<PAGE>
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 240.14a-11(c) or 240.14a-12
GENERAL SURGICAL INNOVATIONS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
GENERAL SURGICAL INNOVATIONS, INC.
- --------------------------------------------------------------------------------
(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)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
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<PAGE>
GENERAL SURGICAL INNOVATIONS, INC.
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOVEMBER 19, 1996
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of GENERAL
SURGICAL INNOVATIONS, INC., a California corporation (the "Company"), will be
held on Tuesday November 19, at 10:00 a.m., local time, at the Company's
principal offices located at 3172A Porter Drive, Palo Alto, California, 94304,
for the following purposes:
1. To elect directors to serve for the ensuing year and until their
successors are elected.
2. To approve an amendment to the 1992 Stock Option Plan to increase the
number of shares of Common Stock reserved for issuance thereunder by
400,000 shares.
3. To ratify the appointment of Coopers & Lybrand L.L.P. as independent
accountants of the Company for the fiscal year ending June 30, 1997.
4. To transact such other business as may properly come before the meeting
or any postponement or adjournment thereof. The foregoing items of
business are more fully described in the Proxy Statement accompanying
this Notice.
Only shareholders of record at the close of business on September 30, 1996
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.
However, to assure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any shareholder attending
the meeting may vote in person even if he or she returned a proxy.
Very truly yours,
Tae Hea Nahm
SECRETARY
Palo Alto, California
October 31, 1996
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND RETURN THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE. IF A QUORUM IS NOT REACHED, THE COMPANY WILL HAVE THE ADDED EXPENSE OF
RE-ISSUING THESE PROXY MATERIALS. IF YOU ATTEND THE MEETING AND SO DESIRE, YOU
MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON.
THANK YOU FOR ACTING PROMPTLY.
<PAGE>
GENERAL SURGICAL INNOVATIONS, INC.
----------------
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
General Surgical Innovations, Inc. (the "Company" or "GSI") for use at the
Annual Meeting of Shareholders to be held Tuesday, November 19, 1996 at 10:00
a.m., local time, or at any postponement or adjournment thereof (the "Annual
Meeting"), for the purposes set forth herein and in the accompanying Notice of
Annual Meeting of Shareholders. The Annual Meeting will be held at the Company's
principal offices located at 3172A Porter Drive, Palo Alto, California 94304.
The Company's telephone number at its principal executive offices is (415)
812-9730.
These proxy solicitation materials were mailed on or about October 31, 1996
to all shareholders entitled to vote at the Annual Meeting.
RECORD DATE
Shareholders of record of the Company's Common Stock at the close of
business on September 30, 1996 are entitled to notice of, and to vote at, the
Annual Meeting. At the September 30, 1996 record date, 13,171,530 shares of the
Company's Common Stock were issued and outstanding, exclusive of shares held by
the Company as treasury stock.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it any time before its use by delivering to the Company (Attention:
Stephen J. Bonelli, Inspector of Elections) a written notice of revocation or a
duly executed proxy bearing a later date or by attending the meeting and voting
in person.
VOTING AND SOLICITATION
Holders of shares of Common Stock are entitled to one vote per share on all
matters, except that all such holders are entitled to cumulate their votes in
the election of directors.
Every shareholder voting for the election of directors may cumulate such
shareholder's votes and give one candidate the number of votes equal to the
number of directors to be elected multiplied by the number of votes to which the
shareholder's shares are entitled, or may 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 than five candidates. However, no
shareholder shall be entitled to cumulate votes unless the names of the
candidates for which votes are being cumulated have been placed in nomination
prior to the voting and the shareholder, or any other shareholder, has given
notice at the meeting, prior to the voting, of the shareholder's intention to
cumulate the shareholder's votes. On all other matters, each share of Common
Stock has one vote.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the Inspector of Elections (the "Inspector") with the assistance of the
Company's transfer agent. The Inspector will also determine whether or not a
quorum is present. Except with respect to the election of directors where
cumulative voting is invoked and except in certain other specific circumstances,
the affirmative vote of a majority of shares present in person or represented by
proxy at a duly held meeting at which a quorum is present is required under
California law for approval of proposals presented to shareholders. In general,
California law also provides that a quorum consists of a majority of the shares
entitled to vote, present in person or represented by proxy. The Inspector will
treat abstentions as shares that are present and entitled to vote for purposes
of determining the presence of a quorum and as negative votes for purposes of
determining the approval of any matter submitted to the shareholders for a vote.
Any proxy which is returned using the form of proxy enclosed and which is not
marked as to a particular item will be voted for the election of
<PAGE>
directors, for the approval of the amendment to the 1992 Stock Plan and the
reservation of an additional 400,000 shares for issuance thereunder, for
ratification of the appointment of the designated independent accountants and,
as the proxy holders deem advisable, on other matters that may come before the
meeting, as the case may be with respect to the item not marked. If a broker
indicates on the enclosed proxy or its substitute that it does not have
discretionary authority as to certain shares to vote on a particular matter,
those shares will be considered as present for purposes of determining a quorum,
but will not be considered as voting with respect to that matter. The Company
believes that the tabulation procedures to be followed by the Inspector are
consistent with the general statutory requirements in California concerning
voting of shares and determination of a quorum.
The cost of soliciting proxies will be borne by the Company. In addition,
the Company may reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding solicitation
material to such beneficial owners. Proxies may also be solicited by certain of
the Company's directors, officers and regular employees, without additional
compensation, personally or by telephone or telegram.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
Proposals of shareholders that are intended to be presented by such
shareholders at the Company's 1997 Annual Meeting must be received by the
Company no later than June 19, 1997 in order that such proposals may be included
in the proxy statement and form of proxy relating to that meeting.
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PROPOSAL NO. 1:
ELECTION OF DIRECTORS
NOMINEES
A board of five directors is to be elected at the meeting. Unless otherwise
instructed, the proxy holders will vote the proxies received by them for
Management's five nominees named below, all of whom are currently directors of
the Company. In the event that any nominee of the Company is unable or declines
to serve as a director at the time of the Annual Meeting, the proxies will be
voted for any nominee who shall be designated by the present Board of Directors
to fill the vacancy. In the event that additional persons are nominated for
election as directors, the proxy holders intend to vote all proxies received by
them in such a manner in accordance with cumulative voting as will assure the
election of as many of the nominees listed below as possible and, in such event,
the specific nominees to be voted for will be determined by the proxy holders.
It is expected that all nominees will be able and willing to serve as directors.
The term of office of each person elected as a director will continue until the
next Annual Meeting of Shareholders or until such director's successor has been
elected and qualified.
The names of the nominees, and certain information about them as of October
30, 1996, are set forth below:
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
- ------------------------------------------------ --- ------------------------------------------------ -----------
<S> <C> <C> <C>
Roderick A. Young............................... 52 President, Chief Executive Officer and Director 1993
of the Company
Thomas J. Fogarty............................... 62 Professor of Surgery at Stanford University, 1992
Chairman of the Board of Directors
David W. Chonette............................... 60 General Partner of Brentwood Associates (a 1993
venture capital partnership)
Paul Goeld...................................... 45 President, Chief Executive Officer and Director 1995
of LocalMed, Inc., a medical device company
Mark A. Wan..................................... 31 General Partner of Three Arch Partners (a 1992
venture capital partnership)
</TABLE>
Except as set forth below, each of the nominees has been engaged in his or
her principal occupation described above during the past five years. There is no
family relationship between any of the directors or executive officers of the
Company.
RODERICK A. YOUNG joined GSI in August 1993, and serves as President and
Chief Executive Officer. From May 1993 until joining GSI, Mr. Young was
President and CEO of Focus Surgery, Inc., a medical device company that was spun
out of Diasonics, Inc. in October 1993. Prior to Focus Surgery, Mr. Young served
in various executive positions, including President, Chief Financial Officer and
Chief Operating Officer of Diasonics, Inc. a medical products manufacturer, from
May 1990 to May 1993. Mr. Young serves or has served on the Board of Directors
of Diasonics and Pacific Gateway Properties, Inc. and several privately held
companies. Mr. Young received a B.S. degree in Industrial Engineering from
Stanford University and an MBA from Harvard Business School.
DR. THOMAS J. FOGARTY co-founded GSI in April 1992, and has been a director
of the Company since that time. Dr. Fogarty has an appointment at Stanford
University as a Professor of Surgery. He holds over 50 patents in surgical
instrumentation, including the Fogarty balloon catheter and the Fogarty vascular
clamp. Dr. Fogarty has also been instrumental in founding a variety of medical
device companies over the past 30 years, including Cardiac Pathways, Inc.,
CardioVascular Concepts, Perclose, Inc. and Ventritex.
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<PAGE>
Dr. Fogarty is also a founding general partner of Three Arch Partners, a venture
capital investment firm. Dr. Fogarty received his M.D. from the University of
Cincinnati College of Medicine.
DAVID W. CHONETTE has served as a director of the Company since July 1993.
Mr. Chonette is a general partner of Brentwood Associates, a venture capital
partnership. Mr. Chonette joined Brentwood in 1986, after 19 years with American
Hospital Supply Corporation (now Baxter International), a distributor of medical
products. During this period, Mr. Chonette served as president of the Edward
division, and as group vice president responsible for several medical device and
pharmaceutical divisions. Mr. Chonette also serves as a director of Biopsys
Medical, KeraVision, and several private health care companies. Mr. Chonette
received his B.S. in Mechanical Engineering from MIT, and M.S. in Engineering
from USC.
PAUL GOELD has served as a director of the Company since June 1995. Mr.
Goeld has served as President, Chief Executive Officer and Director of LocalMed,
Inc., a medical device company, since January 1994. From November 1992 to
December 1993, Mr. Goeld was President, Chief Executive Officer, and a Director
of Pilot CardioVascular Systems, Inc., a manufacturer of medical devices. From
September 1991 to April 1992, Mr. Goeld was President of the Angioplasty
Division of Datascope Corporation, a manufacturer of medical devices. From 1986
to 1991, Mr. Goeld was President and Chief Executive Officer of Camino
Laboratories, Inc., a manufacturer of diagnostic systems. Mr. Goeld received his
B.S. in Chemistry from the University of Florida and M.B.A. from Pepperdine
University.
MARK A. WAN co-founded GSI in April 1992 and served as an officer from June
1992 to September 1993. Mr. Wan was also a founding general partner of Three
Arch Partners, a venture capital partnership, in October 1993 where he continues
to hold the position of general partner. Prior to founding Three Arch Partners,
from 1987 to September 1993, Mr. Wan served in various positions at Brentwood
Associates, most recently as a general partner. Mr. Wan also serves on the Board
of Directors of LocalMed, Inc., Perclose, and several other privately-held
health care companies. In addition, he has been involved in the formation and
operation of several privately held, venture-capital backed health care
companies. Mr. Wan received a B.S. and B.A. from Yale University and an M.B.A.
from Stanford Graduate School of Business.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of seven (7) meetings
during the fiscal year ended June 30, 1996, including meetings held by
conference telephone call. The Board of Directors has an Audit Committee and a
Compensation Committee. There is no committee performing the functions of a
nominating committee.
The Audit Committee recommends engagement of the Company's independent
accountants, reviews the scope of the audit, considers comments made by the
independent auditors with respect to the Company's internal control structure,
including systems, procedures and internal accounting controls and the
consideration given thereto by Management, and reviews the Company's system of
internal controls, including systems, procedures and internal accounting
controls, with the Company's financial and accounting staff. This Committee,
which currently consists of directors Chonette and Wan, held no meetings during
fiscal 1996. During fiscal 1996, matters typically handled by an audit committee
were handled by the full Board of Directors.
The Compensation Committee provides guidance and commentary for all
corporate compensation, benefits, perquisite and employee (and director) equity
programs. It reviews and makes recommendations to the Board regarding such
matters as the Company's compensation of its officers, all employee equity plans
and individual equity grants and bonus plans and bonus payments. This Committee,
which currently consists of directors Goeld and Wan, held no meetings during
fiscal 1996. During fiscal 1996, matters typically handled by a compensation
committee were handled by the full Board of Directors.
4
<PAGE>
No incumbent director attended fewer than 75 percent of the aggregate number
of meetings (held while such director was a member) of the Board of Directors
and of the committees, if any, upon which such director served during fiscal
1996, except that Dr. Fogarty attended two (2) of the seven (7) meetings of the
Board of Directors held during the fiscal year and Mr. Goeld attended four (4)
of the seven (7) meetings held during the fiscal year.
COMPENSATION OF DIRECTORS
Each nonemployee director participates in the Company's 1995 Directors'
Stock Option Plan, pursuant to which nonemployee directors are automatically
granted options to purchase shares of Common Stock of the Company on the terms
and conditions set forth in such plan. On November 21, 1995, directors Chonette,
Fogarty, and Wan were each granted a 27,454 (as adjusted to reflect the
Company's 1.37-for-one share stock split approved in March 1996 (the "Stock
Split")) share option at an exercise price of $1.46 per share, and Paul Goeld
was granted a 6,863 (as adjusted to reflect the Stock Split) share option at an
exercise price of $1.46 per share, pursuant to the terms of the Company's 1995
Directors' Stock Option Plan and the Company's 1992 Stock Option Plan,
respectively. All directors are reimbursed for expenses actually incurred in
attending meetings of the Board of Directors and its committees.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL OF THE NOMINEES LISTED
ABOVE.
PROPOSAL NO. 2:
AMENDMENT TO THE 1992 STOCK OPTION PLAN
At the Annual Meeting, the Company's shareholders are being asked to approve
an amendment to the 1992 Stock Option Plan (the "1992 Option Plan") to increase
the number of shares of Common Stock reserved for issuance thereunder by 400,000
shares, to an aggregate of 2,115,882 shares that have been reserved from time to
time under the 1992 Option Plan, as adjusted to reflect the Stock Split.
GENERAL
The 1992 Option Plan was adopted by the Board of Directors in September
1992. The Board of Directors initially reserved 617,722 shares of Common Stock
for issuance under the 1992 Option Plan. The 1992 Option Plan was approved by
the Company's shareholders on September 14, 1992. On October 12, 1995, the Board
of Directors amended the 1992 Option Plan to increase the number of shares
reserved for issuance thereunder by 549,080 shares and on March 22, 1996 the
Board amended the 1992 Option Plan to increase the number of shares reserved for
issuance thereunder by 549,080, and to make certain other amendments in
connection with the initial public offering of the Company's Common Stock, which
amendments were approved by the shareholders on April 26, 1996. An aggregate of
1,715,882 shares have been reserved for issuance from time to time under such
Plan. In March 1996, the Company effected the Stock Split pursuant to which the
shares then reserved for issuance pursuant to the 1992 Option Plan and all
options outstanding under the 1992 Option Plan were adjusted proportionately. In
August 1996, the Board of Directors amended the 1992 Option Plan to increase the
number of shares of Common Stock reserved for issuance thereunder by 400,000
shares, to a total of 2,115,882 shares, on a post-split basis, which amendment
is the subject of this proposal.
The Board of Directors believes that, in order to attract qualified
employees to the Company and to provide incentive to its current employees, it
is necessary to grant options to purchase Common Stock to such employees
pursuant to the 1992 Option Plan. Accordingly, shareholders are being asked to
approve the amendment to the 1992 Option Plan at the Annual Meeting.
5
<PAGE>
Options granted under the 1992 Option Plan may be either "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), or nonstatutory stock options at the discretion of the
Board of Directors and as reflected in the terms of the written option
agreement. The Board of Directors, at its discretion, may also grant rights to
purchase Common Stock directly, rather than pursuant to stock options, subject
to certain restrictions discussed below.
The 1992 Option Plan is not a qualified deferred compensation plan under
Section 401(a) of the Code, and is not subject to the provisions of the Employee
Retirement Income Security Act of 1974, as amended.
As of September 30, 1996, without giving effect to the August 1996 amendment
to the 1992 Option Plan, options for 1,005,052 shares were outstanding under the
1992 Option Plan, 125,500 shares had been issued pursuant to the exercise of
options granted under such plan and 585,343 shares remained available for future
grants. Shares not purchased under an option prior to its expiration will be
available for future option grants under the 1992 Option Plan. As of September
30, 1996, the aggregate fair market value of shares subject to outstanding
options under the 1992 Option Plan was $11,055,572 based upon the closing price
of the Common Stock as reported on The Nasdaq Stock Market on such date. The
actual benefits, if any, to the holders of stock options issued under the 1992
Option Plan are not determinable prior to exercise as the value, if any, of such
stock options to their holders is represented by the difference between the
market price of a share of the Company's Common Stock on the date of exercise
and the exercise price of a holder's stock option, as set forth below. Grant
information with respect to options to purchase Common Stock of the Company
granted in the fiscal year ended June 30, 1996 under the Company's 1992 Stock
Option Plan to all employees and certain of the Company's executive officers
whose annual salary and bonus exceeded $100,000 for fiscal 1996 is set forth
under "COMPENSATION OF EXECUTIVE OFFICERS--STOCK OPTION GRANTS IN FISCAL 1996."
Options to purchase 274,541 shares of Common Stock were granted during the
fiscal year ended June 30, 1996 under the Company's 1992 Stock Option Plan to
the Company's current executive officers as a group. Subsequent to the end of
fiscal 1996, no options to purchase shares of Common Stock were granted to the
Company's current executive officers and options to purchase 38,500 shares of
Common Stock were granted to the Company's other employees.
PURPOSE
The purposes of the 1992 Option Plan are to attract and retain the best
available personnel for positions of substantial responsibility, to provide
additional incentive to employees and consultants of the Company and to promote
the success of the Company's business.
ADMINISTRATION
The 1992 Option Plan may be administered by the Board of Directors or by a
committee of the Board of Directors. The 1992 Option Plan is currently being
administered by the Board of Directors and the Compensation Committee of the
Board of Directors. The Compensation Committee, meeting the definition of
"outside directors" under Code Section 162(m) and "non-employee directors" under
Section 16 of the Exchange Act, will have the exclusive authority to grant stock
options and purchase rights and otherwise administer the 1992 Option Plan with
respect to the Company's executive officers and more narrowly to "covered
employees" described in Code Section 162(m) (generally the Company's highest
paid executive officers). Members of the Board of Directors receive no
additional compensation for their services in connection with the administration
of the 1992 Option Plan. All questions of interpretation of the 1992 Option Plan
are determined by the Board of Directors or its committee and its decisions are
final and binding upon all participants.
ELIGIBILITY
The 1992 Option Plan provides that either incentive stock options or
nonstatutory stock options may be granted to employees (including officers and
directors who are also employees) of the Company or any of its subsidiaries. In
addition, the 1992 Option Plan provides that nonstatutory stock options may be
granted to consultants (not including directors who are not compensated for
their services or are paid only
6
<PAGE>
a director's fee by the Company) of the Company or any of its subsidiaries. The
Board of Directors or its committee selects the optionees and determines the
number of shares to be subject to each option. In making such determination,
certain factors are taken into account, including the duties and
responsibilities of the optionee, the value of the optionee's services, the
optionee's present and potential contribution to the success of the Company, and
other relevant factors.
The 1992 Option Plan provides that the maximum number of shares of Common
Stock which may be granted under options to any one employee during any fiscal
year shall be 200,000, subject to adjustment as provided in the 1992 Option
Plan. There is also a limit on the aggregate market value of shares subject to
all incentive stock options that may be granted to an optionee during any
calendar year.
TERMS OF OPTIONS
Each option is evidenced by a stock option agreement between the Company and
the optionee. Each option is subject to the following additional terms and
conditions:
(a) EXERCISE OF THE OPTION. The Board of Directors or its committee
determines when options may be exercised. An option is exercised by giving
written notice of exercise to the Company specifying the number of full
shares of Common Stock to be purchased and by tendering payment of the
purchase price. The purchase price of the shares purchased upon exercise of
an option shall be paid in consideration of such form as is determined by
the Board of Directors or its committee and specified in the option
agreement, and such form of consideration may vary for each option.
(b) EXERCISE PRICE. The exercise price under the 1992 Option Plan is
determined by the Board of Directors or its committee and in the case of an
incentive stock option may not be less than 100 percent of the fair market
value of the Common Stock on the date the option is granted, or in the case
of a nonstatutory stock option, 85 percent, provided, however, that options
granted to "covered employees" under Code Section 162(m) must have an
exercise price not less than 100% of the fair market value of the Common
Stock on the date the option is granted. The fair market value per share is
equal to the closing price on The Nasdaq Stock Market on the date of grant.
In the case of an option granted to an optionee who owns more than ten
percent of the voting power of all classes of stock of the Company or any of
its subsidiaries, the exercise price of an incentive stock option must not
be less than 110 percent of the fair market value on the date of grant.
(c) TERMINATION OF EMPLOYMENT. If the optionee's employment or
consulting relationship terminates for any reason other than disability or
death, options under the 1992 Option Plan may be exercised not later than
thirty days (or such other period of time not exceeding three months in the
case of an incentive stock option as is determined by the Board of Directors
or its committee at the time of grant) after such termination and may be
exercised only to the extent the option was exercisable on the date of
termination. In no event may an option be exercised by any person after the
expiration of its term.
(d) DISABILITY. If an optionee is unable to continue his or her
employment or consulting relationship with the Company as a result of his
total and permanent disability, options may be exercised within six months
(or such other period of time not exceeding twelve months as is determined
by the Board of Directors or its committee, with such determination in the
case of an Incentive Stock Option being made at the time of grant) of
termination and may be exercised only to the extent the option was
exercisable on the date of termination, but in no event may the option be
exercised after the expiration of its term.
(e) DEATH. Under the 1992 Option Plan, if an optionee should die
during the term of the option who is at the time of his or her death an
employee or consultant of the Company and who shall have been in continuous
status as an employee or consultant since the date of grant, then during the
six month period (but in no event later than the date of expiration of the
term of such option) following the date of death, options may be exercised
to the extent of the right to exercise that would have accrued had the
Optionee continued living and remained in continuous status as an employee
or consultant 3 months after the date of death. If the optionee should die
within 1 month (or such other
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period of time not to exceed 3 months as is determined by the Board of
Directors or its committee at the time of the option grant) after
termination of continuous status as a consultant or employee, options may be
exercised to the extent of the right to exercise that had accrued at the
date of termination.
(f) TERMINATION OF OPTIONS. The 1992 Option Plan provides that options
granted under the 1992 Option Plan have the term provided in the option
agreement. In general, these agreements currently provide for a term of ten
years. Incentive stock options granted to an optionee who, immediately
before the grant of such option, owns more than ten percent of the total
combined voting power of all classes of stock of the Company or any of its
subsidiaries, may not in any case have a term of more than five years. No
option may be exercised by any person after its expiration.
(g) OPTION NOT TRANSFERABLE. An option is nontransferable by the
optionee other than by will or the laws of descent and distribution, and is
exercisable only by the optionee during his or her lifetime or, in the event
of the optionee's death, by a person who acquires the right to exercise the
option by bequest or inheritance or by reason of the death.
(h) ACCELERATION OF OPTIONS. In the event of a proposed sale of all or
substantially all of the assets of the Company or the merger of the Company
with or into another corporation each outstanding option shall be assumed or
an equivalent option substituted by the successor corporation, unless the
Board, in its sole discretion, determines that in lieu of such assumption or
substitution the optionee shall have the right to exercise the option as to
some or all of the shares covered by the option, including shares as to
which the option would not otherwise be exercisable.
(i) OTHER PROVISIONS. The option agreement may contain such other
terms, provisions and conditions not inconsistent with the 1992 Option Plan
as may be determined by the Board of Directors or its committee.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event any change, such as a stock split or dividend, is made in the
Company's capitalization that results in an increase or decrease in the number
of outstanding shares of Common Stock without receipt of consideration by the
Company, appropriate adjustment shall be made in the exercise price of each
outstanding option, the number of shares subject to each option, the annual
limitation on grants to employees, as well as the number of shares available for
issuance under the 1992 Option Plan. In the event of the proposed dissolution or
liquidation of the Company, each option will terminate unless otherwise provided
by the Board of Directors or its committee.
AMENDMENT AND TERMINATION
The Board of Directors may amend the 1992 Option Plan at any time or from
time to time or may terminate it without approval of the shareholders; provided,
however, that shareholder approval is required for any amendment to the 1992
Option Plan that increases the number of shares that may be issued under the
1992 Option Plan, modifies the standards of eligibility, modifies the limitation
on grants to employees described in the 1992 Option Plan or results in other
changes which would require shareholder approval to qualify options granted
under the 1992 Option Plan as performance-based compensation under Section
162(m) of the Code, or to qualify options granted under the 1992 Option Plan for
the maximum exemption allowable under Section 16 of the Exchange Act. However,
no action by the Board of Directors or shareholders may alter or impair any
option previously granted under the 1992 Option Plan. The 1992 Option Plan shall
terminate in September 2002, provided that any options then outstanding under
the 1992 Option Plan shall remain outstanding until they expire by their terms.
FEDERAL INCOME TAX ASPECTS OF THE 1992 OPTION PLAN
Options granted under the 1992 Option Plan may be either "incentive stock
options," as defined in Section 422 of the Code, or nonstatutory stock options.
If an option granted under the 1992 Option Plan is an incentive stock
option, under Federal tax laws the optionee will recognize no income upon grant
of the incentive stock option and incur no tax liability
8
<PAGE>
due to the exercise. However, the excess of the value of the stock subject to
the option over the exercise price will be an item of alternative minimum
taxable income which could result in the optionee being subject to the
alternative minimum tax in the year of exercise. The Company will not be allowed
a deduction for Federal income tax purposes as a result of the exercise of an
incentive stock option regardless of the applicability of the alternative
minimum tax. Upon the sale or exchange of the shares more than two years after
grant of the option and one year after exercise of the option by the optionee,
any gain will be treated as long-term capital gain under Federal tax laws. If
these holding periods are not satisfied, the optionee will recognize ordinary
income at the time of the sale, exchange or other disposition under Federal tax
laws equal to the difference between the exercise price and the lower of the
fair market value of the stock at the date of the option exercise or the gain or
the sale of the stock. A different rule for measuring ordinary income upon such
a premature disposition may apply if the optionee is also an officer, director,
or ten percent shareholder of the Company. The Company will be entitled to a
deduction in the same amount as the ordinary income recognized by the optionee.
Any gain recognized on such a premature disposition of the shares in excess of
the amount treated as ordinary income will be characterized under Federal tax
laws as long-term capital gain if the sale occurs more than one year after
exercise of the option or as short-term capital gain if the sale is made
earlier. The current Federal tax rate on long-term capital gains is capped at 28
percent. Capital losses are allowed under Federal tax laws in full against
capital gains plus $3,000 of other income.
All other options which do not qualify as incentive stock options or are not
designated as such are referred to as nonstatutory stock options. An optionee
will not recognize any taxable income under Federal tax laws at the time he or
she is granted a nonstatutory option. However, upon its exercise, under Federal
tax laws the optionee will recognize ordinary income for tax purposes measured
by the excess of the then fair market value of the shares over the exercise
price. In certain circumstances, where the shares are subject to a substantial
risk of forfeiture when acquired or where the optionee is an officer, director
or ten percent shareholder of the Company, the date of taxation under Federal
tax laws may be deferred unless the optionee files an election with the Internal
Revenue Service under Section 83(b) of the Code. Any taxable income recognized
by an optionee who is also an employee of the Company will be subject to tax
withholding by the Company by payment in cash or out of the current earnings
paid to the optionee. Upon resale of such shares by the optionee, any difference
between the sale price and the optionee's tax basis (exercise price plus the
income recognized upon exercise) will be treated under Federal tax laws as
capital gain or loss, and will qualify for long-term capital gain or loss
treatment if the shares have been held for more than one year. The Company will
be entitled to a tax deduction in the same amount as ordinary income recognized
by the optionee.
The foregoing is only a summary of the effect of federal income taxation
upon the optionee and the Company with respect to the grant and exercise of
options under the 1992 Option Plan, does not purport to be complete, and does
not discuss the income tax laws of any municipality, state or foreign country in
which an optionee may reside. Optionee should consult his or her own tax advisor
with respect to the tax consequences of participation in the 1992 Option Plan
for his or her particular situation.
REQUIRED VOTE
The approval of the amendment to the 1992 Option Plan to increase the number
of shares reserved for issuance thereunder by 400,000 shares requires the
affirmative vote of the holders of a majority of the shares of the Company's
Common Stock present at the Annual Meeting in person or by proxy and entitled to
vote.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT
TO THE 1992 OPTION PLAN AND THE RESERVATION OF SHARES FOR ISSUANCE THEREUNDER.
THE EFFECT OF AN ABSTENTION IS THE SAME AS THAT OF A VOTE AGAINST THE APPROVAL
OF THE ADOPTION OF THE 1992 OPTION PLAN.
9
<PAGE>
PROPOSAL NO. 3:
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed Coopers & Lybrand, L.L.P. independent
accountants, to audit the consolidated financial statements of the Company for
the fiscal year ending June 30, 1997, 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.
Coopers & Lybrand, L.L.P. has audited the Company's financial statements
annually since fiscal 1992. Representatives of Coopers & Lybrand, L.L.P. are
expected to be present at the meeting, with the opportunity to make a statement
if they desire to do so, and to respond to appropriate questions.
REQUIRED VOTE
The ratification of the appointment of Coopers & Lybrand, L.L.P. as
independent accountants for the Company requires the affirmative vote of the
holders of a majority of the shares of the Company's Common Stock present at the
Annual Meeting in person or by proxy and entitled to vote.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF COOPERS & LYBRAND L.L.P. AS INDEPENDENT ACCOUNTANTS FOR THE
COMPANY. THE EFFECT OF AN ABSTENTION IS THE SAME AS THAT OF A VOTE AGAINST THE
PROPOSAL.
10
<PAGE>
OTHER INFORMATION
COMMON STOCK OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
Common Stock as of September 30, 1996 as to (i) each person who is known by the
Company to beneficially own more than five percent of the Company's Common
Stock, (ii) each of the Company's directors, (iii) each of the executive
officers named in the Summary Compensation Table beginning on page 13, and (iv)
all directors and executive officers as a group.
<TABLE>
<CAPTION>
5% SHAREHOLDERS, DIRECTORS, NAMED SHARES BENEFICIALLY OWNED(1)
EXECUTIVE OFFICERS, AND DIRECTORS AND -----------------------------
EXECUTIVE OFFICERS AS A GROUP NUMBER PERCENT OF TOTAL
----------------------------------------- ---------- -----------------
<S> <C> <C>
Thomas J. Fogarty, M.D.(2)(4) ....................................................... 1,839,423 13.9%
3270 Alpine Road
Portola Valley, CA 94028
Brentwood Associates V, L.P. ........................................................ 1,428,359 10.8%
1920 Main Street, Suite 820
Irvine, CA 92714
Norwest Equity Partners, IV ......................................................... 921,505 7.0%
3000 Sand Hill Road
Building 3, Suite 245
Menlo Park, CA 94025
Hancock Venture Partners, IV ........................................................ 799,640 6.1%
One Financial Center, 44th Floor
Boston, MA 02111
Schroder Ventures ILS Fund Trust(3) ................................................. 796,327 6.0%
235 Montgomery Street
San Francisco, CA 94104
Mark A. Wan(4)(5).................................................................... 606,312 4.6%
Roderick A. Young(6)................................................................. 324,875 2.5%
James E. Jervis(7)................................................................... 101,926 *
Paul Goeld(8)........................................................................ 15,584 *
David W. Chonette(9)................................................................. 1,435,222 10.9%
Gregory Casciaro(10)................................................................. 87,626 *
All directors and executive officers as a group
(9 persons)(2)(4)(5)(6)(7)(8)(9)(10)(11)............................................ 4,485,919 33.8%
</TABLE>
- ------------------------
* Less than 1%. As of September 30, 1996, 13,171,530 shares were issued and
outstanding.
(1) Except as otherwise indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have sole
voting and investment power with respect to all shares of Common Stock.
(2) Includes 462,586 shares held by the Thomas J. Fogarty Separate Property
Trust, 981,182 shares held by the Fogarty Family Revocable Trust and 285,982
shares held by Lincoln Trust Company FBO Thomas J. Fogarty IRA. Also
includes 91,370 shares held by Fogarty Engineering, a California corporation
of which Dr. Fogarty is a director. Because of his position with such
entity, Dr. Fogarty
11
<PAGE>
may be deemed to be a beneficial owner of such shares, but expressly
disclaims beneficial ownership of such shares.
(3) Includes 182,604 shares held by Schroder Incorporated, 126,365 shares held
by Schroder Ventures Limited Partnership, 31,591 shares held by Schroder
Ventures U.S. Trust, 101,320 shares held by Schroder Ventures ILS Fund
Trust, 2,665 shares held by Schroder Ventures ILS Company Scheme; 287,817
shares held by Schroder Ventures International Life Sciences LPI and 63,965
shares held by Schroder Ventures International Life Sciences LP2.
(4) Includes 47,086 shares held by Three Arch Associates, L.P. and 209,184
shares held by Three Arch Partners, L.P. Thomas J. Fogarty and Mark A. Wan
are general partners of Three Arch Partners, L.P. and Three Arch Associates,
L.P. and may thereby be deemed to be beneficial owners of such shares. Dr.
Fogarty and Mr. Wan both expressly disclaim beneficial ownership of such
shares.
(5) Excludes shares held by Brentwood Associates V, L.P. in which Mr. Wan has a
carried interest. Mr. Wan is a Special Limited Partner of entities
affiliated with Brentwood Associates and disclaims beneficial ownership of
all shares held by such entities, except to the extent of his carried
interest therein.
(6) Includes 22,878 shares issuable upon exercise of options exercisable within
60 days of September 30, 1996.
(7) Includes 5,719 shares issuable upon exercise of options exercisable within
60 days of September 30, 1996.
(8) Includes 15,584 shares issuable upon exercise of options exercisable within
60 days of September 30, 1996.
(9) Includes 1,428,356 shares held by Brentwood Associates V, L.P. Mr. Chonette
is a general partner of Brentwood Associates V, L.P. and may thereby be
deemed to be a beneficial owner of such shares. Mr. Chonette expressly
disclaims beneficial ownership of such shares. Also includes 6,863 shares
issuable upon exercise of options exercisable within 60 days of September
30, 1996.
(10) Includes 18,873 shares issuable upon exercise of options exercisable within
60 days of September 30, 1996.
(11) Includes 17,015 shares issuable upon exericse of options exercisable within
60 days of September 30, 1996, held by officers who are not Named Executive
Officers.
12
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
All share amounts and per share figures set forth in the following tables
have been adjusted, where necessary, to reflect the Stock Split.
The following table shows the compensation received by (i) the Company's
Chief Executive Officer, and (ii) the two other most highly compensated
executive officers of the Company serving at the end of the fiscal year ended
June 30, 1996, and the compensation received by each such individual for the
Company's two prior fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
--------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
------------------------------------ UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY ($) BONUS ($) OPTIONS (#)(1) ($)(2)(3)
- --------------------------------------------------- ----------- ---------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Roderick A. Young(4) .............................. 1996 $ 170,000 $ 20,000 109,817 --
President and Chief Executive Officer 1995 160,000 20,000 44,898 --
1994 146,667 -- 257,098 --
James E. Jervis(5) ................................ 1996 133,378 -- 27,454 --
Vice President of Research and Development 1995 133,377 -- -- --
1994 39,761 -- 96,090 --
Gregory D. Casciaro(6) ............................ 1996 135,000 40,000 82,362 $ 22,500
Vice President of Sales and Marketing 1995 56,250 10,000 -- 9,375
1994 -- -- 68,635 --
</TABLE>
- ------------------------
(1) This table does not reflect options granted subsequent to the close of
fiscal 1996, which may represent grants partially in recognition of fiscal
1996 performance.
(2) The value of perquisites or personal benefits is not included in the amounts
disclosed if, in the aggregate for any named individual, they did not exceed
the lesser of either $50,000 or ten percent of total salary and bonus
reported for such individual in the Summary Compensation Table.
(3) Stated amounts represent relocation expenses paid for or reimbursed by the
Company with respect to Mr. Casciaro.
(4) Mr. Young joined the Company in August 1993.
(5) Mr. Jervis joined the Company in March 1994.
(6) Mr. Casciaro joined the Company in February 1995.
13
<PAGE>
STOCK OPTION GRANTS IN FISCAL 1996
The following table sets forth information for the named executive officers
with respect to grants of options to purchase Common Stock of the Company made
during the fiscal year ended June 30, 1996.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
--------------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE VALUE AT
NUMBER OF OPTIONS ASSUMED ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE 10-YEAR OPTION TERM ($)(3)
OPTIONS IN FISCAL PRICE EXPIRATION -----------------------------
GRANTEE NAME GRANTED (#) YEAR (2) $/SH. DATE 5% 10%
- --------------------------------- ----------- ----------- ----------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Roderick A. Young................ 109,816 20% 1.46 11/21/05 $ 100,832 $ 255,527
James E. Jervis.................. 27,454 5% 1.46 11/21/05 $ 25,208 $ 63,882
54,800 10% 1.46 11/21/05 $ 50,317 $ 127,512
Gregory D. Casciaro.............. 27,454 5% .55 10/12/05 $ 9,496 $ 24,065
</TABLE>
- ------------------------
(1) Consist of stock options granted pursuant to the Company's stock option
plans, which generally become exercisable at a rate of 25% of the shares
subject to the option at the end of one year from the date of vesting
commencement and 2.08% per month for 36 months thereafter as long as the
optionee remains an employee with, consultant to or director of the Company.
The maximum term of each option granted is ten years from the date of grant.
The exercise price is equal to the fair market value of the stock on the
grant date.
(2) Based on an aggregate of 539,401 stock options granted to employees during
fiscal 1996.
(3) These amounts represent certain assumed rates of appreciation for a given
exercise price only. Actual gains, if any, on stock option exercises and
Common Stock holdings are dependent on the future performance of the Common
Stock and overall market performance. There is no assurance that the amounts
reflected will be realized.
14
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information for the named executive officers
with respect to exercises of options to purchase Common Stock of the Company in
the fiscal year ended June 30, 1996.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR- AT FISCAL YEAR-END($)(1)
ACQUIRED ON VALUE END (#)(EXERCISABLE/ (EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE) UNEXERCISABLE)
- ---------------------------------------- ----------- ----------- ------------------- ------------------------
<S> <C> <C> <C> <C>
Roderick A. Young....................... -- -- 176,764/235,049 $ 1,897,614/$2,417,841
James E. Jervis......................... -- -- 56,908/66,636 $ 606,140/$684,895
Gregory D. Casciaro..................... -- -- 33,172/117,825 $ 347,391/$1,198,406
</TABLE>
- ------------------------
(1) The fair market value of GSI's Common Stock at the close of business on June
30, 1996 was $11.00 per share.
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S
PREVIOUS FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, THAT MIGHT INCORPORATE FUTURE FILINGS,
INCLUDING THIS PROXY STATEMENT, IN WHOLE OR IN PART, THE FOLLOWING REPORT AND
THE PERFORMANCE GRAPH ON PAGE 18 SHALL NOT BE INCORPORATED BY REFERENCE INTO ANY
SUCH FILINGS.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee") is
comprised of Mr. Mark Wan and Mr. Paul Goeld, both independent nonemployee
directors who are not eligible to participate in any of the executive
compensation programs. The Committee oversees the administration of the
Company's benefits and compensation plans, reviews corporate human resources
programs, and establishes policies governing the annual compensation of the
executive officers of the Company.
The following is a report submitted by the above listed committee members in
their capacity as the Board's Compensation Committee, addressing the Company's
compensation policy as it related to the Company's executive officers for fiscal
1996.
COMPENSATION POLICY
The goal of the Company's executive compensation policy is to ensure that an
appropriate relationship exists between executive pay and the creation of
shareholder value, while at the same time motivating and retaining key
employees. To achieve this goal, the Company's executive compensation policies
integrate annual base compensation, bonuses based on corporate performance, and
stock option grants. All executive officers as well as senior-level managerial
and technical employees are eligible for and do participate in these
compensation plans.
SALARY
The Compensation Committee evaluates the performance and sets the salary of
the Company's Chief Executive Officer, Roderick A. Young, on an annual basis.
Mr. Young evaluates the performance of all other executive officers and
recommends salary adjustments which are reviewed and approved by the
Compensation Committee. Survey data is drawn from comparable companies
participating in medical device, biotechnology, and/or pharmaceutical executive
compensation surveys, several of which maybe included in the peer group index in
the Company's Performance Graph at page 18. Within this framework, executive
salaries are determined based on individual performance, level of
responsibility, the Company's overall salary structure, and the financial
condition of the Company. The Company's compensation policy
15
<PAGE>
is designed to maintain executive officer base salaries within a range
approximating the median of such salary data for like characteristics.
BONUSES
The Company seeks to provide annual incentives and rewards to executives who
make contributions of outstanding value, contingent upon the performance of the
Company as a whole.
The Company's annual bonus program is funded by the attainment of a specific
operating income goal, with individual payouts based on performance relative to
both additional corporate objectives and specific objectives for each
executive's division. The operating income goal and the corporate objectives are
recommended by the Chief Executive Officer and approved by the Compensation
Committee and the full Board.
Both the target amount and potential range of bonuses available to executive
officers are set annually by the Compensation Committee. Bonus awards are
weighted so that high-end bonuses are available when the Company's performance
exceeds corporate target, up to a defined maximum, and proportionally smaller or
no awards are made when the Company does not meet corporate target.
STOCK OPTIONS
The Committee believes that equity ownership provides significant additional
motivation to executives to maximize value for the Company's shareholders, and
therefore approves both annual and periodic grants of stock options under the
Company's 1992 Stock Option Plan. The Company's primary option grants are
generally approved on an annual basis largely in recognition of individual
performance during the fiscal year. The amounts of the annual grants are
determined relative to similar grants by comparable medical device,
biotechnology or pharmaceutical companies. In determining individual grants, the
Committee also considers individual performance, current stock option holdings,
and grants to others within the Company. Additional grants may be given during
the fiscal year in recognition of promotions or exemplary performance
achievements.
Stock options are granted at the prevailing market price and will only have
value if the Company's stock price increases over the exercise price. The
Committee believes that the performance-based value of stock options serves to
align the interests of executive officers closely with those of other
shareholders. In accordance with this philosophy, General Surgical Innovations,
Inc. does not have a discounted option or restricted stock program for its
executive officers.
In addition to providing an opportunity for increased equity ownership,
stock options also create an incentive for officers and key employees to remain
with the Company for the long term, as such options become exercisable over time
for so long as the officer or key employee continues his or her employment
relationship with the Company.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Committee has considered the impact of Section 162(m) of the Internal
Revenue Code adopted under the Omnibus Budget Reconciliation Act of 1993, which
section disallows a deduction for any publicly held corporation for individual
compensation exceeding $1 million in any taxable year for the Chief Executive
Officer and four other most highly compensated executive officers, unless such
compensation meets the requirements for the "performance-based" exception to the
general rule. Since the cash compensation paid by the Company to each of its
executive officers is expected to be well below $1 million and the Committee
believes that options granted under the 1992 Stock Option Plan will meet the
requirements for qualifying as performance-based, the Committee believes that
this section will not affect the tax deductions available to the Company. It
will be the Committee's policy to qualify, to the extent reasonable, the
executive officers' compensation for deductibility under applicable tax law.
16
<PAGE>
CHIEF EXECUTIVE OFFICER COMPENSATION
During fiscal 1996, the compensation of Roderick A. Young, the Chief
Executive Officer of the Company, consisted of base salary and a bonus. Mr.
Young did not participate in any decisions related to his compensation.
Mr. Young's fiscal 1996 base salary reflected a 6.3% increase from his
fiscal 1995 base salary.
After careful review of the Company's performance as measured against the
annual corporate goals and objectives, the Committee determined that
substantially all corporate objectives were realized in fiscal 1996. The
Committee found Mr. Young's target bonus award of 12% of salary to be
appropriate relative to his total compensation package and what other executive
officers in related industries can achieve. Accordingly, an incentive bonus of
approximately 12% of salary, or 100% of target award, was awarded in the amount
of $20,000.
SUBMITTED BY THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
Mr. Mark Wan
Mr. Paul Goeld
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Wan and Mr. Goeld each served on the Company's Compensation Committee
during the past fiscal year. Mr. Wan acted as the Company's Chief Financial
Officer and Assistant Secretary from June 1992 to January 1996.
17
<PAGE>
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return,
assuming reinvestment of all dividends, for the Company's Common Stock at June
30, 1996 since May 10, 1996 (the date on which the Company's stock was first
registered under Section 12 of the Securities Exchange Act of 1934) to the
cumulative return over such period of (i) The Nasdaq National Market
(Composite)--US Index and (ii) the S & P Medical Products & Supplies Index. The
graph assumes that $100 was invested on May 10, 1996 in the Common Stock of the
Company and in each of the comparative indices. The graph further assumes that
such amount was initially invested in the Common Stock of the Company at a price
per share of $15.00, the opening price on May 10, 1996. The stock price
performance on the following graph is not necessarily indicative of future stock
price performance.
COMPARISON OF TOTAL RETURN
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TOTAL RETURN TO STOCKHOLDERS
<S> <C> <C> <C>
(Assumes $100 investment on May 10, 1996)
General Surgical Innovation S&P Medical Products Nasdaq Composite (US)
5/10/96 $100.00 $100.00 $100.00
6/28/96 $101.67 $105.45 $98.56
</TABLE>
18
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From the inception of the Company in April 1992 to its initial public
offering in May 1996, the Company issued, in private placement transactions,
shares of Preferred Stock as follows: an aggregate of 1,710,167 shares of the
Company's Series A Preferred Stock at a price of $0.87 per share, from July 1992
to December 1992; an aggregate of 2,063,203 shares of the Company's Series B
Preferred Stock at a price of $2.66 per share, from September 1993 to March
1995; an aggregate of 1,799,108 shares of the Company's Series C Preferred Stock
at a price of $3.75 per share from May 1995 to February 1996; and an aggregate
of 261,220 shares of the Company's Series D Preferred Stock at a price of $7.17
per share in March 1996. The purchasers of the Series A, Series B and Series C
Preferred Stock included, among others, the following 5% shareholders,
directors, and entities associated with directors:
<TABLE>
<CAPTION>
SHARES OF SHARES OF SHARES OF
SERIES A SERIES B SERIES C
PREFERRED PREFERRED PREFERRED
NAME STOCK STOCK STOCK
- ---------------------------------------------------------------- -------------- -------------- --------------
<S> <C> <C> <C>
Brentwood Associates V, L.P..................................... 571,965 658,151 26,654
Hancock Venture Partners, IV.................................... -- -- 799,640
Norwest Equity Partners IV...................................... -- 752,174 159,928
Schroder Venture International.................................. -- 93,021 533,066
Thomas J. Fogarty, M.D.......................................... 594,845 188,042 66,637
Three Arch Partners............................................. -- 93,021 81,014
</TABLE>
Upon the closing of its initial public offering, each outstanding share of
Preferred Stock converted into one share of Common Stock.
On February 12, 1996, the Company acquired Adjacent Surgical, Inc.
("Adjacent"), which was primarily owned by Dr. Thomas J. Fogarty, for 254,027
shares of GSI Common Stock. In addition, in connection with the merger, GSI
agreed to assume certain obligations of Adjacent, which GSI subsequently
satisfied with aggregate payments of (i) 111,357 shares of GSI Series C
Preferred Stock, (ii) two convertible promissory notes, for an aggregate
principal amount of $250,000 plus interest, convertible into shares of Series C
Preferred Stock and (iii) $144,470 in cash. The Adjacent acquisition has been
accounted for as a purchase. The Company, Adjacent and Dr. Fogarty also entered
into an Exclusive License Agreement under which the Company will pay royalties
for certain technology for vascular applications, to the extent the Company does
not already have proprietary rights to such technology. Three Arch Partners
received an aggregate of $250,000 principal, plus interest in convertible
promissory notes and 13,326 shares of GSI Series C Preferred Stock in connection
with the merger. Dr. Fogarty and Mr. Wan, directors and co-founders of the
Company, are general partners of Three Arch Partners. In addition, Dr. Fogarty
received an aggregate of 207,345 shares of GSI Common Stock and 91,370 shares of
GSI Series C Preferred Stock in connection with the merger.
The Company has retained Fogarty Engineering, a sole proprietorship owned by
Dr. Fogarty, for certain product development efforts. The Company has paid
Fogarty Engineering approximately $46,000, $136,000 and $55,000 in fiscal year
1996, 1995 and 1994, respectively.
The Company has loaned an aggregate of $120,000 to certain officers and
directors of the Company in connection with their purchase of Common Stock
pursuant to Common Stock Purchase Agreements, of which $112,000 principal amount
was outstanding as of June 30, 1996.
The Company has entered into separate indemnification agreements with its
officers and directors which may require the Company, among other things, to
indemnify them against certain liabilities that may arise by reason of their
status or service as directors or officers and to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified.
19
<PAGE>
All future transactions, including any loans from the Company to its
officers, directors, principal shareholders or affiliates, will be approved by a
majority of the Board of Directors, including a majority of the independent and
disinterested members of the Board of Directors or, if required by law, a
majority of disinterested shareholders, and will be on terms no less favorable
to the Company than could be obtained from unaffiliated third parties.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Company's directors, its
executive officers, and any persons holding more than ten percent of the
Company's Common Stock are required to report their initial ownership of the
Company's Common Stock and any subsequent changes in that ownership to the
Securities and Exchange Commission ("SEC"). Specific filing deadlines of these
reports have been established and the Company is required to disclose in this
Proxy Statement any failure to file by these dates during the fiscal year ended
June 30, 1996. To the best of the Company's knowledge, all of these filing
requirements have been satisfied. In making these statements, the Company has
relied solely on written representations of its directors and executive officers
and any ten percent holders and copies of the reports that they filed with the
SEC.
ADDITIONAL INFORMATION REGARDING 1992 STOCK OPTION PLAN, 1995 DIRECTORS'
STOCK OPTION PLAN AND 1996 EMPLOYEE STOCK PURCHASE PLAN
Attached as an Appendix to this Proxy Statement is certain information
concerning the Company's 1992 Stock Option Plan, 1995 Directors' Stock Option
Plan and 1996 Employee Stock Purchase Plan. Such information is being furnished
under subsection (b) of Rule 16b-3 promulgated under the Securities Exchange Act
of 1934, as amended, in order to perfect the shareholder approval requirement of
Rule 16b-3 with respect to such plans.
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If any
other matters properly come before the meeting, it is the intention of the
persons named in the enclosed form of proxy to vote the shares they represent as
the Board of Directors may recommend.
BY ORDER OF THE BOARD OF DIRECTORS
Tae Hea Nahm, SECRETARY
Dated: October 31, 1996
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APPENDIX
EMPLOYEE BENEFIT PLANS
The following information concerns certain of the Company's benefit plans
that were approved by the shareholders of the Company prior to the registration
of the Company's Common Stock under Section 12 of the Securities Exchange Act of
1934. The closing price of the Company's Common Stock reported on the NASDAQ
National Market on June 30, 1996 was $11.00 per share.
1992 STOCK OPTION PLAN
The Company's 1992 Option Plan provides for the grant of options to purchase
the Company's Common Stock to employees and consultants of the Company. See
"Proposal No. 2--Amendment to the 1992 Stock Option Plan" for a more complete
description of the 1992 Option Plan.
1995 DIRECTORS' STOCK OPTION PLAN
GENERAL
The Directors' Option Plan was adopted by the Board of Directors in November
1995 and approved by the shareholders in April 1996. A total of 164,726 shares
of Common Stock has been reserved for issuance under the Directors' Option Plan.
The Directors' Option Plan is designed to provide nonemployee directors with
a proprietary interest in the Company, to encourage these individuals to
continue to serve the Company as directors and to assist the Company in
recruiting highly qualified individuals when vacancies occur on the Board.
As of June 30, 1996, options to purchase 82,362 shares of Common Stock had
been granted to the Company's nonemployee directors under the Directors' Option
Plan, all of such options were outstanding and no options had been exercised. A
total of 82,364 shares remains available for future option grants.
SUMMARY OF THE DIRECTORS' OPTION PLAN
The essential features of the Directors' Option Plan are outlined below.
ADMINISTRATION
The Directors' Option Plan is designed to work automatically and not to
require administration. However, to the extent administration is necessary, it
will be provided by the Board of Directors. The interpretation and construction
of any provisions of the Directors' Option Plan by the Board of Directors shall
be final and conclusive. Members of the Board receive no additional compensation
for their services in connection with the administration of the Directors'
Option Plan. All directors currently hold office until the next annual meeting
of shareholders of the Company, or until their successors are duly elected and
qualified.
ELIGIBILITY
The Directors' Option Plan provides for the grant of nonstatutory options to
nonemployee directors of the Company. The Directors' Plan provides that each
person who is or becomes a nonemployee director of the Company shall be granted
a nonstatutory stock option to purchase 27,454 shares of Common Stock (the
"First Option") on the earlier of the effective date of the Directors' Plan or
the date on which the optionee first becomes a nonemployee director of the
Company. Thereafter on the date of each Annual Meeting of the Company's
shareholders, each nonemployee director shall be granted an additional option to
purchase 6,850 shares of Common Stock (a "Subsequent Option") if he or she shall
have served on the Company's Board of Directors for at least six months prior to
the date of such Annual Meeting. The
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Directors' Plan provides that the maximum number of shares for which options may
be granted under the Directors' Plan is 164,726 (the "Pool"). The Directors'
Option Plan does not specify a maximum or a minimum number of option shares that
may be granted to any one nonemployee director so long as the total number of
shares so granted does not exceed the Pool. The Directors' Plan does provide for
the number of shares which may be included in any grant and the method of making
a grant. The Company currently has four nonemployee directors.
TERMS OF OPTIONS
Options granted under the Directors' Option Plan have a term of ten years.
Each option is evidenced by an option agreement between the Company and the
director to whom such option is granted and is subject to the following
additional terms and conditions:
(a) EXERCISE OF THE OPTION: The First Options become exercisable in
installments as to 25% of the shares subject to the option on each of the first
four anniversaries of the date of grant of the First Option. The Subsequent
Options become exercisable in whole on the fourth anniversary of the date of
grant of that Subsequent Option. An option is exercised by giving written notice
of exercise to the Company, specifying the number of full shares of Common Stock
to be purchased and tendering payment to the Company of the purchase price.
Payment for shares issued upon exercise of an option may consist of cash, check,
an exchange of shares of the Company's Common Stock which have been held for at
least six months, or a combination thereof.
(b) EXERCISE PRICE: The exercise price with respect to any option granted
under the Directors' Option Plan is 100% of the fair market value of the
Company's Common Stock on the date of grant. Such fair market value is equal to
the closing sales price of the Company's Common Stock on the Nasdaq National
Market on the date the option is granted, as reported in the WALL STREET
JOURNAL.
(c) TERMINATION OF STATUS AS A DIRECTOR: The Directors' Option Plan
provides that if an optionee ceases to serve as a director of the Company, the
option may be exercised within 90 days after the date he or she ceases to be a
director to the extent of the shares that the optionee was entitled to exercise
at the date of such termination.
(d) DEATH: If an optionee should die while serving as a director of the
Company, the option may be exercised at any time within six months after death
but only to the extent that the option would have been exercisable had the
optionee continued living and remained a director of the Company for six months
after the date of death. If an optionee should die within three months after
ceasing to serve as a director of the Company, the option may be exercised
within six months after death to the extent the option was exercisable on the
date of such termination.
(e) DISABILITY: If an optionee is unable to continue his or her service as
a director of the Company as a result of his or her total and permanent
disability, the option may be exercised at any time within six months or such
other period of time not exceeding twelve months as determined by the Board
after the date of his or termination, but only to the extent he or she was
entitled to exercise it at the date of such termination.
(f) TERMINATION OF OPTIONS: No option is exercisable by any person after
the expiration of ten years from the date when option was granted.
(g) NONTRANSFERABILITY OF OPTIONS: An option is nontransferable by the
optionee, other than by will or the laws of descent and distribution, and is
exercisable only by the optionee during his or her lifetime or, in the event of
death, by a person who acquires the right to exercise the option by bequest or
inheritance or by reason of the death of the optionee.
(h) ACCELERATION OF OPTIONS: In the event of a merger of the Company with
or into another corporation where the successor corporation issues its
securities to the Company's shareholders or a sale of
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all or substantially all of the Company's assets, each outstanding Option shall
be assumed or an equivalent option substituted by such successor corporation,
unless the successor corporation does not agree to assume the Option or to
substitute an equivalent option, in which case the optionee shall have the right
to exercise the Option including shares as to which the Option would not be
otherwise exercisable.
(i) OTHER PROVISIONS: The option agreement may contain such other terms,
provisions and conditions not inconsistent with the Directors' Option Plan as
may be determined by the Board of Directors.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
In the event any change, such as a stock split or dividend, is made in the
Company's capitalization which results in an increase or decrease in the
outstanding shares of Common Stock without receipt of consideration by the
Company, an appropriate adjustment shall be made in the option price and in the
number of shares subject to each option.
AMENDMENT AND TERMINATION
The Board of Directors may amend or terminate the Directors' Option Plan,
provided that, to the extent necessary and desirable to comply with Rule 16b-3
under the Exchange Act (or any other applicable law or regulation) the Company
shall obtain shareholder approval of any amendment to the Directors' Option Plan
in such a manner and to the extent required by such law or regulation. The
provisions regarding the grant of options under the Plan may not be amended more
than once every six months, other than to comport with changes in the Employee
Retirement Income Security Act of 1974, as amended, or the Code. In any event,
the Directors' Option Plan will terminate in May 2006.
FEDERAL INCOME TAX ASPECTS OF THE DIRECTORS' OPTION PLAN
The federal income tax consequences of participation in the Directors' Plan
are the same as those that apply to optionees who receive nonstatutory stock
options under the Company's 1992 Stock Option Plan, as described in "Proposal
No. 2--Amendment to the 1992 Stock Option Plan."
1996 EMPLOYEE STOCK PURCHASE PLAN
GENERAL
The Company's 1996 Employee Stock Purchase Plan (the "1996 Purchase Plan")
was adopted by the Board of Directors in March 1996 and approved by the
shareholders in April 1996. A total of 274,543 shares of Common Stock are
reserved for issuance under the 1996 Purchase Plan.
The 1996 Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under Section 423 of the Code. See "Federal
Income Tax Aspects of the 1996 Purchase Plan" below.
The 1996 Purchase Plan is not a qualified deferred compensation plan under
Section 401(a) of the Code, and is not subject to the provisions of ERISA.
PURPOSE
The purpose of the 1996 Purchase Plan is to provide employees (including
officers and employee directors) of the Company with an opportunity to purchase
Common Stock of the Company through payroll deductions.
ADMINISTRATION
The 1996 Purchase Plan may be administered by the Board or a committee
appointed by the Board. All questions of interpretation of the 1996 Purchase
Plan are determined by the Board or its committee,
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and its decisions are final and binding upon all participants. Members of the
Board who are eligible employees are permitted to participate in the 1996
Purchase Plan, provided that any such eligible member may not vote on any matter
affecting the administration of the 1996 Purchase Plan or the grant of any
option pursuant to it, or serve on a committee appointed to administer the 1996
Purchase Plan. No charges for administrative or other costs may be made against
the payroll deductions of a participant in the 1996 Purchase Plan. Members of
the Board receive no additional compensation for their services in connection
with the administration of the 1996 Purchase Plan. All directors currently hold
office until the next annual meeting of shareholders of the Company, or until
their successors are duly elected and qualified.
ELIGIBILITY
Any person who is employed by the Company for at least twenty hours per week
and more than five months in a calendar year is eligible to participate in an
offering under the 1996 Purchase Plan, subject to certain limitations imposed by
Section 423(b) of the Code and limitations on stock purchases and stock
ownership as set forth in the 1996 Purchase Plan.
OFFERING DATES
The 1996 Purchase Plan is implemented by a series of offering periods of 12
months duration with new offering periods commencing on or about January 1 and
July 1 of each year. Each offering period consists of two consecutive purchase
periods of six-months duration with the last day of each period being designated
a purchase date. The first purchase period commenced on May 10, 1996 and shall
continue through December 31, 1996, with the first purchase date occurring on
June 30, 1996 and subsequent purchase dates to occur every six months
thereafter.
PARTICIPATION IN THE PLAN
Eligible employees become participants in the 1996 Purchase Plan by filing
with the payroll office of the Company a subscription agreement authorizing
payroll deductions prior to the applicable offering date, unless a later time
for filing the subscription agreement has been set by the Board for all eligible
employees with respect to a given offering.
PURCHASE PRICE
The purchase price per share at which shares are sold under the 1996
Purchase Plan is the lower of 95% of the fair market value of the Common Stock
at the time the option is granted at commencement of the offering period, or 95%
of the fair market value per share of the Common Stock on a Purchase Date. The
fair market value of the Common Stock on a given date shall be the closing price
of the Common Stock as reported on the Nasdaq National Market as of such date.
PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS
The purchase price of the shares is accumulated by payroll deductions over
the 12-month offering period. The deductions may not be less than 1% or more
than 10% of a participant's aggregate compensation during the offering period.
Eligible compensation consists of the regular straight time gross earnings,
payments for overtime, shift premium, incentive compensation, incentive
payments, bonuses, commissions and other cash compensation. 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 1996 Purchase Plan.
Subject to certain restrictions applicable to employees who are reporting
persons under Section 16 of the Exchange Act, a participant may discontinue his
or her participation in the 1996 Purchase Plan at any time during an offering
period. A participant may, on one occasion only during any particular offering
period, decrease the rate of his or her contributions during such offering
period. Payroll deductions for a
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participant shall commence on the first payroll following the offering date and
shall end on the last payroll period prior to the last day of the purchase
period to which the subscription agreement is applicable unless terminated by a
participant as provided in the Purchase Plan. Notwithstanding the foregoing, to
the extent necessary to comply with Section 423(b)(8) of the Code and
eligibility requirements and certain purchase limitations of the Plan, a
participant's payroll deductions may be decreased to 0% if the aggregate of the
participant's payroll deductions during the same calendar year equals $21,250 or
would result in the purchase of more than 50,000 shares of the Company's Common
Stock on a Purchase Date.
All payroll deductions are credited to the participant's account under the
1996 Purchase Plan and are deposited with the general funds of the Company. All
payroll deductions received or held by the Company may be used by the Company
for any corporate purpose. No interest accrues on the payroll deductions of a
participant in the 1996 Purchase Plan.
PURCHASE OF STOCK; EXERCISE OF OPTION
By executing a subscription agreement to participate in the 1996 Purchase
Plan, the participant is entitled to have shares placed under option. The
maximum number of shares placed under option to a participant in a six-month
offering period is that number determined by dividing $12,500 by the fair market
value of one share on the offering date; provided, however, that the
participant's actual purchase will be limited to the number of shares determined
by dividing the amount of the participant's total payroll deductions accumulated
during each offering period by the lower of (i) 95% of the fair market value of
the Common Stock at the beginning of the offering period, or (ii) 95% of the
fair market value of the Common Stock on the applicable exercise date. Unless
the participant's participation is discontinued, each participant's option for
the purchase of shares will be exercised automatically at the end of the
offering period at the applicable price.
Notwithstanding the foregoing, no participant shall be permitted to
subscribe for shares under the 1996 Purchase Plan if immediately after the grant
of the option the participant would own five percent or more of the voting power
or value of all classes of stock of the Company or of a parent or of any of its
subsidiaries (including stock that may be purchased under the 1996 Purchase Plan
or pursuant to any other options), nor shall any participant be granted an
option that would permit the participant to buy pursuant to all employee stock
purchase plans more than $25,000 worth of stock (determined at the fair market
value of the shares at the time the option is granted) in any calendar year or
if such option would, when aggregated with options granted to all employees
participating in a Purchase Period ending on the same date, result in the
purchase of more than 50,000 shares of the Company's Common Stock by the
participant in such period or periods.
WITHDRAWAL
A participant may withdraw all but not less than all the contributions
credited to his or her account under the 1996 Purchase Plan at any time prior to
each Purchase Date by giving written notice to the Company. All of the
participant's contributions credited to his or her account will be paid to him
or her promptly after receipt of his or her notice of withdrawal and his or her
option for the current period will be automatically terminated, and no further
contributions for the purchase of shares will be made during the Offering
Period. Upon termination of the participant's continuous status as an employee
prior to the Purchase Date of an Offering Period for any reason, including
retirement or death, the contributions credited to his or her account will be
returned to him or her or, in the case of his or her death, to the person or
persons entitled thereto and his or her option will be automatically terminated.
In the event an Employee fails to remain in continuous status as an employee of
the Company for at least twenty (20) hours per week during the Offering Period
in which the employee is a participant, he or she will be deemed to have elected
to withdraw from the 1996 Purchase Plan and the contributions credited to his or
her account will be returned to him or her and his or her option terminated. A
participant's withdrawal from an offering will not have any effect upon his or
her eligibility to participate in a succeeding offering or in
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any similar plan which may hereafter be adopted by the Company. If the fair
market value of the shares on the first Purchase Date of an Offering Period is
less than the fair market value of the shares on the Offering Date for such
Offering Period, then every participant shall automatically (i) be withdrawn
from such Offering Period at the close of such Purchase Date and after the
acquisition of shares for such Purchase Period, and (ii) be enrolled in the
Offering Period commencing on the first business day subsequent to such Purchase
Period.
A participant's withdrawal from an offering period does not have an effect
upon such participant's eligibility to participate in subsequent offering
periods under the 1996 Purchase Plan; however, the participant may not re-enroll
in the same offering period after withdrawal. Officers, directors and other
persons subject to Section 16 of the Exchange Act may not re-enroll for a period
of six months after withdrawal.
TERMINATION OF EMPLOYMENT
Termination of a participant's employment for any reason, including
retirement or death, prior to any exercise date cancels his or her participation
in the 1996 Purchase Plan immediately. In such event, the payroll deductions
credited to the participant's account during the offering period but not yet
used to exercise the option will be returned to such participant, or in the case
of death, to the person or persons entitled thereto as specified in the
participant's subscription agreement.
CAPITAL CHANGES
In the event any change, such as a stock split of stock dividend, is made in
the Company's capitalization, which results in an increase or decrease in the
number of outstanding shares of Common Stock without receipt of consideration by
the Company, appropriate adjustments will be made in the shares subject to
purchase and in the purchase price per share, as well as in the number of shares
available for issuance under the 1996 Purchase Plan.
NONASSIGNABILITY
No rights or accumulated payroll deductions of a participant under the 1996
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
1996 Purchase Plan.
AMENDMENT AND TERMINATION OF THE PLAN
The Board may at any time amend or terminate the 1996 Purchase Plan, except
that such termination shall not affect options previously granted nor may any
amendment make any change in an option granted prior thereto which adversely
affects the rights of any participant. No amendment may be made to the 1996
Purchase Plan without prior approval of the shareholders of the Company if such
amendment would increase the number of shares reserved under the 1996 Purchase
Plan, change the standards of eligibility for participation in the 1996 Purchase
Plan or materially increase the benefits accruing to participants in the 1996
Purchase Plan, or make any other change to the 1996 Purchase Plan for which
shareholder approval is required to comply with the rules regarding
"discretionary plans" under Section 16 of the Securities Exchange Act of 1934
and Rule 16b-3 (or any successor rule) thereto.
FEDERAL INCOME TAX ASPECTS OF THE 1996 PURCHASE PLAN
The following is a brief summary of the U.S. federal income tax consequences
of transactions under the 1996 Purchase Plan based on federal income tax laws in
effect as of this date. The summary addresses only current U.S. federal income
tax law and expressly does not discuss the income tax law of any state,
municipality or non-U.S. taxing jurisdiction or gift, estate or other tax laws
other than federal income tax law.
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The 1996 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
upon commencement of an offering period or upon issuance to him or her of shares
of Common Stock under the Purchase Plan. 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 how long the shares have been held by the participant. 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 after the date of issuance of
such shares to him or her, 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 sale or disposition over the purchase price, or (b) an
amount equal 5% 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 before the expiration of
both 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 on such sale or disposition will be long-term or short-term capital gain or
loss, which will be long-term if the shares are disposed of more than one year
after the date of purchase. The Company is not entitled to a deduction for
income recognized by a participant except to the extent of ordinary income
recognized upon a sale or disposition of shares prior to the expiration of the
holding period(s) described above. Currently, the tax rate on net capital gain
(net long-term capital gain minus net short-term capital loss) is capped at 28%.
Capital losses are allowed in full against capital gains plus $3,000 of other
income.
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
GENERAL SURGICAL INNOVATIONS, INC.
1996 ANNUAL MEETING OF SHAREHOLDERS
The undersigned shareholder of GENERAL SURGICAL INNOVATIONS, INC., a
California corporation, hereby
P
acknowledges receipt of the notice of annual meeting of shareholders and
proxy statement, each dated October 31, 1996, and hereby appoints Roderick
A. Young and Stephen J. Bonelli , and each of them, with full power of
substitution,
R
as proxies, and authorizes them to represent and to vote, as designated
below, all the stock of GENERAL SURGICAL INNOVATIONS, INC. that the
undersigned is entitled to vote at the Annual Meeting of its shareholders to be
held on
O
November 19, 1996 and at any adjournment or postponement thereof, as
follows:
X
If no direction is made, this proxy will be voted in the Election of
Directors in the manner described in the Proxy Statement, FOR the proposal
to approve an amendment to the 1992 Stock Option Plan to increase the number of
shares
Y
of Common Stock reserved for issuance thereunder by 400,000 shares, and FOR
the proposal to ratify the selection of Coopers & Lybrand LLP as the
Company's independent accountants for the current fiscal year.If this proxy is
executed in such manner as not to withhold authority to vote for the
election of any nominee to the Board of Directors, it shall be deemed to
grant such authority.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE
<PAGE>
/X/ Please mark your votes as in this example
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareolder(s) The Board of Directors unanimously
recommends a vote FOR all nominees for directors and proposals 2 and 3.
1. Election of Directors
Nominees: RODERICK A. YOUNG, THOMAS J. FOGARTY, DAVID W. CHONETTE, PAUL
GOELD, MARK A. WAN
/ / FOR / / WITHHELD
For all nominees except as noted below
2. To approve an amendment to the 1992 Stock Option Plan to increase the number
of shares of Common Stock reserved for issuance thereunder by 400,000
shares.
/ / FOR / / AGAINST / / ABSTAIN
3. To ratify the appointment of Coopers & Lybrand LLP as independent
accountants of the Company for the fiscal year ending June 30, 1997.
/ / FOR / / AGAINST / / ABSTAIN
and, in their discretion, the proxies are
authorized to vote on such other business
as may properly come before the meeting or
any adjournment thereof.
PLEASE MARK, SIGN, DATE AND RETURN THE
PROXY CARD USING THE ENCLOSED
ENVELOPE.Please sign exactly as name
appears hereon.When shares are held by
joint tenants, both should sign.When
signing as attorney, executor,
administrator, trustee, or guardian, please
give full title as such.If a corporation,
please sign in full corporate name by
President or other authorized officer.If a
partnership, please sign in partnership
name by authorized person.
SIGNATURE _________________________________
DATE ______________________________________
SIGNATURE _________________________________
DATE ______________________________________
