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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
GENERAL SURGICAL INNOVATIONS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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GENERAL SURGICAL INNOVATIONS, INC.
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOVEMBER 10, 1997
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 November 10, 1997, at 10:00 a.m., local time, at the Company's principal
executive offices located at 10460 Bubb Road, Cupertino, California 95014, for
the following purposes:
1. To elect directors to serve for the ensuing year and until their
successors are elected.
2. To approve and ratify amendments to the 1992 Stock Option Plan, among
other things, to increase the number of shares of Common Stock reserved
for issuance thereunder by 500,000 shares to an aggregate total of
2,615,895 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, 1998.
4. To transact such other business as may properly come before the meeting
or any postponement or adjournment thereof.
Only shareholders of record at the close of business on October 8, 1997 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,
/s/ Tae Hea Nahm
Tae Hea Nahm
SECRETARY
Cupertino, California
October 15, 1997
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND RETURN THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE. IF A QUORUM IS NOT REACHED, THE COMPANY 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.
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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 Monday, November 10, 1997 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 10460 Bubb Road, Cupertino, California 95014. The
Company's telephone number at its principal executive offices is (408) 863-2500.
These proxy solicitation materials were mailed on or about October 15, 1997
to all shareholders entitled to vote at the Annual Meeting.
THE COMPANY WILL PROVIDE A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 1997, INCLUDING FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULES (BUT NOT EXHIBITS), WITHOUT CHARGE TO EACH SHAREHOLDER UPON
WRITTEN REQUEST TO STEPHEN J. BONELLI, CHIEF FINANCIAL OFFICER, GENERAL SURGICAL
INNOVATIONS, INC., 10460 BUBB ROAD, CUPERTINO, CALIFORNIA 95014 (TELEPHONE
NUMBER (408) 863-2500). EXHIBITS TO THE ANNUAL REPORT MAY BE OBTAINED ON WRITTEN
REQUEST TO MR. BONELLI AND PAYMENT OF THE COMPANY'S REASONABLE EXPENSES IN
FURNISHING SUCH EXHIBITS.
RECORD DATE
Shareholders of record of the Company's Common Stock at the close of
business on October 8, 1997 are entitled to notice of, and to vote at, the
Annual Meeting. At the October 8, 1997 record date, 13,338,846 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
Each holder of Common Stock is entitled to one vote per each share held as
of the record date.
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. 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 and present in person or represented
by proxy. The Inspector will treat abstentions as shares that are present and
entitled to vote for purposes of determining the presence of a quorum and as
negative votes for purposes of determining the approval of any matter submitted
to the 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 directors, for the approval of the amendments to the 1992 Stock
Option Plan and the reservation of an additional 500,000 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
<PAGE>
with respect to the item not marked. If a broker indicates on the enclosed proxy
or its substitute that it does not have discretionary authority as to certain
shares to vote on a particular matter, those shares will not be considered as
present with respect to that matter. The Company believes that the tabulation
procedures to be followed by the Inspector are consistent with the general
statutory requirements in 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 be solicited by certain of the
Company's directors, officers and regular employees, without additional
compensation, personally or by telephone or facsimile transmission. The Company
has also retained Skinner & Co. ("Skinner") to assist in the solicitation of
proxies. Skinner will receive a fee for such services of approximately
$1,500.00, which will be paid by the Company.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Proposals of shareholders that are intended to be presented by such
shareholders at the Company's Annual Meeting to be held in connection with the
close of the Company's 1998 fiscal year, ending June 30, 1998 (the "1998 Annual
Meeting") must be received by the Company no later than June 16, 1998 in order
to be considered for inclusion in the Company's proxy materials for the 1998
Annual Meeting.
PROPOSAL NO. 1:
ELECTION OF DIRECTORS
NOMINEES
A board of seven directors is to be elected at the Annual Meeting.
Management has nominated the seven current members of the Board of Directors to
be re-elected. Unless otherwise instructed, the proxy holders will vote the
proxies received by them for the Company's seven nominees named below, all of
whom are currently directors of the Company. Pursuant to the bylaws of the
Company, the Board of Directors of the Company is divided into two classes of
directors, as nearly equal in number as possible. Each class of directors will
serve for a one- or two-year period or until their successors are elected and
qualified. Thereafter, directors will serve staggered two year terms. Class I
consists of three directors (Roderick A. Young, Gregory D. Casciaro and Thomas
J. Fogarty), serving a one-year term expiring at the Company's 1998 Annual
Meeting of Shareholders. Class II consists of four directors (David W. Chonette,
Paul Goeld, Mark A. Wan and James Sulat), serving a two-year term expiring at
the Company's 1999 Annual Meeting of Shareholders. In each case, a director will
serve for the designated term or until his or her respective successor is
elected and qualified.
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 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.
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The names of the nominees, their ages as of October 1, 1997, and certain
other information about them, are set forth below:
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE CLASS
- ---------------------------------------------------- --- ------------------------------------ ----------- -----
<S> <C> <C> <C> <C>
Gregory D. Casciaro................................. 40 President, Chief Operating Officer 1997 I
and Director of the Company
David W. Chonette................................... 62 General Partner of Brentwood 1993 II
Associates
Thomas J. Fogarty................................... 63 Professor of Surgery at Stanford 1992 I
University
Paul Goeld.......................................... 45 President, Chief Executive Officer 1995 II
and Director of LocalMed, Inc.
James R. Sulat...................................... 47 Chief Financial Officer of Stanford 1997 II
Health Services
Mark A. Wan......................................... 32 General Partner of Three Arch 1992 II
Partners
Roderick A. Young................................... 53 Chief Executive Officer and Director 1993 I
of the Company
</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.
GREGORY D. CASCIARO joined GSI in February 1995 as Vice President of Sales
and Marketing, was promoted to Senior Vice President in November 1996, and has
served as President, Chief Operating Officer and a director of the Company since
August 1997. Prior to joining GSI, Mr. Casciaro held various positions at
Devices for Vascular Intervention, Inc., a medical device manufacturer,
including Vice President of Sales from June 1991 to February 1995. Mr. Casciaro
received a B.S. degree in business administration at Marquette University.
DAVID W. CHONETTE has served as a director of the Company since July 1993.
Mr. Chonette has been a general partner of Brentwood Venture Capital, a venture
capital partnership, since 1986. Previously, he was employed for 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
Edwards division, and as Group Vice President responsible for several medical
device and pharmaceutical divisions. Mr. Chonette also serves as a director of
Imagyn Medical, Inc. and several private health care companies. Mr. Chonette
received his B.S. degree from MIT, and M.S. degree in mechanical engineering
from USC.
DR. THOMAS J. FOGARTY co-founded GSI in April 1992 and has been a director
of the Company since that time. Dr. Fogarty has been a cardiovascular surgeon
and Professor of Surgery at Stanford University since July 1993. He holds over
50 patents in surgical instrumentation, including the Fogarty balloon catheter
and the Fogarty vascular clamp. Dr. Fogarty is also a founding general partner
of Three Arch Partners, a venture capital investment firm and shareholder of the
Company. He serves on the board of directors of Cardiac Pathways Corporation,
Raytel Medical Corporation, CardioThoracic Systems, Inc. and several
privately-held companies. Dr. Fogarty holds an M.D. degree from the University
of Cincinnati College of Medicine.
PAUL GOELD has served as a director of the Company since June 1995. Mr.
Goeld has served as President, Chief Executive Officer and a 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. Mr. Goeld also
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serves on the Board of Directors of several privately held companies. Mr. Goeld
received his B.S. degree in chemistry from the University of Florida and M.B.A.
degree from Pepperdine University.
JAMES R. SULAT has served as a director of the Company since January 1997.
He is the Chief Financial Officer of Stanford Health Services, a not-for-profit
health care provider that operates the Stanford University hospital and clinic.
From 1990 to 1993, Mr. Sulat was Chief Financial Officer and Vice President of
Operations of Esprit de Corp., a San Francisco-based apparel company. Mr. Sulat
also serves on the Board of Directors of Vans, Inc., and several other
privately-held companies.
MARK A. WAN co-founded GSI in April 1992 and served as an officer from June
1992 to September 1993. Mr. Wan co-founded and has been a general partner of
Three Arch Partners, a venture capital partnership, since October 1993. Prior to
founding Three Arch Partners, from 1987 to September 1993, Mr. Wan served in
various positions at Brentwood Associates, a venture capital firm, most recently
as a general partner. Mr. Wan also serves on the Board of Directors of Perclose,
Inc. and several other privately-held health care companies. Mr. Wan received
B.S. and B.A. degrees from Yale University and an M.B.A. degree from Stanford
Graduate School of Business.
RODERICK A. YOUNG joined GSI as a director in August 1993, was appointed
Chief Executive Officer in March 1994, and has served as Chairman of the Board
of Directors since August 1997. Mr. Young also served as President of the
Company from August 1993 to August 1997. From May 1993 until joining GSI, Mr.
Young was President and CEO of Focus Surgery, Inc. ("Focus Surgery"), a medical
device company that was spun out of Diasonics, Inc. ("Diasonics"), a medical
products manufacturer, in October 1993. Prior to joining Focus Surgery, Mr.
Young served in various executive positions, including President, Chief
Financial Officer and Chief Operating Officer of Diasonics from May 1990 to May
1993. Mr. Young serves on the Board of Directors of several privately-held
companies. Mr. Young received a B.S. degree in industrial engineering from
Stanford University and an M.B.A. degree from Harvard Business School.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of nine meetings during
the fiscal year ended June 30, 1997, 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, Wan and Sulat, held four
meetings during fiscal 1997.
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 three meetings during
fiscal 1997.
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
1997, except for Dr. Fogarty, who attended five of the nine meetings of the
Board of Directors held during the fiscal year.
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COMPENSATION OF DIRECTORS
The Company adopted a policy in February 1997, pursuant to which it pays
outside directors who have joined the Board since 1995 for Board meeting
attendance. Under the policy, certain directors (currently Messrs. Goeld and
Sulat) receive $1,500.00 per meeting if they attend in person and $500 per
telephone Board meeting. In addition, all directors are reimbursed for expenses
actually incurred in attending meetings of the Board of Directors and its
committees.
Nonemployee directors of the Company are automatically granted options to
purchase shares of the Company's Common Stock pursuant to the terms of the
Company's 1995 Directors' Stock Option Plan (the "Directors' Plan"). Under the
Directors' Plan, each nonemployee director who is elected to the Board for the
first time on or after May 10, 1996 will receive an option to purchase 27,454
shares of Common Stock on the date on which he or she first becomes a
nonemployee director, which vests at the rate of 25% of the total number of
shares subject to such option on each annual anniversary of the grant date.
Thereafter, on the date of each Annual Meeting of Shareholders (beginning with
this 1997 Annual Meeting) each nonemployee director, including directors who
were serving on the Board prior to May 10, 1996, shall be granted an additional
option to purchase 6,864 shares of Common Stock if, on such annual meeting date,
he or she has served on the Board for at least six months and remains a director
as of the end of such date. These options become exercisable as to 100% of the
shares subject to the option on the fourth annual anniversary of the grant date.
Options granted under the Directors' Plan have an exercise price equal to the
fair market value of the Company's Common Stock on the date of grant and a term
of ten years. Upon joining the Board in January 1997, Mr. Sulat was
automatically granted an option to purchase 27,454 shares of Common Stock, with
an exercise price of $9.75 per share, pursuant to the Directors' Plan. Subject
to their election to the Board of Directors by the shareholders at the Annual
Meeting, Messrs. Chonette, Goeld, Sulat and Wan and Dr. Fogarty will each be
automatically granted an option to purchase 6,864 shares of Common Stock on the
date of the Annual Meeting pursuant to the Directors' Plan.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL OF THE NOMINEES LISTED
ABOVE.
PROPOSAL NO. 2:
AMENDMENTS TO THE 1992 STOCK OPTION PLAN
At the Annual Meeting, the Company's shareholders are being asked to approve
amendments to the 1992 Stock Option Plan (the "1992 Plan") to: (i) increase the
number of shares of Common Stock reserved for issuance thereunder by 500,000
shares to an aggregate of 2,615,895 shares and (ii) permit non-employee members
of the Board of Directors to be eligible to receive grants under the 1992 Plan.
GENERAL
The 1992 Plan was adopted by the Board of Directors in September 1992. The
Board of Directors initially reserved 450,000 shares of Common Stock, on a
pre-split basis, for issuance under the 1992 Plan. The 1992 Plan was approved by
the Company's shareholders on September 14, 1992. On October 12, 1995, the Board
of Directors amended the 1992 Plan to increase the number of shares reserved for
issuance thereunder by 400,000 shares, on a pre-split basis, and on March 22,
1996 the Board amended the 1992 Plan to increase the number of shares reserved
for issuance thereunder by 400,000, on a pre-split basis, which amendments were
approved by the shareholders on April 26, 1996. In March 1996, the Company
effected a 1.37-for-one stock split pursuant to which the shares then reserved
for issuance pursuant to the 1992 Plan and all options outstanding under the
1992 Plan were adjusted proportionately with the result that an aggregate of
1,715,895 shares, on a post-split basis, had been reserved for issuance under
such Plan.
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In August 1996, the Board of Directors amended the 1992 Plan to increase the
number of shares of Common Stock reserved for issuance thereunder by 400,000
shares, to a total of 2,115,895 shares, on a post-split basis, which amendment
was approved by the shareholders on November 19, 1996. On September 30, 1997,
the Board of Directors amended the 1992 Plan to increase the number of shares of
Common Stock reserved for issuance thereunder by 500,000 shares, to a total of
2,615,895 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 Plan. Accordingly, shareholders are being asked to approve the
amendment to the 1992 Plan at the Annual Meeting.
Options granted under the 1992 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 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 15, 1997, without giving effect to the November 1997
amendments to the 1992 Plan, options for 1,197,011 shares were outstanding under
the 1992 Plan, 303,099 shares had been issued pursuant to the exercise of
options granted under the 1992 Plan, and 615,785 shares remained available for
future grants. Shares subject to options granted under the 1992 Plan that lapse
unexercised will generally become available for reissuance under the 1992 Plan
at the time of such lapse. As of September 15, 1997, the aggregate fair market
value of shares subject to outstanding options under the 1992 Plan was
$5,162,110 based upon the closing price of the Common Stock as reported on the
Nasdaq National Market on such date of $4.3125. The actual benefits, if any, to
the holders of stock options issued under the 1992 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, 1997 under the Company's 1992 Plan to all employees and the Named
Executive Officers is set forth under "Compensation of Executive Officers--Stock
Option Grants in Fiscal 1997." Options to purchase 130,000 shares of Common
Stock were granted during the fiscal year ended June 30, 1997 under the
Company's 1992 Plan to the Company's current executive officers as a group. From
June 30, 1997 through September 30, 1997, options to purchase 120,000 shares of
Common Stock were granted to the Company's current executive officers.
MATERIAL AMENDMENTS
(a) SHARE INCREASE. The Board of Directors believes that in order to
attract and retain highly qualified employees and consultants and to provide
such employees and consultants with adequate incentive through their proprietary
interest in the Company, it is necessary to amend the 1992 Plan to reserve an
additional 500,000 shares of Common Stock for issuance thereunder. At the Annual
Meeting, the shareholders are being asked to approve this amendment to the 1992
Plan.
(b) MAKE NON-EMPLOYEE DIRECTORS ELIGIBLE TO RECEIVE GRANTS. Prior to an
amendment approved by the Company's Board of Directors, non-employee directors
were not eligible to receive stock option grants under a stock option plan
qualified within the meaning of certain rules promulgated under Section 16 of
the Securities Exchange Act of 1934. As a result of changes in such rules
adopted by the Securities and Exchange Commission in late 1996, non-employee
directors are now permitted to be eligible to receive
6
<PAGE>
grants under discretionary option plans. Although no grants of options to
non-employee directors under the 1992 Plan are currently contemplated, the Board
of Directors believes that it is in the best interests of the Company to
maintain the flexibility to make such grants if the Board determines it to be
necessary to attract or retain qualified individuals to serve on the Board of
Directors. For this reason, the Board has approved the amendment to the 1992
Plan to permit non-employee directors of the Company to be eligible to receive
grants under the 1992 Plan. At the Annual Meeting, the shareholders are being
asked to approve this amendment to the 1992 Plan.
PURPOSE
The purposes of the 1992 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 Plan may be administered by the Board of Directors or by a
committee (or subcommittee in certain instances) of the Board of Directors. The
1992 Plan is currently being administered by the Board of Directors and the
Compensation Committee of the Board of Directors. The Compensation Committee,
which meets 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 otherwise administer the 1992
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 Plan. All questions of interpretation of the 1992 Plan are
determined by the Board of Directors or its committee, and its decisions are
final and binding upon all participants.
ELIGIBILITY
All employees (including officers and directors who are employees) of the
Company and individuals who are rendering services as consultants to the Company
(including, if the above-described amendment is approved by the shareholders at
this Annual Meeting, non-employee directors) of the Company or any subsidiary
are eligible to participate in the 1992 Plan. As of September 30, 1997, the
Company and its subsidiary had approximately 72 employees and 5 consultants, all
of whom were eligible to participate in the Plan. The 1992 Plan provides that
either incentive stock options or nonstatutory 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 Plan provides that
nonstatutory options may be granted to consultants (including, if the
above-described amendment is approved by the shareholders at this Annual
Meeting, non-employee directors) 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 Plan provides that the maximum number of shares of Common Stock
that 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 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.
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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 Plan is determined
by the Board of Directors or its committee and may not be less than 100% 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%, 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 National Market on the date of grant. In the case of
an option granted to an optionee who owns more than 10% 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% 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 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 Plan, if an optionee should die during the term
of the option and is at the time of his or her death an employee or consultant
of the Company who has 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 three months after the date of death. If the
optionee should die within one month (or such other period of time not to exceed
three 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 Plan provides that options granted
under the 1992 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,
owned 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.
8
<PAGE>
(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 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 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 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
Plan that increases the number of shares that may be issued under the 1992 Plan,
modifies the standards of eligibility, modifies the limitation on grants to
employees described in the 1992 Plan or results in other changes which would
require shareholder approval to qualify options granted under the 1992 Plan as
performance-based compensation under Section 162(m) of the Code, or to qualify
options granted under the 1992 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
Plan. The 1992 Plan shall terminate in September 2002, provided that any options
then outstanding under the 1992 Plan shall remain outstanding until they expire
by their terms.
FEDERAL INCOME TAX ASPECTS OF THE 1992 PLAN
Options granted under the 1992 Plan may be either "incentive stock options,"
as defined in Section 422 of the Code, or nonstatutory options.
If an option granted under the 1992 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 due to the exercise unless the
optionee is subject to the alternative minimum tax. 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 at least two years after
grant of the option and one year after receipt of the shares 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 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
9
<PAGE>
sale price 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 if the sale occurs more than one year but before eighteen months after
exercise of the option and at 20 percent if the sale occurs after eighteen
months after exercise of the option. Capital losses are allowed under federal
tax laws in full against capital gains plus $3,000 of other income.
All other options that do not qualify as incentive stock options are
referred to as nonstatutory 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 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 Plan for his
or her particular situation.
REQUIRED VOTE
The approval of the amendments to the 1992 Plan to increase the number of
shares reserved for issuance thereunder by 500,000 shares and permit
non-employee directors to receive grants thereunder 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 AMENDMENTS
TO THE 1992 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 FOREGOING AMENDMENTS.
10
<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, 1998, 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 Annual Meeting with the opportunity to make a statement if they
desire to do so, and are expected to be available 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.
11
<PAGE>
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 August 31, 1997 as to (i) each person who is known to 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 Named Executive
Officers (as defined on page 14), and (iv) all directors and executive officers
as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
5% SHAREHOLDERS, DIRECTORS, ---------------------------------
NAMED EXECUTIVE OFFICERS, AND DIRECTORS AND PERCENT OF COMMON
EXECUTIVE OFFICERS AS A GROUP NUMBER STOCK OUTSTANDING
- --------------------------------------------------------------------------------- ---------- ---------------------
<S> <C> <C>
Thomas J. Fogarty, M.D.(2) ...................................................... 1,862,983 14.0%
3270 Alpine Road
Portola Valley, CA 94028
Brentwood Associates V, L.P. .................................................... 1,428,359 10.7%
1920 Main Street, Suite 820
Irvine, CA 92714
Norwest Equity Partners, IV ..................................................... 921,505 6.9%
3000 Sand Hill Road
Building 3, Suite 245
Menlo Park, CA 94025
Hancock Venture Partners, IV .................................................... 799,640 6.0%
One Financial Center, 44th Floor
Boston, MA 02111
Mark A. Wan(3)(4) ............................................................... 599,449 4.5%
10460 Bubb Road
Cupertino, CA95014
Roderick A. Young(5) ............................................................ 209,400 1.6%
10460 Bubb Road
Cupertino, CA95014
James E. Jervis(6) .............................................................. 103,029 *
10460 Bubb Road
Cupertino, CA95014
Paul Goeld(7) ................................................................... 30,012 *
10460 Bubb Road
Cupertino, CA95014
David W. Chonette(8) ............................................................ 1,454,668 10.9%
10460 Bubb Road
Cupertino, CA95014
Gregory Casciaro(9) ............................................................. 114,329 *
10460 Bubb Road
Cupertino, CA95014
Stephen Bonelli(10) ............................................................. 62,863 *
10460 Bubb Road
Cupertino, CA95014
Ferolyn Powell(11) .............................................................. 22,411 *
10460 Bubb Road
Cupertino, CA95014
All directors and executive officers as a group
(10 persons) (2)(3)(4)(5)(6)(7)(8)(9)(10)(11)(12).............................. 4,459,144 33%
</TABLE>
- ------------------------
* Less than 1%. As of August 31, 1997, 13,306,172 shares of Common Stock were
issued and outstanding.
12
<PAGE>
(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, 988,045 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 may be deemed to be a beneficial owner of such shares
but disclaims beneficial ownership of such shares, except to the extent of
his interest in such entity. Does not include 47,086 shares held by Three
Arch Associates, L.P. and 209,184 shares held by Three Arch Partners, L.P.
Dr. Fogarty is a general partner of Three Arch Management, the general
partner of both Three Arch Partners, L.P. and Three Arch Associates, L.P. As
such, Dr. Fogarty may be deemed to be a beneficial owner of such shares, but
disclaims beneficial ownership of such shares, except to the extent of his
interest in such entities.
(3) Includes 47,086 shares held by Three Arch Associates, L.P. and 209,184
shares held by Three Arch Partners, L.P. Mark A. Wan is a general partner of
Three Arch Management, the general partner of both Three Arch Partners, L.P.
and Three Arch Associates, L.P., and may thereby be deemed to be a
beneficial owner of such shares. Mr. Wan disclaims beneficial ownership of
such shares, except to the extent of his interest in such entities.
(4) 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.
(5) Includes 57,418 shares issuable upon exercise of options exercisable within
60 days after August 31, 1997.
(6) Includes 14,822 shares issuable upon exercise of options exercisable within
60 days after August 31, 1997.
(7) Includes 15,012 shares issuable upon exercise of options exercisable within
60 days after August 31, 1997.
(8) 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, except to the extent of his
interest in such entity. Also includes 26,309 shares issuable upon exercise
of options exercisable within 60 days after August 31, 1997.
(9) Includes 43,371 shares issuable upon exercise of options exercisable within
60 days after August 31, 1997.
(10) Includes 32,632 shares issuable upon exercise of options exercisable within
60 days after August 31, 1997.
(11) Includes 14,829 shares issuable upon exercise of options exercisable within
60 days after August 31, 1997.
(12) Includes 204,393 shares issuable upon exercise of options exercisable
within 60 days after August 31, 1997.
13
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows the compensation received by each of (i) the
Company's Chief Executive Officer, and (ii) the four other most highly
compensated executive officers of the Company serving at the end of the fiscal
year ended June 30, 1997 (the "Named Executive Officers"), for the Company's
last three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS
--------------------------
ALL OTHER
ANNUAL COMPENSATION SECURITIES COMPEN-
----------------------------------- UNDERLYING SATION
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY($) BONUS ($) OPTIONS(#)(1) ($)(2)
- --------------------------------------------------------- ----------- --------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Roderick A. Young ....................................... 1997 190,000 -- 50,000 --
Chief Executive Officer 1996 170,000 20,000 109,817 --
1995 160,000 20,000 44,898 --
James E. Jervis ......................................... 1997 141,066 -- 15,000 --
Vice President of Research and Development 1996 133,378 -- 27,454 --
1995 133,377 -- -- --
Gregory D. Casciaro ..................................... 1997 140,000 40,000 30,000 22,500(4)
President and Chief Operating Officer(3) 1996 135,000 40,000 82,362 22,500(4)
1995 56,250 10,000 -- 9,375(4)
Stephen J. Bonelli ...................................... 1997 118,750 -- 20,000 --
Chief Financial Officer, Vice President of Finance and 1996 95,250 -- 54,908 --
Administration and Treasurer 1995 70,000 -- 13,727 --
Ferolyn T. Powell ....................................... 1997 111,250 -- 15,000 --
Vice President of Operations 1996 71,250 -- 61,772 --
1995 -- -- -- --
</TABLE>
- ------------------------
(1) This table does not reflect options granted subsequent to the close of
fiscal 1997, which may represent grants partially in recognition of fiscal
1997 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 $50,000 or ten percent of total salary and bonus
reported for such individual in the Summary Compensation Table.
(3) Mr. Casciaro was appointed President and Chief Operating Officer of the
Company on August 5, 1997. As of June 30, 1997, he was Senior Vice
President.
(4) Stated amounts represent payments for mortgage assistance, relocation
expenses paid for or reimbursed by the Company with respect to Mr. Casciaro.
14
<PAGE>
STOCK OPTION GRANTS IN FISCAL YEAR 1997
The following table sets forth information for the Named Executive Officers
with respect to grants of options to purchase Common Stock of the Company made
during the fiscal year ended June 30, 1997.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------ ANNUAL RATES OF
% OF TOTAL STOCK PRICE
NUMBER OF OPTIONS APPRECIATION FOR
SECURITIES GRANTED TO 10-YEAR OPTION
UNDERLYING EMPLOYEES IN EXERCISE TERM($)(4)
OPTIONS FISCAL PRICE EXPIRATION --------------------
GRANTEE NAME GRANTED (#) YEAR(3) $/SH. DATE 5% 10%
- ------------------------------------------- ------------- ------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Roderick A. Young.......................... 50,000(1) 10.7 9.75 1/14/07 306,586 776,949
James E. Jervis............................ 15,000(2) 3.2 9.75 1/14/07 91,976 233,085
Gregory D. Casciaro........................ 30,000(2) 6.4 9.75 1/14/07 183,952 466,170
Stephen J. Bonelli......................... 20,000(2) 4.3 9.75 1/14/07 122,634 310,780
Ferolyn T. Powell.......................... 15,000(2) 3.2 9.75 1/14/07 91,976 233,085
</TABLE>
- ------------------------
(1) The shares subject to this option grant were fully exercisable on the grant
date.
(2) The shares subject to this option vest at the rate of 1/48th per month
beginning on the monthly anniversary of the vesting commencement date,
subject to optionee's continued employment with the Company. The exercise
price is equal to the fair market value of the stock on the grant date.
(3) Based on an aggregate of 469,500 stock options granted to employees during
fiscal 1997.
(4) These amounts represent certain assumed rates of appreciation for a given
exercise price only. Actual gains, if any, on stock option exercises and
Common Stock holdings are dependent on the future performance of the Common
Stock and overall market performance. There is no assurance that the amounts
reflected will be realized.
15
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information for the Named Executive Officers
with respect to exercises of options to purchase Common Stock of the Company
during the fiscal year ended June 30, 1997.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT JUNE 30, 1997 AT JUNE 30, 1997
ACQUIRED ON VALUE (#)(EXERCISABLE/ ($)(1)(EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE) UNEXERCISABLE)
- -------------------------------------------- ----------- ----------- ------------------- --------------------
<S> <C> <C> <C> <C>
Roderick A. Young........................... -- -- 44,100/115,717 162,105/295,622
James E. Jervis............................. -- -- 11,285/31,169 40,526/73,904
Gregory D. Casciaro......................... -- -- 34,008/78,354 139,141/229,147
StephenJ. Bonelli........................... 5,433 59,538 25,246/57,956 105,085/180,509
Ferolyn T. Powell........................... 24,016 263,832 8,431/44,325 34,884/156,862
</TABLE>
- ------------------------
(1) Based on the fair market value of GSI's Common Stock at the close of
business on June 30, 1997, which was $5.625 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 OF THE
COMPENSATION COMMITTEE AND THE PERFORMANCE GRAPH ON PAGE 19 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 Messrs. Wan and Goeld, both independent nonemployee directors who
are not eligible to participate in any of the executive compensation programs
other than the Directors' Plan and, if the amendments to the 1992 Plan described
under Proposal No. 2 are approved by the shareholders at this Annual Meeting,
the 1992 Plan. The Committee oversees the administration of the Company's
benefits and compensation plans, reviews corporate human resources program and
establishes policies governing the annual compensation of the executive officers
of the Company. The Compensation Committee also has the exclusive responsibility
for granting options under the 1992 Plan to executive officers and eligible
directors. The Compensation Committee will annually evaluate the performance and
determine compensation and long-term equity incentives of the Chief Executive
Officer (the "CEO"), and will review and approve the CEO's compensation
recommendation for other 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
1997.
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 and individual
performance, and stock option grants. All executive officers as well as
senior-level managerial and technical employees are eligible to participate in
these compensation plans.
16
<PAGE>
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 are drawn from comparable companies
participating in medical device, biotechnology, and/or pharmaceutical executive
compensation surveys, several of which are included in the peer group index in
the Company's Performance Graph at page 19. 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 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 dependent on a variety of factors,
including overall performance of the Company, performance of an executive's
division within the Company, attainment of additional corporate objectives and
individual attainment of performance goals, with individual payouts based on a
combination of these factors. 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
awards are made when the Company does not meet its corporate targets.
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 Plan. The Company's primary option grants to executive officers
as well as other employees 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 guidelines derived from information
related to executive stock compensation available to the Company and the
Committee. 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. Thus, the
Committee believes that the grant 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 program for its executive officers.
In addition to providing an opportunity for increased equity ownership,
stock options also create an incentive for executive 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.
17
<PAGE>
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to publicly-held companies for compensation exceeding
$1 million paid to certain of the corporation's executive officers. However,
compensation which qualifies as "performance-based" is excluded from the $1
million limit if, among other requirements, the compensation is payable upon
attainment of pre-established, objective performance goals under a plan approved
by the stockholders.
The compensation to be paid to the Company's executive officers for the 1997
fiscal year did not exceed the $1 million limit per officer, nor is it expected
that the compensation to be paid to the company's executive officers for fiscal
1998 will exceed that limit. Because 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 Plan will qualify as
performance-based compensation, the Committee believes that this section will
not affect the tax deductions available to the Company. Because it is very
unlikely that the cash compensation payable to any of the Company's executive
officers in the foreseeable future will approach the $1 million limit, the
Compensation Committee has decided at this time not to take any other action to
limit or restructure the elements of cash compensation payable to the Company's
executive officers. The Compensation Committee will continue to monitor the
compensation levels potentially payable under the Company's cash compensation
programs, but intends to retain the flexibility necessary to provide total cash
compensation in line with competitive practice, the Company's compensation
philosophy and the Company's best interests.
CHIEF EXECUTIVE OFFICER COMPENSATION
During fiscal 1997, the compensation of Roderick A. Young, the Chief
Executive Officer of the Company, consisted of base salary, which reflected a
11.8% increase from his fiscal 1996 base salary. Mr. Young did not participate
in any decisions related to his compensation. In addition, the Compensation
Committee granted him 50,000 fully vested options in January 1997.
SUBMITTED BY THE COMPENSATION
COMMITTEE OF THE BOARD OF DIRECTORS
Mr. Mark Wan
Mr. Paul Goeld
18
<PAGE>
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return,
assuming reinvestment of all dividends, for the Company's Common Stock during
the period May 10, 1996 (the date on which the Company's stock was first
registered under Section 12 of the Securities Exchange Act of 1934) through June
30, 1997 to the cumulative return over such period of (i) The Nasdaq National
Market (Composite)-- U.S. 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 offering price of the Company's
Common Stock 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 5/10/96)
Dollars 5/10/1996 6/28/1996 6/30/1997
General Surgical Innovations, Inc. $100.00 $101.67 $37.50
S&P Medical Products $100.00 $105.45 $138.00
Nasdaq Composite (US) $100.00 $98.56 $119.90
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Wan and Goeld served on the Company's Compensation Committee during
the 1997 fiscal year. Mr. Wan acted as the Company's Chief Financial Officer and
Assistant Secretary from June 1992 to January 1996.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company, its wholly-owned subsidiary Adjacent Surgical, Inc. and Dr.
Fogarty 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.
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The Company has retained Fogarty Engineering, a sole proprietorship owned by
Dr. Fogarty, for certain product development efforts. The Company paid Fogarty
Engineering approximately $188,000, in fiscal year 1997 relating to such
efforts.
The Company has loaned an aggregate of $141,000 to certain executive
officers and directors of the Company in connection with their purchase of
Common Stock pursuant to Common Stock Purchase Agreements, of which $87,000 in
principal was outstanding as of June 30, 1997.
The Company has entered into separate indemnification agreements with its
executive 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 pursuant to such agreements.
All future transactions, including any loans from the Company to its
executive 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, 1997. To the best of the Company's knowledge, all of
these filing requirements have been satisfied with the following exceptions:
Mr. Sulat, a director of the Company, filed a Form 3 late, and Mr. Goeld, a
director of the Company, filed one report of one transaction involving a
stock purchase late. In addition, Dr. Fogarty, a director of the Company,
filed an amended Form 4 to correct transactions misreported in April 1997.
As of the date of this Proxy Statement, each of the referenced transactions
has been reported with the SEC and Nasdaq. 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.
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
/s/ Tae Hea Nahm
Tae Hea Nahm, SECRETARY
Dated: October 15, 1997
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Appendix A
GENERAL SURGICAL INNOVATIONS, INC.
1992 STOCK OPTION PLAN
(AS AMENDED NOVEMBER 1997)
1. PURPOSES OF THE PLAN. The purposes of this Stock Option Plan are
to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to the Employees
and Consultants of the Company, and to promote the success of the Company's
business.
Options granted hereunder may be either Incentive Stock Options or
Nonstatutory Stock Options, at the discretion of the Administrator and as
reflected in the terms of the written option agreement.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" shall mean the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "APPLICABLE LAWS" shall have the meaning set forth in Section
4(a) below.
(c) "BOARD" shall mean the Board of Directors of the Company.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(e) "COMMON STOCK" shall mean the Common Stock of the Company.
(f) "COMMITTEE" shall mean the Committee appointed by the Board of
Directors in accordance with Section 4(a) below, if one is appointed.
(g) "COMPANY" shall mean GENERAL SURGICAL INNOVATIONS, INC., a
California corporation.
(h) "CONSULTANT" shall mean (i) any person who is engaged by the
Company or any subsidiary to render consulting services and is compensated
for such consulting services, and (ii) any director of the Company whether
compensated for such services or not.
(i) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" shall mean
the absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of sick leave, military leave, or any
other leave of absence approved by the Administrator; provided, however,
either that such leave must be for a period of not more than ninety (90) days
or that re-employment upon the expiration of such leave must be guaranteed by
contract or by statute, or is provided pursuant to Company policy adopted
from time to time. For purposes of this Plan, a change in
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status from an Employee to a Consultant or from a Consultant to an Employee
shall not constitute an interruption of Continuous Status as an Employee or
Consultant.
(j) "DIRECTOR" shall mean a member of the Board.
(k) "EMPLOYEE" shall mean any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the
Company. The payment of a director's fee by the Company to a Director shall
not be sufficient to constitute "employment" of the Director by the Company.
(l) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
(m) "FAIR MARKET VALUE" shall mean, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the
National Market of the National Association of Securities Dealers, Inc.
Automated Quotation ("Nasdaq") System, its Fair Market Value shall be the
closing sales price for such stock as quoted on such exchange or system on
the date of determination as such price is reported in THE WALL STREET
JOURNAL or such other source as the Administrator deems reliable; provided,
however, that if no sales were reported on the date of determination, the
closing bid on that day shall be used, and that if the date of determination
falls on weekends or holidays, its Fair Market Value shall be the closing
sales price for such stock as quoted on such exchange or system on the last
market trading day prior to the date of determination.
(ii) If the Common Stock is quoted on the Nasdaq System (but
not on the National Market thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the bid and asked prices for the Common Stock; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(n) "INCENTIVE STOCK OPTION" shall mean an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code, as designated in the applicable written option agreement.
(o) "NAMED EXECUTIVE" shall mean any individual who, on the last
day of the Company's fiscal year, is the chief executive officer of the
Company (or is acting in such capacity) or among the four highest compensated
officers of the Company (other than the chief executive officer). Such
officer status shall be determined pursuant to the executive compensation
disclosure rules under the Exchange Act.
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(p) "NONSTATUTORY STOCK OPTION" shall mean an Option not intended
to qualify as an Incentive Stock Option, as designated in the applicable
written option agreement.
(q) "OFFICER" shall mean a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(r) "OPTION" shall mean a stock option granted pursuant to the Plan.
(s) "OPTIONED STOCK" shall mean the Common Stock subject to an
Option.
(t) "OPTIONEE" shall mean an Employee or Consultant who receives
an Option.
(u) "PARENT" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code, or any
successor provision.
(v) "PLAN" shall mean this 1992 Stock Option Plan.
(w) "RULE 16b-3" shall mean Rule 16b-3 promulgated under the
Exchange Act as the same may be amended from time to time, or any successor
provision.
(x) "SHARE" shall mean a share of Common Stock, adjusted in
accordance with Section 12 below.
(y) "SUBSIDIARY" shall mean a "subsidiary corporation," whether
now or hereafter existing, as defined in Section 424(f) of the Code, or any
successor provision.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 13
below, the maximum aggregate number of shares that may be optioned and sold
under the Plan is 2,615,895 shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, then the unpurchased Shares that were
subject to the Option shall, unless the Plan has been terminated, become
available for future grant under the Plan. In addition, any Shares of Common
Stock which are retained by the Company upon exercise of an Option in order
to satisfy the exercise price for such Option or any withholding taxes due
with respect to such exercise, shall be treated as not issued and shall
continue to be available under the Plan.
Notwithstanding any other provision of the Plan, shares issued
under the Plan and later repurchased by the Company shall not become
available for future grant or sale under the Plan.
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4. ADMINISTRATION OF THE PLAN
(a) COMPOSITION OF ADMINISTRATOR.
(i) MULTIPLE ADMINISTRATIVE BODIES. If permitted by Rule
16b-3 promulgated under the Exchange Act or any successor rule thereto, as in
effect at the time that discretion is being exercised with respect to the
Plan ("Rule 16b-3"), and by the legal requirements relating to the
administration of incentive stock option plans, if any, of applicable
securities laws and the Code (collectively, the "Applicable Laws"), grants
under the Plan may (but need not) be made by different administrative bodies
with respect to Directors, Officers who are not Directors and Employees who
are neither Directors nor Officers.
(ii) ADMINISTRATION WITH RESPECT TO DIRECTORS AND OFFICERS.
With respect to grants of Options to Employees or Consultants who are also
Officers or Directors of the Company, grants under the Plan shall be made by
(A) the Board, if the Board may make grants under the Plan in compliance with
Rule 16b-3 and Section 162(m) of the Code as it applies so as to qualify
grants of Options to Named Executives as performance-based compensation, or
(B) a Committee designated by the Board to make grants under the Plan, which
Committee shall be constituted in such a manner as to permit grants under the
Plan to comply with Rule 16b-3, to qualify grants of Options to Named
Executives as performance-based compensation under Section 162(m) of the Code
and otherwise so as to satisfy the Applicable Laws.
(iii) ADMINISTRATION WITH RESPECT TO OTHER PERSONS. With
respect to grants of Options to Employees or Consultants who are neither
Directors nor Officers of the Company, the Plan shall be administered by (A)
the Board or (B) a Committee designated by the Board, which Committee shall
be constituted in such a manner as to satisfy the Applicable Laws.
(iv) GENERAL. If a Committee has been appointed pursuant to
subsection (ii) or (iii) of this Section 4(a), such Committee shall continue
to serve in its designated capacity until otherwise directed by the Board.
From time to time the Board may increase the size of any Committee and
appoint additional members thereof, remove members (with or without cause)
and appoint new members in substitution therefor, fill vacancies (however
caused) and remove all members of a Committee and thereafter directly
administer the Plan, all to the extent permitted by the Applicable Laws and,
in the case of a Committee appointed under subsection (ii), to the extent
permitted by Rule 16b-3 and to the extent required under Section 162(m) of
the Code to qualify grants of Options to Named Executives as
performance-based compensation.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
Plan and in the case of a Committee, the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common Stock,
in accordance with Section 2(m) of the Plan;
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(ii) to select the Employees and Consultants to whom Options
may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options are
granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder (including, but
not limited to, the share price and any restriction or limitation, or any
vesting acceleration or waiver of forfeiture restrictions regarding any
Option and/or the shares of Common Stock relating thereto, based in each case
on such factors as the Administrator shall determine, in its sole
discretion); and
(vii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option shall have declined since the date the Option was
granted.
(c) EFFECT OF ADMINISTRATOR'S DECISION. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options.
5. ELIGIBILITY.
(a) Options may be granted only to Employees and Consultants.
Incentive Stock Options may be granted only to Employees. An Employee or
Consultant who has been granted an Option may, if he or she is otherwise
eligible, be granted an additional Option or Options.
(b) Each Option shall be designated in the written option
agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designations, to the extent that the aggregate
Fair Market Value of Stock Options are exercisable for the first time by an
Optionee during any calendar year (under all plans of the Company or any
Parent or Subsidiary) exceeds $100,000, such excess Options shall be treated
as Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair
Market Value of the Shares shall be determined as of the time the Option with
respect to such Shares is granted.
(d) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in
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any way with his or her right or the Company's right to terminate his or her
employment or consulting relationship at any time, with or without cause.
6. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
Shareholders of the Company as described in Section 19 below. It shall
continue in effect for a term of ten (10) years unless sooner terminated
under Section 15 below.
7. TERM OF OPTION. The term of each option shall be the term stated
in the Option Agreement, PROVIDED, HOWEVER, that in the case of an Incentive
Stock Option, the term shall be no more than ten (10) years from the date of
grant thereof or such shorter term as may be provided in the Stock Option
Agreement. However, in the case of an Incentive Stock Option granted to an
Optionee who, at the time the Option is granted, owns stock representing more
than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the term of the Option shall be five (5)
years from the date of grant thereof or such shorter time as may be provided
in the Stock Option Agreement.
8. LIMITATION GRANTS TO EMPLOYEES. Subject to adjustment as provided
in this Plan, the maximum number of shares which may be subject to Options
granted to any one Employee under this Plan for any fiscal year of one
Company shall be 200,000.
9. EXERCISE PRICE AND CONSIDERATION
(a) EXERCISE PRICE. The per Share exercise price for the Shares
to be issued pursuant to exercise of an Option shall be such price as is
determined by the Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant
of such Incentive Stock Option, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be no less than one
hundred ten percent (110%) of the Fair Market Value per Share on the date of
grant.
(B) granted to any other Employee, the per Share
exercise price shall be no less than one hundred percent (100%) of the Fair
Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of the grant of
such Option, is a Named Executive of the Company, the per Share exercise
price shall be no less than one hundred percent (100%) of the Fair Market
Value on the date of grant.
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(B) granted to any person other than a Named Executive,
the per Share exercise price shall be no less than eighty-five percent (85%)
of the Fair Market Value per Share on the date of grant.
(b) PERMISSIBLE CONSIDERATION. The Administrator shall determine
the acceptable form of consideration for exercising an Option, including the
method of payment. In the case of an Incentive Stock Option, the
Administrator shall determine the acceptable form of consideration at the
time of grant. Such consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six
months on the date of surrender, and (B) have a Fair Market Value on the date
of surrender equal to the aggregate exercise price of the Shares as to which
said Option shall be exercised;
(v) delivery of a properly executed exercise notice together
with such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the exercise price;
(vi) any combination of the foregoing methods of payment; or
(vii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. EXERCISE OF OPTION
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable at such times and under such
conditions as determined by the Administrator, including performance criteria
with respect to the Company and/or the Optionee, and as shall be permissible
under the terms of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the terms
of the Option by the person entitled to exercise the Option and full payment
for the Shares with respect to which the Option is exercised has been
received by the Company. Full payment may, as authorized by the
Administrator, consist of any consideration and method of payment allowable
under Section 9(b) above. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such
Shares, no right to vote or receive dividends or any other rights as a
Shareholder shall exist with
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respect to the Optioned Stock, notwithstanding the exercise of the Option.
No adjustment shall be made for a dividend or other right for which the
record date is prior to the date the stock certificate is issued, except as
provided in Section 13 below.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for purposes
of the Plan and for sale under the Option, by the number of Shares as to
which the Option is exercised.
(b) TERMINATION OF STATUS AS AN EMPLOYEE OR CONSULTANT. In the
event of termination of an Optionee's Continuous Status as an Employee or
Consultant, he or she may, but only within thirty (30) days (or such other
period of time not exceeding three (3) months in the case of an Incentive
Stock Option or six (6) months in the case of a Nonstatutory Stock Option, as
is determined by the Administrator, with such determination in the case of an
Incentive Stock Option being made at the time of the grant of the Option)
after the date of such termination (but in no event later than the date of
expiration of the term of such Option as set forth in the Option Agreement),
exercise his or her Option to the extent that he or she was entitled to
exercise it at the date of such termination. To the extent that he or she
was not entitled to exercise the Option at the date of such termination, or
if he or she does not exercise such Option (which he or she was entitled to
exercise) within the time specified herein, the Option shall terminate.
(c) DISABILITY OF OPTIONEE. Notwithstanding the provisions of
Section 10(b) above, in the event of termination of an Optionee's Continuous
Status as an Employee or Consultant with the Company as a result of his or
her total and permanent disability (as defined in Section 22(e)(3) of the
Code), then he or she may, but only within six (6) months (or such other
period of time not exceeding twelve (12) months as is determined by the
Administrator, with such determination in the case of an Incentive Stock
Option being made at the time of the grant of the Option) from the date of
termination (but in no event later than the date of expiration of the term of
such Option as set forth in the Option Agreement), exercise his or her Option
to the extent he or she was entitled to exercise it at the date of
termination of employment or consulting. To the extent that he or she was not
entitled to exercise the Option at the date of termination, or if he or she
does not exercise such Option (which he or she was entitled to exercise)
within the time specified herein, the Option shall terminate.
(d) DEATH OF OPTIONEE. Notwithstanding the provisions of Section
10(b) above, in the event of the death of an Optionee:
(i) 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 of
the Option, the Option may be exercised, at any time within six (6) months
following the date of death (but in no event later than the date of
expiration of the term of such Option as set forth in the Option Agreement),
by the Optionee's estate or by a person who acquired the right to exercise
the Option by bequest or inheritance, but only to the extent of the right to
exercise that would have accrued had the Optionee continued
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living and remained in Continuous Status as an Employee or Consultant three
(3) months after the date of death; or
(ii) within one (1) month (or such other period of time not
exceeding three (3) months as is determined by the Administrator, with such
determination in the case of an Incentive Stock Option being made at the time
of grant of the Option) after the termination of Continuous Status as an
Employee or Consultant, the Option may be exercised, at any time within three
(3) months following the date of death (but in no event later than the date
of expiration of the term of such Option as set forth in the Option
Agreement), by the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the extent of the
right to exercise that had accrued at the date of termination.
(e) EXTENSION OF EXERCISE PERIOD. Notwithstanding the limitations
set forth in Sections 10(b), (c) and (d) above, the Administrator has full
power and authority to extend the period of time for which any Option granted
under the Plan is to remain exercisable following termination of an
Optionee's Continuous Status as an Employee or Consultant from the limited
period set forth in the written option agreement to such greater period of
time as the Administrator shall deem appropriate; provided, however, that in
no event shall such Option be exercisable after the specified expiration date
of the Option term.
(f) RULE 16B-3. Options granted to persons subject to Section
16(b) of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
11. STOCK WITHHOLDING TO SATISFY WITHHOLDING TAX OBLIGATIONS. At the
discretion of the Administrator, Optionees may satisfy withholding
obligations as provided in this paragraph. When an Optionee incurs tax
liability in connection with an Option, which tax liability is subject to tax
withholding under applicable tax laws, and the Optionee is obligated to pay
the Company an amount required to be withheld under applicable tax laws, the
Optionee may satisfy the withholding tax obligation by one or some
combination of the following methods: (a) by cash payment, or (b) out of
Optionee's current compensation, (c) if permitted by the Administrator, in
its discretion, by surrendering to the Company Shares that (i) in the case of
Shares previously acquired from the Company, have been owned by the Optionee
for more than six months on the date of surrender, and (ii) have a fair
market value on the date of surrender equal to or less than Optionee's
applicable withholding tax rate times the ordinary income recognized, or (d)
by electing to have the Company withhold from the Shares to be issued upon
exercise of the Option, if any, that number of Shares having a fair market
value equal to the amount required to be withheld. For this purpose, the fair
market value of the Shares to be withheld shall be determined on the date
that the amount of tax to be withheld is to be determined (the "Tax Date").
Any surrender by a Reporting Person of previously owned Shares to
satisfy tax withholding obligations arising upon exercise of this Option must
comply with the applicable provisions of Rule 16b-3 and shall be subject to
such additional conditions or restrictions as may
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be required thereunder to qualify for the maximum exemption from Section 16
of the Exchange Act with respect to Plan transactions.
All elections by an Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax
Date;
(b) once made, the election shall be irrevocable as to the
particular Shares of the Option as to which the election is made; and
(c) all elections shall be subject to the consent or disapproval
of the Administrator.
In the event the election to have Shares withheld is made by an
Optionee and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Optionee shall receive
the full number of Shares with respect to which the Option is exercised but
such Optionee shall be unconditionally obligated to tender back to the
Company the proper number of Shares on the Tax Date.
12. NON-TRANSFERABILITY OF OPTIONS. An Option may not be sold,
pledged, assigned, hypothecated, transferred or disposed of in any manner
other than by will or by the laws of descent or distribution. The
designation of a beneficiary by an Optionee does not constitute a transfer.
An Option may be exercised, during the lifetime of the Optionee, only by the
Optionee.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION CORPORATE TRANSACTIONS.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by
the Shareholders of the Company, the number of shares of Common Stock covered
by each outstanding Option, the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have
yet been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, the maximum number of Shares of Common Stock for
which Options may be granted to any Employee under Section 8 of the Plan, as
well as the price per share of Common Stock covered by each such outstanding
Option, shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of issued shares of
Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall
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be made by the Administrator, whose determination in that respect shall be
final, binding, and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares of Common Stock subject to an Option.
(b) CORPORATE TRANSACTIONS. In the event of the proposed
dissolution or liquidation of the Company, the Option will terminate
immediately prior to the consummation of such proposed action, unless
otherwise provided by the Administrator. The Administrator may, in the
exercise of its sole discretion in such instances, declare that any Option
shall terminate as of a date fixed by the Administrator and give each
Optionee the right to exercise his or her Option as to all or any part of the
Optioned Stock, including Shares as to which the Option would not otherwise
be exercisable. 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, the Option shall be assumed or an equivalent option
shall be substituted by such successor corporation or a parent or subsidiary
of such successor corporation, unless the Administrator determines, in lieu
of such assumption or substitution, that the Optionee shall have the right to
exercise the Option as to some or all of the Optioned Stock, including Shares
as to which the Option would not otherwise be exercisable. If the
Administrator makes an Option exercisable in lieu of assumption or
substitution in the event of a merger or sale of assets, the Administrator
shall notify the Optionee that the Option shall be exercisable for a period
of fifteen (15) days from the date of such notice, and the Option will
terminate upon the expiration of such period.
14. TIME OF GRANTING OPTIONS. The date of grant of an Option shall,
for all purposes, be the date on which the Administrator makes the
determination granting such Option or such other date as is determined by the
Administrator. Notice of the determination shall be given to each Employee or
Consultant to whom an Option is so granted within a reasonable time after the
date of such grant.
15. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may amend or terminate the
Plan from time to time in such respects as the Board may deem advisable;
provided, however, that the following revisions or amendments shall require
approval of the shareholders of the Company in the manner described in Section
19 of the Plan:
(i) any increase in the number of Shares subject to the
Plan, other than in connection with an adjustment under Section 13 above;
(ii) any change in the designation of the class of persons
eligible to be granted Options; or
(iii) any change in the limitation on grants to Employees as
described in Section 8 of the Plan or other changes which would require
shareholder approval to qualify Options granted hereunder as
performance-based compensation under Section 162(m).
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<PAGE>
(b) SHAREHOLDER APPROVAL. If any amendment requiring shareholder
approval under Section 15(a) above is made subsequent to the first
registration of any class of equity security by the Company under Section 12
of the Exchange Act, then such Shareholder approval shall be solicited as
described in Section 19 below.
(c) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee
and the Board, which agreement must be in writing and signed by the Optionee
and the Company.
16. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and
the issuance and delivery of such Shares pursuant thereto complies with all
relevant provisions of law, including, without limitation, the Securities Act
of 1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares
may then be listed. The exercise of such Option and the issuance and delivery
of such Shares pursuant thereto shall be further subject to the approval of
counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the
time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation
is required by any of the aforementioned relevant provisions of law.
17. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall
be sufficient to satisfy the requirements of the Plan. The inability of the
Company to obtain authority from any regulatory body having jurisdiction,
which authority is deemed by the Company's counsel to be necessary to the
lawful issuance and sale of any Shares hereunder, shall relieve the Company
of any liability in respect of the failure to issue or sell such Shares as to
which such requisite authority shall not have been obtained.
18. OPTION AGREEMENT. Options shall be evidenced by written option
agreements in such form as the Administrator shall approve.
19. SHAREHOLDER APPROVAL.
(a) Continuance of the Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months before or after the
date the Plan is adopted. Such
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<PAGE>
shareholder approval shall be obtained in the manner and to the degree
required under applicable federal and state law and the rules of any stock
exchange upon which the Shares are listed.
(b) If and in the event that the Company registers any class of
equity securities pursuant to Section 12 of the Exchange Act, any required
approval of the Shareholders of the Company obtained after such registration
shall be solicited substantially in accordance with Section 14(a) of the
Exchange Act and the rules and regulations promulgated thereunder.
(c) If any required approval by the Shareholders of the Plan
itself or of any amendment thereto is solicited at any time otherwise than in
the manner described in Section 19(b) hereof, then the Company shall, at or
prior to the first annual meeting of Shareholders held subsequent to the
later of (1) the first registration of any class of equity securities of the
Company under Section 12 of the Exchange Act or (2) the granting of an Option
hereunder to an officer or director after such registration, do the following:
(i) furnish in writing to the holders entitled to vote for
the Plan substantially the same information which would be required (if
proxies to be voted with respect to approval or disapproval of the Plan or
amendment were then being solicited) by the rules and regulations in effect
under Section 14(a) of the Exchange Act at the time such information is
furnished; and
(ii) file with, or mail for filing to, the Securities and
Exchange Commission four copies of the written information referred to in
subsection (i) hereof not later than the date on which such information is
first sent or given to Shareholders.
20. INFORMATION TO OPTIONEES. The Company shall provide to each
Optionee, not less frequently than annually, copies of annual financial
statements. The Company shall also provide such statements to each
individual who acquires Shares pursuant to the Plan while such individual
owns such Shares. The Company shall not be required to provide such
statements to key employees whose duties in connection with the Company
assure their access to equivalent information.
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<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
GENERAL SURGICAL INNOVATIONS, INC.
1997 ANNUAL MEETING OF SHAREHOLDERS
P R O X Y
The undersigned shareholder of GENERAL SURGICAL INNOVATIONS, INC., a
California corporation, hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders and Proxy Statement, each dated October 15, 1997, and
hereby appoints Roderick A. Young and Stephen J. Bonelli, and each of them,
with full power to each of substitution, as proxies and attorneys-in-fact, on
behalf and in the name of the undersigned, to represent the undersigned at
the Annual Meeting of Shareholders of General Surgical Innovations, Inc. to
be held on November 10, 1997 at 10:00 a.m. local time, at 10460 Bubb Road,
Cupertino, CA 95014, and at any adjournment or postponement thereof, and
authorizes them to represent and to vote, as designated below, all shares of
Common Stock of GENERAL SURGICAL INNOVATIONS, INC. that the undersigned would
be entitled to vote if then and there personally present, at the Annual
Meeting of its shareholders to be held on November 10, 1997 and at any
adjournment or postponement thereof, as follows:
This Proxy will be voted as directed or, if no contrary direction is
indicated, will be voted as follows:(1) FOR the Election of Directors in the
manner described in the Proxy Statement, (2) FOR the proposal to approve an
amendment to the 1992 Stock Option Plan, among other things, to increase the
number of shares of Common Stock reserved for issuance thereunder by 500,000
shares, and (3) FOR the proposal to ratify the selection of Coopers & Lybrand
LLP as the Company's independent accountants for the fiscal year ending
June 30, 1998.
/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 shareholder(s). The Board of Directors unanimously
recommends a vote FOR all nominees for directors and proposals 2 and 3
1. Election of Directors
Nominees: Class I: Gregory D. Casciaro, Thomas J.
Fogarty and Roderick A. Young // FOR // WITHHELD
Class II: David W. Chonette, Paul Goeld,
Mark A. Wan and James Sulat // FOR // WITHHELD
For all nominees except as noted: __________________________________________
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE SIDE
<PAGE>
2. To approve amendments to the 1992 Stock Option Plan, among other things, to
increase the number of shares of Common Stock reserved for issuance
thereunder by 500,000 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, 1998.
// 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 hereof.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD USING THE ENCLOSED
ENVELOPE. Please sign exactly as name appears hereon. Where 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.
__________________________________
(PLEASE PRINT YOUR NAME)
__________________________________
(SIGNATURE OF SHAREHOLDER)
__________________________________
(DATE)
__________________________________
(PLEASE PRINT YOUR NAME)
__________________________________
(SIGNATURE OF SHAREHOLDER)
__________________________________
(DATE)
