<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _________
COMMISSION FILE NUMBER: 0-28448
GENERAL SURGICAL INNOVATIONS, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-3160456
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
10460 BUBB ROAD
CUPERTINO, CALIFORNIA 95014
(Address of principal executive offices, including zip code)
http://www.gsii.com
(Web site address)
Registrant's telephone number, including area code: (408) 863-2500
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
PREFERRED SHARE PURCHASE RIGHTS
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period than the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant was approximately $42,842,250 as of October 1, 1999 based upon
the closing sale price on the Nasdaq National Market reported for such date.
Shares of Common Stock held by each officer and director and by each person who
owns 5% of more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
There were 13,848,620 shares of the registrant's Common Stock issued
and outstanding as of October 1, 1999.
<PAGE>
GENERAL SURGICAL INNOVATIONS, INC.
<TABLE>
<CAPTION>
PART III
<S> <C>
Item 10. Directors and Executive Officers of the Registrant......................................Page 1
Item 11. Executive Compensation..................................................................Page 5
Item 12. Security Ownership of Certain Beneficial Owners and Management..........................Page 12
Item 13. Certain Relationships and Related Transactions..........................................Page 14
Signatures.........................................................................................Page 16
</TABLE>
<PAGE>
The Registrant hereby amends the following items of Part III of its Form 10-K
for the fiscal year ended June 30, 1999 ("Fiscal 1999") filed with the
Securities and Exchange Commission on September 16, 1999:
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
IDENTIFICATION OF DIRECTORS
The directors of the Company and their ages as of October 1, 1999 are
as follows:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION SINCE CLASS
---- --- -------------------- --------- -----
<S> <C> <C> <C> <C>
Gregory D. Casciaro 42 President, Chief Executive Officer and 1997 I
Director of the Company
David W. Chonette 64 General Partner of 1993 II
Brentwood Venture Capital
Thomas J. Fogarty 65 Professor of Surgery at 1992 I
Stanford University
Paul Goeld 47 President and Chief Executive Officer 1995 II
of Adiana, Inc.
James R. Sulat 49 Chief Financial Officer of Chiron 1997 II
Corporation
Mark A. Wan 34 General Partner of 1992 II
Three Arch Partners
Roderick A. Young 55 President and Chief Executive Officer 1993 I
of Targesome, Inc. and Chairman of the
Board of Directors of the Company
</TABLE>
- -------------------
(1)Mr. Casciaro has been an officer of the Company since 1995.
Except as set forth below, each director has been engaged in his
principal occupation described above during the past five years. There are no
family relationships 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,
President, Chief Operating Officer and a director of the Company in August 1997
and has served as President, Chief Executive Officer and a director of the
Company since April 1998. 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.
<PAGE>
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 several private health care companies. Mr. Chonette received his
B.S. degree in general engineering 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 sine 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 and Chief Executive Officer of Adiana,
Inc., a medical device company, since December 1998. Mr. Goeld served as
President, Chief Executive Officer and a director of LocalMed, Inc., a
medical device company, from January 1994 to December 1998. 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 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 became Chief Financial Officer of Chiron Corporation, a manufacturer
and marketer of healthcare products for the treatment, prevention and diagnosis
of disease, in April 1998. Prior to joining Chiron, Mr. Sulat was Chief
Financial Officer of Stanford Health Services, a not-for-profit health care
provider that operates the Stanford University hospital and clinic, from 1993 to
March 1998. Mr. Sulat also serves on the Board of Directors of Vans, Inc., and
several other privately held companies. Mr. Sulat received a B.S. from Yale
University and an M.B.A. from Stanford University.
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, sine 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, and has
served as Chairman of the Board of Directors since August 1997. Mr. Young has
served as President and Chief Executive Officer of Targesome, Inc., a
biopharmaceutical company, since February 1999. Prior to joining Targesome,
Mr. Young served as Chief Executive Officer of the Company from March 1994 to
April 1998. Mr. Young also served as President of the Company from August
1993 to August 1997 and Chief Executive Officer from March 1994 to April
1998. 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 product 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
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<PAGE>
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.
IDENTIFICATION OF OFFICERS
The executive officers of the Company and their ages as of October 1,
1999 are as follows:
<TABLE>
<CAPTION>
OFFICER
NAME AGE PRINCIPAL OCCUPATION SINCE
---- --- -------------------- -------
<S> <C> <C> <C>
James E. Jervis 63 Vice President of Research and 1994
Development of the Company
Stephen J. Bonelli 37 Chief Financial Officer, Vice 1994
President of Finance and
Administration and Treasurer of the
Company
Ferolyn T. Powell 37 Vice President of Operations of 1996
the Company
</TABLE>
Except as set forth below, each officer has been engaged in his or her
principal occupation described above during the past five years. There are no
family relationships between any of the directors or executive officers of the
Company.
JAMES E. JERVIS joined GSI in March 1994, and serves as Vice President
of Research and Development. Prior to joining GSI, Mr. Jervis had 30 years of
engineering design, development and operations experience at Raychem Corporation
("Raychem"). At Raychem, Mr. Jervis held various executive positions, including
Director of New Business Development, General Manager - Medical Products Group
and Operations Manager. Mr. Jervis holds 19 patents and is named as inventor in
over 50 other patents. Mr. Jervis holds a B.S. in Mechanical Engineering and an
M.B.A. from Stanford University.
STEPHEN J. BONELLI joined GSI in September 1994, and serves as Chief
Financial Officer, Vice President of Finance and Administration and Treasurer.
Prior to joining GSI, Mr. Bonelli held financial management positions at
Coactive Computing Corporation, a computer networking company, from November
1993 to August 1994, and Ready Systems Corporation, a software company, from May
1990 to October 1993. Previous to those positions, Mr. Bonelli held a management
position with Ernst & Young. Mr. Bonelli received a B.S. in Business
Administration from California Polytechnic State University, San Luis Obispo.
Mr. Bonelli is a Certified Public Accountant.
FEROLYN T. POWELL joined GSI in October 1995, and has served as Vice
President of Operations since November 1996. Prior to joining GSI, Ms. Powell
served as Director of Research and Development at Adjacent Surgical, Inc. from
June 1995 to October 1995, and as Senior Engineer, Project Manager and Director
at Devices for Vascular Interventions, Inc. from September 1992 to June 1995.
Previous to those positions, Ms. Powell held technical management positions at
Frantz Medical Development Ltd. and Life Systems, Inc. Ms. Powell received her
M.S. degree in Engineering from the University of Akron and her B.S. degree in
Chemical Engineering from Cleveland State University.
-3-
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's directors and executive officers, and persons who
own more than ten percent of a registered class of the Company's equity
securities to file with the Securities and Exchange Commission (the "SEC")
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Officers, directors and holders of
more than ten percent of the Company's Common Stock are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file.
To the Company's knowledge, based solely upon review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended June 30, 1999 all Section
16(a) filing requirements applicable to the Company's officers, directors and
holders of more than ten percent of the Company's Common Stock were complied
with.
-4-
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
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 who earned in excess of $100,000
serving at the end of the fiscal year ended June 30, 1999 (the "Named Executive
Officers") for the Company's last three completed fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES
------------------- BONUS AND UNDERLYING ALL
NAME AND PRINCIPAL POSITION YEAR (1) SALARY ($) COMMISSION ($) OPTIONS (#) OTHER ($)(2)
- --------------------------- -------- ------------ -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Gregory D. Casciaro................ 1999 224,000 10,000 320,000 190,000 (3)
President and Chief 1998 162,500 40,000 225,000 22,500 (3)
Executive Officer 1997 140,000 40,000 30,000 22,500 (3)
James E. Jervis..................... 1999 166,000 - 105,000 -
Vice President of 1998 154,257 8,168 60,000 -
Research and Development 1997 141,066 - 15,000 -
Stephen J. Bonelli.................. 1999 143,000 - 110,000 -
Chief Financial Officer, Vice 1998 131,250 8,638 60,000 -
President of Finance and 1997 118,750 - 20,000 -
Administration and Treasurer
Ferolyn T. Powell................... 1999 143,000 - 105,000 -
Vice President of Operations 1998 126,250 8,745 60,000 -
1997 111,250 - 15,000 -
</TABLE>
- -------------------
(1) This table does not reflect options granted subsequent to the close of
fiscal 1999, which may represent grants partially in recognition of
fiscal 1999 performance.
(2) The value of perquisites or personal benefits is not included in the
amounts disclosed if, in the aggregate for any named individual, they
did not exceed the lesser of either $50,000 or ten percent of total
salary and bonus reported for such individual in the Summary
Compensation Table.
(3) Stated amounts represent payments for mortgage assistance and
relocation paid for or reimbursed by the Company with respect to Mr.
Casciaro.
-5-
<PAGE>
STOCK OPTION GRANTS IN FISCAL YEAR 1999
The following table sets forth information for the Named Executive
Officers with respect to grants of options to purchase Common Stock of the
Company made during the fiscal year ended June 30, 1999.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------- ---------------------------
% POTENTIAL REALIZABLE
NUMBER OF OF TOTAL OPTIONS VALUE AT ASSUMED
SECURITIES GRANTED ANNUAL RATES OF STOCK
UNDERLYING TO EMPLOYEES EXERCISE PRICE APPRECIATION FOR
OPTIONS IN FISCAL PRICE EXPIRATION 10-YEAR OPTION TERM($)(4)
NAME GRANTED (#) YEAR(3) ($/SH) DATE 5% 10%
- ------------------------------------------------ ----------- ------------ ---------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Gregory D. Casciaro............... 30,000 (1) 1.80% $1.5625 01/14/07 $25,843 $63,653
30,000 (1) 1.80% $1.5625 09/30/07 $25,843 $63,653
170,000 (1) 10.22% $1.5625 04/06/08 $167,049 $423,338
25,000 (1) 1.50% $1.5625 04/06/08 $24,565 $62,253
65,000 (2) 3.91% $3.8750 04/12/09 $158,400 $401,421
James E. Jervis................... 15,000 (1) 0.90% $1.5625 01/14/07 $12,921 $31,826
30,000 (1) 1.80% $1.5625 09/30/07 $25,843 $63,653
30,000 (1) 1.80% $1.5625 01/20/08 $29,479 $74,706
30,000 (2) 1.80% $3.8750 04/12/09 $73,108 $185,272
Stephen J. Bonelli................ 20,000 (1) 1.20% $1.5625 01/14/07 $17,228 $42,435
30,000 (1) 1.80% $1.5625 09/30/07 $25,843 $63,653
30,000 (1) 1.80% $1.5625 01/20/08 $29,479 $74,706
30,000 (2) 1.80% $3.8750 04/12/09 $73,107 $185,272
Ferolyn T. Powell................. 15,000 (1) 0.90% $1.5625 01/14/07 $12,921 $31,826
30,000 (1) 1.80% $1.5625 09/30/07 $25,843 $63,653
30,000 (1) 1.80% $1.5625 01/20/08 $29,479 $74,706
30,000 (2) 1.80% $3.8750 04/12/09 $73,108 $185,272
</TABLE>
- -------------------
(1) The Company implemented a stock option exchange program effective October
6, 1998, pursuant to which all holders of options issued under the 1992
Plan had the option to surrender for cancellation all options granted
after May 10, 1996 (the date of the Company's initial public offering)
with a price above $1.5625, the fair market value on the effective date.
The Company cancelled 1,127,876 options, ranging in price from $2.00 to
$9.75, and issued the same number of new options for an exercise price
of $1.5625. The new options were subject to a nine-month restriction on
exercise (until July 6, 1999), subject to certain exceptions. All
executive officers of the Company were eligible to participate in the
option exchange program.
(2) The shares subject to this option vest at the rate of 1/48th per month
beginning on the monthly anniversary of the vesting commencement date,
subject to optionee's continued employment with the Company. The exercise
price is equal to the fair market value of the stock on the grant date.
(3) Based on an aggregate of 1,663,626 stock options granted to employees
during fiscal 1999.
(4) These amounts represent certain assumed rates of appreciation for a given
exercise price only. Actual gains, if any, on stock option exercises and
Common Stock holdings are dependent on the future performance of the
Common Stock and overall market performance. There is no assurance that
the amounts reflected will be realized.
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<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information for the Named Executive Officers
with respect to exercises in the fiscal year ended June 30, 1999 of options to
purchase Common Stock of the Company.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES JUNE 30, 1999 (#) JUNE 30, 1999 ($)(1)
ACQUIRED ON VALUE --------------------------- --------------------------
NAME EXERCISE (#) REALIZED ($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gregory D. Casciaro.... -- -- 87,895 314,467 $265,974 $723,903
James E. Jervis........ -- -- 24,698 107,756 $67,507 $230,265
Stephen J. Bonelli..... -- -- 57,299 115,903 $181,725 $254,044
Ferolyn T. Powell...... 4,000 $11,940 35,005 103,751 $127,675 $218,829
</TABLE>
- -------------------
(1) Calculated by determining the difference between the closing sale price
on the Nasdaq National Market of the Company's Common Stock reported for
June 30, 1999 ($4.3125 per share) and the exercise price of the
securities underlying the options.
(2) Calculated by determining the difference between the fair market value of
the Company's Common Stock as of the date of exercise and the exercise
price of the securities underlying the exercised options.
10-YEAR OPTION REPRICINGS
The following table sets forth information for all executive
officers with respect to the repricing of options held by such executive
officers during the Company's last ten fiscal years.
<TABLE>
<CAPTION>
NUMBER OF MARKET LENGTH OF
SECURITIES PRICE OF EXERCISE ORIGINAL
UNDERLYING STOCK AT PRICE AT NEW OPTION TERM
OPTIONS TIME OF TIME OF EXERCISE REMAINING AT
REPRICED REPRICING REPRICING PRICE DATE OF
NAME DATE (#) ($) ($) ($) REPRICING
- ---- ---- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Gregory D. Casciaro, 10/06/98 30,000 $1.5625 $9.75 $1.5625 8 yr. 3 mo.
President and Chief 10/06/98 30,000 $1.5625 $4.125 $1.5625 8 yr. 11 mo.
Executive Officer 10/06/98 170,000 $1.5625 $4.00 $1.5625 9 yr. 6 mo.
10/06/98 25,000 $1.5625 $4.00 $1.5625 9 yr. 6 mo.
James E. Jervis,
Vice President of 10/06/98 15,000 $1.5625 $9.75 $1.5625 8 yr. 3 mo.
Research and Development 10/06/98 30,000 $1.5625 $4.125 $1.5625 8 yr. 11 mo.
10/06/98 30,000 $1.5625 $5.1875 $1.5625 9 yr. 3 mo.
Stephen J. Bonelli,
Chief Financial Officer, 10/06/98 20,000 $1.5625 $9.75 $1.5625 8 yr. 3 mo.
Vice President of Finance 10/06/98 30,000 $1.5625 $4.125 $1.5625 8 yr. 11 mo.
and Administration and 10/06/98 30,000 $1.5625 $5.1875 $1.5625 9 yr. 3 mo.
Treasurer
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<PAGE>
Ferolyn T. Powell,
Vice President of 10/06/98 15,000 $1.5625 $9.75 $1.5625 8 yr. 3 mo.
Operations 10/06/98 30,000 $1.5625 $4.125 $1.5625 8 yr. 11 mo.
10/06/98 30,000 $1.5625 $5.1875 $1.5625 9 yr. 3 mo.
</TABLE>
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 FORM 10-K/A, IN WHOLE OR IN PART, THE FOLLOWING REPORT
OF THE COMPENSATION COMMITTEE AND THE PERFORMANCE GRAPH ON PAGE 11 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 the 1992 Plan. The Committee
oversees the administration of the Company's benefits and compensation plans,
reviews the 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, and
will review and approve the Chief Executive Officer'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 1999.
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.
SALARY
The Compensation Committee evaluates the performance and sets the
salary of the Company's Chief Executive Officer, Gregory D. Casciaro, on an
annual basis. Mr. Casciaro 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 11. 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.
-8-
<PAGE>
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 its 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 Company implemented a stock option exchange program effective
October 6, 1998, pursuant to which all holders of options issued under the 1992
Plan had the option to surrender for the cancellation of all options granted
after May 10, 1996 (the date of the Company's initial public offering) with a
price above $1.5625, the fair market value on the effective date. The Company
cancelled a total of 1,127,876 options, ranging in price from $2.00 to $9.75,
and issued the same number of new options for an exercise price of $1.5625.
The new options were subject to a nine-month restriction on exercise, which
ended on July 6, 1999, subject to certain exceptions. All executive officers
were eligible to participate in the option exchange program.
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, exemplary performance achievements, or other
reasons consistent with the compensation policy of the Company.
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.
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<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 shareholders.
The compensation to be paid to the Company's executive officers for the
1999 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 2000 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
Gregory D. Casciaro serves as Chief Executive Officer, President and
a director of the Company. Mr. Casciaro's compensation for the fiscal year
1999 consisted of base salary, a bonus, mortgage assistance and option grants
exercisable for the purchase of an aggregate of 65,000 shares of the
Company's Common Stock. In addition, Mr. Casciaro participated in the
Company's stock option exchange program. Mr. Casciaro did not participate in
any decision related to his compensation.
SUBMITTED BY THE COMPENSATION
COMMITTEE OF THE BOARD OF DIRECTORS
Mr. Mark A. Wan
Mr. Paul Goeld
-10-
<PAGE>
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder returns
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, 1999 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 37 MONTH CUMULATIVE TOTAL RETURN(1)
AMONG GENERAL SURGICAL INNOVATIONS, INC.,
THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE S & P HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) INDEX
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
------------------------------------------------------------
5/10/96 6/96 6/97 6/98 6/99
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GENERAL SURGICAL INNOVATIONS, INC. 100 102 38 28 29
NASDAQ STOCK MARKET (U.S.) 100 100 121 160 229
S & P HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) 100 103 136 182 216
</TABLE>
- -----------------------
(1) $100 invested on 5/10/96 in stock or on 4/30/96 in index - including
reinvestment of dividends. Fiscal year ending June 30.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Wan and Goeld served on the Company's Compensation Committee
during the 1999 fiscal year. Mr. Wan acted as the Company's Chief Financial
Officer and Assistant Secretary from June 1992 to January 1996.
-11-
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of GSI common
stock as of August 31, 1999 as to (i) each person who is known to GSI to
beneficially own more than five percent of GSI common stock, (ii) each of GSI's
directors, (iii) each of the Named Executive Officers, and (iv) all directors
and Executive Officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED (1)
----------------------------------------------------
5% SHAREHOLDERS, DIRECTORS, NAMED EXECUTIVE OFFICERS, PERCENT OF COMMON
AND DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP NUMBER STOCK OUTSTANDING
- ----------------------------------------------- --------------- -------------------
<S> <C> <C>
Thomas J. Fogarty, M.D.(2)..................................... 1,901,710 13.7%
3270 Alpine Road
Portola Valley, CA 94028
Brentwood Associates V, L.P. .................................. 1,428,359 10.3%
1920 Main Street, Suite 820
Irvine, CA 92714
Norwest Equity Partners, IV.................................... 921,505 6.7%
3000 Sand Hill Road
Building 3, Suite 245
Menlo Park, CA 94025
Hancock Venture Partners, IV................................... 799,640 5.8%
One Financial Center, 44th Floor
Boston, MA 02111
Mark A. Wan(3)(4) ............................................. 626,903 4.5%
10460 Bubb Road
Cupertino, CA 95014
Roderick A. Young(5) .......................................... 276,822 2.0%
10460 Bubb Road
Cupertino, CA 95014
James E. Jervis(6) ............................................ 142,128 1.0%
10460 Bubb Road
Cupertino, CA 95014
Paul Goeld(7) ................................................. 42,023 *
10460 Bubb Road
Cupertino, CA 95014
David W. Chonette(8) .......................................... 1,455,813 10.5%
10460 Bubb Road
Cupertino, CA 95014
James R. Sulat(9) ............................................. 16,727 *
10460 Bubb Road
Cupertino, CA 95014
Gregory Casciaro(10) .......................................... 271,096 2.0%
10460 Bubb Road
Cupertino, Ca 95014
Stephen Bonelli(11) ........................................... 138,645 1.0%
10460 Bubb Road
Cupertino, CA 95014
Ferolyn Powell(12) ............................................ 87,439 *
10460 Bubb Road
Cupertino, CA 95014
All directors and executive officers as a group (10 persons)
(2)(3)(4)(5)(6)(7)(8)(9)(10)(11)(12)(13) ...................... 4,959,306 34.6%
</TABLE>
-12-
<PAGE>
- --------------------
* Less than 1%. As of August 31, 1999, 13,847,025 shares of GSI common
stock were issued and outstanding.
(1) Except as otherwise indicated in the footnotes to this table and pursuant
to applicable community property laws, the persons named in the table
have sole voting and investment power with respect to all shares of GSI
common stock.
(2) Includes 522,586 shares held by the Thomas J. Fogarty Separate Property
Trust, 1,001,772 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. Mr. 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.
Includes 27,454 shares issuable upon exercise of options exercisable
within 60 days after August 31, 1999.
(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 124,007 shares issuable upon exercise of options exercisable
within 60 days after August 31, 1999.
(6) Includes 67,921 shares issuable upon exercise of options exercisable
within 60 days after August 31, 1999.
(7) Includes 27,023 shares issuable upon exercise of options exercisable
within 60 days after August 31, 1999.
(8) Includes 1,428,359 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 27,454 shares
issuable upon exercise of options exercisable within 60 days after August
31, 1999.
(9) Includes 13,727 shares issuable upon exercise of options exercisable
within 60 days after August 31, 1999.
(10) Includes 78,220 shares issuable upon exercise of options exercisable
within 60 days after August 31, 1999.
(11) Includes 84,800 shares issuable upon exercise of options exercisable
within 60 days after August 31, 1999.
(12) Includes 41,184 shares issuable upon exercise of options exercisable
within 60 days after August 31, 1999.
(13) Includes 491,790 shares issuable upon exercise of options exercisable
within 60 days after August 31, 1999.
-13-
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company, its former 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.
The Company has retained Fogarty Engineering, a sole proprietorship
owned by Dr. Fogarty, for certain product development efforts, royalties and
other services. The Company paid Fogarty Engineering approximately $88,000, in
fiscal year 1999 relating to such product development efforts, royalties and
other services.
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
approximately $85,000 in principal was outstanding as of June 30, 1999.
The Company loaned Gregory D. Casciaro approximately $300,000 on
September 3, 1998. In addition, the Board of Directors approved a bonus
agreement for Mr. Casciaro, the terms of which entitle Mr. Casciaro to receive a
lump sum bonus in the amount of approximately $68,750 on or about September 3,
1998 and a monthly bonus thereafter in the amount of approximately $4,167 on the
first day of each calendar month until and including approximately April 1,
2003, and an additional amount to cover certain taxes and interest in connection
therewith, provided Mr. Casciaro remains Chief Executive Officer of the Company.
In the event that Mr. Casciaro is terminated without cause or if the Company is
acquired, then the Company shall pay to Mr. Casciaro a bonus equal to the total
amount of payments he would have otherwise received under the Bonus Agreement.
Mr. Casciaro is President and Chief Executive Officer of the Company.
In January 1998 the Company entered into Change of Control Agreements
with each of Gregory D. Casciaro, Roderick A. Young, Stephen J. Bonelli, James
E. Jervis and Ferolyn T. Powell. Pursuant to the terms of such Change of Control
Agreements, upon a change of control of the Company (as defined in the
agreement) fifty percent (50%) of the total outstanding and unvested options of
each executive officer will immediately vest, and the vesting of the remaining
fifty percent (50%) of the outstanding unvested options will be accelerated and
will vest in an amount equal to twenty five percent (25%) of the total
outstanding unvested options on the date twelve (12) months from the date of the
change of control and in an amount equal to twenty-five (25%) of the total
outstanding unvested options on the date eighteen (18) months from the date of
the change of control. In addition, in the event that an executive officer is
terminated involuntarily (provided such termination is not for cause) within two
years of the date of the change of control, such executive officer shall be
entitled to certain severance payments, bonus payments, continuation of benefits
and acceleration of options that remain unvested.
The Company entered into a Consulting Agreement with Roderick A.
Young effective as of September 29, 1998. Pursuant to the terms of the
Consulting Agreement, Mr. Young received a monthly fee for consulting
services, and his options continued to vest according to the vesting schedule
established for such options. The Consulting Agreement terminated on March
31, 1999. Mr. Young is currently Chairman of the Board of Directors.
The Company implemented a stock option exchange program which was
effective as of October 6, 1998, pursuant to which all holders of options
issued under the 1992 Plan were eligible to surrender for cancellation all
options granted after May 10, 1996 (the date of the Company's initial public
offering) with a price above $1.5625, the closing price as reported on the
Nasdaq National Market of the Company's
-14-
<PAGE>
Common Stock on October 6, 1998. New options were issued to each holder
surrendering options, in the same amount as the number of options cancelled, for
an exercise price equal to $1.5625. In addition, the new options were subject to
a nine-month restriction on exercise (until July 6, 1999), subject to certain
exceptions. All executive officers of the Company were eligible to participate
in the option exchange program.
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 services 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.
-15-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GENERAL SURGICAL INNOVATIONS, INC.
By: /s/ Gregory D. Casciaro
-------------------------------------
Gregory D. Casciaro
President, Chief Executive Officer
and Director
Date: October 28, 1999
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature
appears below constitutes and appoints Gregory D. Casciaro and Stephen J.
Bonelli his attorneys-in-fact, each with the power of substitution, for him in
any and all capacities, to sign any amendments to this Report on Form 10-K, and
to file the same, with exhibits thereto and other documents in connection
therewith with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Roderick A. Young Chairman of the Board of Directors October 28, 1999
- -----------------------------
Roderick A. Young
/s/ Gregory D. Casciaro President, Chief Executive Officer and October 28, 1999
- ------------------------------ Director
Gregory D. Casciaro
/s/ Stephen J. Bonelli Chief Financial Officer, Vice President October 28, 1999
- ------------------------------ of Finance and Administration and
Stephen J. Bonelli Treasurer
/s/ David W. Chonette Director October 28, 1999
- ------------------------------
David W. Chonette
/s/ Thomas J. Fogarty Director October 28, 1999
- ------------------------------
Thomas J. Fogarty
/s/ Paul Goeld Director October 28, 1999
- ------------------------------
Paul Goeld
/s/ James Sulat Director October 28, 1999
- ------------------------------
James Sulat
/s/ Mark A. Wan Director October 28, 1999
- ------------------------------
Mark A. Wan
</TABLE>
-16-
