive officers as a group (5 persons)....... 2,712 7,729
All other Employees as a group.............................. 71,476 226,699
All Employees as a group.................................... 74,188 $234,428
</TABLE>
---------------
(1) Market value of shares on date of purchase minus the purchase price under
the Purchase Plan.
PROPOSAL FOUR
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected PricewaterhouseCoopers LLP, independent
accountants, to audit the consolidated financial statements of the Company for
the fiscal year ending March 30, 2001, and recommends that shareholders vote for
ratification of such appointment. In the event of a negative vote on such
ratification, the Board of Directors will reconsider its selection.
PricewaterhouseCoopers LLP has been the Company's independent accountants
since 1990. A representative of PricewaterhouseCoopers LLP will be present at
the Annual Meeting and will have an opportunity to make a statement if he
desires to do so and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR RATIFICATION
OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S INDEPENDENT
ACCOUNTANTS.
14
<PAGE> 17
EXECUTIVE COMPENSATION AND OTHER MATTERS
EXECUTIVE COMPENSATION
The following table shows compensation incurred by the Company for services
rendered during fiscal years 2000, 1999, and 1998 for the Chief Executive
Officer and the four other most highly compensated executive and non-executive
officers of the Company (the "Named Executive Officers") whose compensation
exceeded $100,000 in fiscal 2000. Where historically the Company has reported
this information based upon the date when the employee was paid, the Table has
been restructured to reflect when the expense was incurred and accrued. There
were no bonuses incurred for fiscal 1999, as fiscal 1999 results incurred a
loss.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
--------------------------------------------- SECURITIES ALL OTHER
OTHER ANNUAL UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(#) ($)(1)
--------------------------- ---- --------- -------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Warren E. Pinckert II(2)....... 2000 236,707 152,694 0 3,444
President and Chief 1999 223,192 65,000 4,478
Executive Officer 1998 194,167 60,000 40,000 5,308
Robert J. Dominici(3).......... 2000 178,194 128,262 25,000 2,162
Executive Vice President 1999 114,548 265,000 143
and Chief Operating
Officer -- Diagnostic
Products
Timothy I. Still(4)............ 2000 123,923 37,249 24,000 6,354
Vice President Marketing &
Sales -- Diagnostic Products
Andrea J. Tiller............... 2000 150,463 109,939 25,000 2,391
Vice President of Finance, 1999 145,436 25,000 2,295
Chief Financial Officer, 1998 130,833 33,548 25,000 2,656
Treasurer and Secretary
Thomas E. Worthy(5)............ 2000 119,271 36,709 35,000 3,916
Vice President Development &
Regulatory
Affairs -- Diagnostic
Products
</TABLE>
---------------
(1) The amounts described hereunder were paid by the Company for premiums on
group term life insurance, medical and dental insurance and long term
disability insurance
(2) In August, 1998, Mr. Pinckert took a voluntary 10% reduction in his Salary.
(3) Mr. Dominici joined the Company as its Executive Vice President of Marketing
and Sales in August, 1998 and was promoted to Executive Vice President,
Chief Operating Officer for Diagnostic Products in September, 1999.
(4) Mr. Still was promoted to the position of Vice President Marketing & Sales
for Diagnostic Products in September, 1999.
(5) Mr. Worthy was promoted to the position of Vice President Development &
Regulatory Affairs in August, 1999 and currently fulfills that role for the
Company's Diagnostic Products business.
15
<PAGE> 18
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information relating to stock options awarded
to each of the Named Executive Officers during the fiscal year ended March 31,
2000. All such options were awarded under the Company's 1997 Stock Incentive
Program.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------- POTENTIAL VALUE(1)
% OF EXERCISE PRICE EXPIRATION --------------------
NAME NUMBER(2) TOTAL(3) PER SHARE(2)(4) DATE 5% 10%
---- --------- -------- --------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Warren E. Pinckert II........ 0 0% $ 0 $ 0 $ 0
Robert J. Dominici........... 25,000 3.6% 6.063 9/17/06 213,281 295,377
Timothy I. Still............. 18,404 2.7% 6.625 10/21/06 171,563 237,600
5,596 1.0% 6.625 10/21/06 52,166 72,246
Andrea J. Tiller............. 21,292 3.1% 6.063 9/17/06 181,647 251,567
3,708 0.5% 6.063 9/17/06 31,634 43,810
Thomas E. Worthy............. 35,000 5.1% 5.250 8/19/06 258,555 358,077
</TABLE>
---------------
(1) "Potential Realizable Value at Assumed Annual Rates of Stock Appreciation
for Option Term." Potential realizable value is based on the assumption that
the Common Stock of the Company appreciates at the annual rate shown
(compounded annually) from the date of grant until the expiration of the
seven year option term. These numbers are calculated based on the
requirements promulgated by the Securities and Exchange Commission and do
not reflect the Company's estimate of future stock price growth.
(2) "Number of Underlying Shares Granted as Options." Options were granted at an
exercise price equal to the fair market value of the Company's Common Stock,
as determined by the Board of Directors on the date of grant with reference
to the closing price of the Company's Common Stock on the Nasdaq National
Market on the date of grant.
(3) "% of Total Options Granted to Employees in Fiscal Year." Based on an
aggregate of 691,105 options granted under the 1997 and 1999 Stock Incentive
Program in the fiscal year ended March 31, 2000.
(4) Exercise price and tax withholding obligations related to exercise may be
paid in cash, check, promissory note, by delivery of already-owned shares of
the Company's Common Stock subject to certain conditions, or pursuant to a
cashless exercise procedure under which the optionee provides irrevocable
instructions to a brokerage firm to sell the purchased shares and to remit
to the Company, out of the sale proceeds, an amount equal to the exercise
price plus all applicable withholding taxes.
16
<PAGE> 19
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth, for each of the Named Executive Officers,
the aggregated option exercises in the last fiscal year and the year-end value
of unexercised options.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS OPTIONS(2)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Warren E. Pinckert II... $-- $-- 343,266 99,024 $1,419,132 $151,727
Robert J. Dominici...... -- -- 141,248 148,752 369,628 404,807
Timothy I. Still........ -- -- 25,456 34,544 22,958 60,112
Andrea J. Tiller........ -- -- 108,644 46,356 314,253 126,395
Thomas E. Worthy........ -- -- 17,820 34,305 45,424 107,005
</TABLE>
---------------
(1) Market value of the Company's Common Stock at the exercise date minus the
exercise price.
(2) Market value of the Common Stock as of March 31, 2000 minus the exercise
price.
DIRECTORS' COMPENSATION
Non-employee directors receive a $1,000 monthly retainer and a $1,000
director's meeting fee for each Board meeting they attend with the exception of
the Chairman who receives a $2,000 monthly retainer and a $2,000 director's
meeting fee for each Board meeting he attends. Non-employee directors also
receive a $1,000 fee for each meeting of the Audit, Compensation, Governance or
Nominating Committees attended that is not on the same day as a regular Board
meeting. In addition, the 1997 Stock Incentive Program provides that options to
purchase the Company's Common Stock may be granted to non-employee directors
pursuant to a non-discretionary, automatic grant mechanism, whereby each such
director is granted an option to purchase 10,000 shares on the date of each
Annual Meeting of Shareholders with the exception of the Chairman who is granted
an option to purchase 20,000 shares on the date of each Annual Meeting of
Shareholders, or an initial grant of 10,000 shares upon becoming a member of the
Board of Directors if the date such director joins the Board is within six
months of the most recent Annual Meeting of Shareholders. In August 1999,
pursuant to the provisions of the 1997 Stock Incentive Program, Mr. Castello,
Mr. Landon and Mr. Wilson were each granted nonstatutory options to purchase
10,000 shares of the Company's Common Stock at an exercise price of $6.00 per
share. Dr. Sadow was granted a nonstatutory option to purchase 20,000 shares of
the Company's Common Stock at the same exercise price of $6.00 per share. The
Company plans to make similar initial and annual grants to non-employee
directors out of the Company's 2000 Stock Incentive Program.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
The Board of Directors has approved a twelve-month wage and benefits
continuation package, including but not limited to twelve months of Stock Option
vesting and medical and dental coverage, for Mr. Pinckert in the event he is
terminated by the Company, for any or no reason, Mr. Pinckert will be paid, in a
lump-sum, within thirty days of the date of such termination, an amount equal to
one years' compensation, at the rate of compensation in effect immediately prior
to such termination (minus applicable withholding).
The Board of Directors has approved a six-month wage and benefits
continuation package, including but not limited to six months of Stock Option
vesting and medical and dental coverage, for Mr. Aroy, Mr. Dominici, Mr.
Stromberg, Mr. Still, Ms. Tiller, Ms. Wassmann, and Mr. Worthy in the event they
are terminated by the Company, for any or no reason, he or she will be paid, in
a lump-sum, within thirty days of the date of such termination, an amount equal
to six months compensation, at the rate of his or her compensation in effect
immediately prior to such termination (minus applicable withholding).
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<PAGE> 20
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee (the "Committee") of the Board of Directors
reviews and approves the Company's executive compensation policies. The
Committee administers the Company's various incentive plans, including the 1997
and 1999 Stock Incentive Programs, sets compensation policies applicable to the
Company's executive officers and evaluates the performance of the Company's
executive officers. The compensation levels of the Company's executive officers
for the fiscal year ended March 31, 2000, including base salary levels,
potential bonuses and stock option grants were determined by the committee at
the beginning of the fiscal year. The following is a report of the Committee
describing the compensation policies and rationale applicable with respect to
the compensation paid to the Company's executive officers for the fiscal year
ended March 31, 2000.
COMPENSATION PHILOSOPHY
The Company's philosophy in setting its compensation policies for executive
officers is to maximize shareholder value over time. The primary goal of the
Company's executive compensation program is therefore to closely align the
interests of the executive officers with those of the Company's shareholders. To
achieve this goal the Company attempts to (i) offer compensation opportunities
that attract and retain executives whose abilities are critical to the long-term
success of the Company, motivate individuals to perform at their highest level
and reward outstanding achievement, (ii) maintain a portion of the executive's
total compensation at risk, tied to achievement of financial, organizational and
management performance goals, and (iii) encourage executives to manage from the
perspective of owners with an equity stake in the Company. The Compensation
Committee currently uses base salary, annual cash incentives and stock options
to meet these goals.
BASE SALARY
Base salary is primarily used by the Company as a device to attract,
motivate, reward and retain highly skilled executives. The Committee reviewed
and approved fiscal 2000 base salaries for the Chief Executive Officer and other
executive officers at the beginning of the fiscal year. Base salaries were
established by the Committee based upon an executive officer's job
responsibilities, level of experience, individual performance, contribution to
the business, the Company's financial performance for the past year, and
recommendations from management. The Committee also takes into account the
salaries for similar positions at comparable companies, based on each individual
Committee member's industry experience. In reviewing base salaries, the
Committee focused significantly on each executive officer's prior performance
with the Company and expected contribution to the Company's future success. In
making base salary decisions, the Committee exercised its discretion and
judgment based upon these factors. No specific formula was applied to determine
the weight of each factor. In fiscal 2000, the Board approved an increase in Mr.
Pinckert's salary, reinstating the voluntary 10% salary reduction Mr. Pinckert
had taken in fiscal 1999, and increasing his base salary 4.5% from its
reinstated rate. This resulted in base compensation of $236,707 incurred for Mr.
Pinckert in fiscal 2000.
ANNUAL CASH INCENTIVES
Each Named Executive Officer's bonus is based on qualitative and
quantitative factors and is intended to motivate and reward such Named
Executives Officers by directly linking the amount of any cash bonus to specific
Company-based performance targets and specific individual-based performance
targets. Annual incentive bonuses for Named Executive Officers are intended to
reflect the Committee's belief that a portion of the compensation of each Named
Executive Officer should be contingent upon the performance of the Company, as
well as the individual contribution of each Named Executive Officer. To carry
out this philosophy, the Board of Directors review and approves the financial
budget for the fiscal year. The Compensation Committee then establishes target
bonuses for each Named Executive Officer as a percentage of the officer's base
salary. The Named Executive Officers, including Mr. Pinckert, must successfully
achieve these performance targets which are submitted by management to the
Compensation Committee for its evaluation and approval at the beginning of the
fiscal year. The Company-based performance goals are tied to
18
<PAGE> 21
different indicators of the Company's performance, such as the operating results
of the Company. The individual performance goals are tied to different
indicators of such Named Executive Officer's performance, such as the financial
performance of the Company, new product development and increase in the customer
base. The Compensation Committee evaluates the completion of the Company-based
performance targets and specific individual-based performance targets and
approves a performance rating relative to the goals so completed. This scoring
is influenced by the Compensation Committee's perception of the importance of
the various corporate and individual goals. The Compensation Committee believes
that the bonus arrangement provides an excellent link between the Company's
earnings performance and the incentives paid to the Named Executive Officers. In
fiscal 2000, the Board approved an annual cash incentive bonus of $152,694 for
Mr. Pinckert based upon the Company's significant turnaround from fiscal 1999
and overachievement of its profitability plan for fiscal 2000, which was
adjusted for the new business units.
STOCK OPTIONS
The Compensation Committee provides the Company's Named Executive Officers
with long-term incentive compensation through grants of stock options under the
Company's 1997 Stock Incentive Program. The Compensation Committee believes that
stock options provide the Company's Named Executive Officers with the
opportunity to purchase and maintain an equity interest in the Company and to
share in the appreciation of the value of the Company's Common Stock. The
Compensation Committee believes that stock options directly motivate an
executive to maximize long-term shareholder value. Such options also utilize
vesting periods that encourage key executives to continue in the employ of the
Company. All options granted to Named Executives Officers to date have been
granted at the fair market value of the Company's Common Stock on the date of
grant. The Compensation Committee considers the grant of each option
subjectively, considering factors such as the Named Executive Officer's relative
position and responsibilities with the Company, the individual performance of
the Named Executive Officer over the previous fiscal year, and the anticipated
contribution of the Named Executive Officer to the attainment of the Company's
long-term strategic performance goals. Stock options granted in prior years are
also taken into consideration. The Compensation Committee views stock option
grants as an important component of its long-term, performance-based
compensation philosophy. Mr. Pinckert was not granted incentive stock options in
fiscal 2000.
SECTION 162(m)
The Compensation Committee has considered the potential future effects of
Section 162(m) of the Internal Revenue Code on the compensation paid to the
Company's Named Executive Officers. Section 162(m) disallows a tax deduction for
any publicly held corporation for individual compensation exceeding $1.0 million
in any taxable year for any of the Named Executive Officers. Certain
performance-based compensation, however, is specifically exempt from the
deduction limit. The Company has adopted a policy that, where reasonably
practicable, the Company will take the necessary steps to conform its
compensation, including compensation derived from the exercise of stock options,
to comply with the deductibility limitations of Section 162(m).
Respectfully submitted by Members of
the Compensation Committee:
John L. Castello
John H. Landon
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<PAGE> 22
PERFORMANCE GRAPH
The following is a line graph comparing the cumulative total return to
shareholders of the Company's Common Stock at March 31, 2000 since March 31,
1994 to the cumulative total return over such period of (i) the Nasdaq Stock
Market United States Index and (ii) a Peer Group Index, which includes all
companies in the Standard Industrial Classification Code 3826 -- Measuring and
Controlling Devices, of which the Company is a member.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN(1)
AMONG CHOLESTECH CORPORATION, THE NASDAQ STOCK MARKET UNITED STATES INDEX AND A
PEER GROUP(2)(3)
<TABLE>
<CAPTION>
CHOLESTECH NASDAQ STOCK
CORPORATION PEER GROUP MARKET (U.S.)
----------- ---------- -------------
<S> <C> <C> <C>
3/95 100.00 100.00 100.00
3/96 400.00 114.34 135.80
3/97 273.33 128.12 150.95
3/98 800.00 154.24 228.88
3/99 113.33 127.85 309.19
3/00 451.68 451.89 574.04
</TABLE>
---------------
(1) Assumes that $100.00 was invested on March 31, 1994 in the Company's Common
Stock or index, and that all dividends were reinvested. No dividends have
been declared on the Company's Common Stock. Shareholder returns over the
indicated period should not be considered indicative of future shareholder
returns.
(2) Peer Group is SIC Code 3826 -- Measuring and Controlling Devices.
(3) The Company operates on a 52/53 week fiscal year, which ends on the last
Friday in March. Accordingly, the last trading day of its fiscal year may
vary. For consistent presentation and comparison to the indices shown
herein, the Company has calculated its stock performance graph assuming a
March 31 year-end.
The information contained above under the captions "Report of the
Compensation Committee of the Board of Directors" and "Performance Graph" shall
not be deemed to be "soliciting material" or to be "filed" with the SEC, nor
shall such information be incorporated by reference into any future filing under
the Securities Act or the Exchange Act, except to the extent that the Company
specifically incorporates it by reference into such filing.
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<PAGE> 23
CERTAIN TRANSACTIONS
None.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act and regulations of the Securities and
Exchange Commission (the "Commission") thereunder require the Company's
executive 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 initial
ownership and changes in ownership with the Commission. Based solely on its
review of copies of such forms received by the Company, or on written
representations from certain reporting persons that no other reports were
required for such persons, the Company believes that all of the Section 16(a)
filing requirements applicable to its executive officers, directors and ten
percent shareholders were complied with during or with respect to the period
from March 27, 1999 to March 31, 2000.
OTHER MATTERS
The Company is not aware of any other business to be presented at the
Annual Meeting. If matters other than those described herein should properly
arise at the meeting, the proxies will vote on such matters in accordance with
their best judgment.
By Order of the Board of Directors
Dated: July 10, 2000
21
<PAGE> 24
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
CHOLESTECH CORPORATION
PROXY FOR THE 2000 ANNUAL MEETING OF STOCKHOLDERS
AUGUST 17, 2000
The undersigned shareholder of Cholestech Corporation, a California corporation,
hereby acknowledges receipt of the Notice of Annual Meeting of Shareholders and
Proxy Statement, each dated July 12, 2000, and hereby appoints John L. Castello
and Warren E. Pinckert II and each of them, proxies and attorneys-in-fact, with
full power to each of substitution, on behalf and in the name of the
undersigned, to represent the undersigned at the 2000 Annual Meeting of
Shareholders of Cholestech Corporation to be held on August 17, 2000 at 10:00
a.m., Pacific Time, at the Hotel Sofitel San Francisco Bay located at 223 Twin
Dolphin Drive, Redwood City, California 94065, and at any adjournment or
adjournments thereof, and to vote all shares of Common Stock which the
undersigned would be entitled to vote if then and there personally present, on
the matters set forth below:
1. ELECTION OF DIRECTORS:
/ / FOR all nominees listed below / / WITHHOLD (except as indicated)
If you wish to withhold authority to vote for any individual nominee,
strike a line through that nominee's name in the list below:
John L. Castello Warren E. Pinckert II
Molly J. Coye Harvey S. Sadow
John H. Landon Larry Y. Wilson
2. PROPOSAL TO ADOPT THE COMPANY'S 2000 STOCK INCENTIVE PROGRAM AND TO
AUTHORIZE THE RESERVATION OF 590,000 SHARES OF COMMON STOCK FOR ISSUANCE
THEREUNDER.
/ / FOR / / AGAINST / / ABSTAIN
3. PROPOSAL TO AMEND THE COMPANY'S 1992 EMPLOYEE STOCK PURCHASE PLAN TO
INCREASE THE AGGREGATE NUMBER OF SHARES OF COMMON STOCK AUTHORIZED FOR
ISSUANCE UNDER SUCH PLAN BY 200,000.
/ / FOR / / AGAINST / / ABSTAIN
4. PROPOSAL TO RATIFY THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE
INDEPENDENT PUBLIC ACCOUNTANTS OF THE COMPANY FOR FISCAL 2001:
/ / FOR / / AGAINST / / ABSTAIN
and, in their discretion, upon such other matter or matters which may
properly come before the meeting or any adjournment or adjournments
thereof.
(continued and to be signed on the reverse side)
<PAGE> 25
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED FOR THE ELECTION OF DIRECTORS AND FOR THE RATIFICATION OF THE
APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT PUBLIC ACCOUNTANTS AND
AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE
THE MEETING.
Signature(s) Dated , 2000
---------------------------------------- ------------
(This Proxy should be marked, dated and signed by the shareholder(s) exactly as
his or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.)
