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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
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
/X/ Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CONCEPTUS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
CONCEPTUS, INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(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 transactions 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:
-----------------------------------------------------------------------
/ / 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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CONCEPTUS, INC.
---------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 13, 1997
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
CONCEPTUS, INC., a Delaware corporation (the "Company"), will be held on May 13,
1997 at 11:00 a.m., local time, at Hotel Sofitel, 223 Twin Dolphin Drive,
Redwood City, California 94065, 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 the amendments to the Company's 1993 Stock Plan to
increase the number of shares of Common Stock reserved for issuance
thereunder by 1,000,000 shares to an aggregate of 2,575,000 shares and to
implement certain other changes resulting from applicable law.
3. To ratify the appointment of Ernst & Young LLP as independent auditors
of the Company for the fiscal year ending December 31, 1997.
4. To transact such other business as may properly come before the meeting
or any postponement or adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on March 26, 1997 are
entitled to notice of and to vote at the Annual Meeting and any adjournments
thereof.
All stockholders 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 stockholder attending
the meeting may vote in person even if he or she returned a proxy.
Very truly yours,
Michael W. Hall
SECRETARY
San Carlos, California
April 4, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND RETURN THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE. IF A QUORUM IS NOT REACHED, THE COMPANY WILL HAVE THE ADDED
EXPENSE OF RE-ISSUING THESE PROXY MATERIALS. IF YOU ATTEND THE MEETING AND
SO DESIRE, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON.
THANK YOU FOR ACTING PROMPTLY.
<PAGE>
CONCEPTUS, INC.
---------------
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
Conceptus, Inc. (the "Company"), for use at the Annual Meeting of Stockholders
to be held on May 13, 1997, at 11:00 a.m., local time, or at any postponement or
adjournment(s) thereof, for the purposes set forth herein and in an accompanying
Notice of Annual Meeting of Stockholders. The Annual Meeting will be held at
Hotel Sofitel, 223 Twin Dolphin Drive, Redwood City, California 94065. The
Company's telephone number at its principal executive offices in San Carlos,
California is (415) 802-7240.
These proxy solicitation materials were mailed to stockholders on or about
April 4, 1997. The cost of soliciting these proxies will be borne by the
Company.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use either (i) by delivering to the Company
(Attention: Sanford Fitch) a written notice of revocation or a duly executed
proxy bearing a later date or (ii) by attending the Annual Meeting of
Stockholders and voting in person.
VOTING AND SOLICITATION
Holders of shares of Common Stock are entitled to one vote per share on all
matters. Votes cast by proxy or in person at the Annual Meeting will be
tabulated by the Inspector of Elections (the "Inspector") with the assistance of
the Company's transfer agent. The Inspector will also determine whether or not a
quorum is present. Except in certain other specific circumstances, the
affirmative vote of a majority of shares present in person or represented by
proxy at a duly held meeting at which a quorum is present is required under
Delaware law for approval of proposals presented to stockholders. In general,
Delaware 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 stockholders
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 increase in the number of shares of Common Stock reserved for
issuance under the 1993 Stock Plan (the "Stock Plan"), for ratification of the
appointment of the designated independent auditors and as the proxy holders deem
advisable on other matters that may come before the meeting, as the case may be
with respect to the item not marked. If a broker indicates on the enclosed proxy
or its substitute that it does not have discretionary authority as to certain
shares to vote on a particular matter ("broker nonvotes"), 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 Delaware concerning voting of shares and
determination of a quorum.
The cost of soliciting proxies will be borne by the Company. In addition,
the Company may reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding solicitation
material to such beneficial owners. Proxies may also be solicited by certain of
the Company's directors, officers and regular employees, without additional
compensation, personally or by telephone or telegram. The Company may also elect
to employ a paid proxy solicitation firm and, in such event, the Company would
bear the costs of such firm.
<PAGE>
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Proposals of stockholders that are intended to be presented by such
stockholders at the Company's 1998 Annual Meeting must be received by the
Company no later than December 4, 1997 in order that such proposals may be
included in the proxy statement and form of proxy relating to that meeting.
RECORD DATE AND SHARE OWNERSHIP
Only stockholders of record at the close of business on March 26, 1997 are
entitled to notice of and to vote at the meeting. At the record date, 9,230,606
shares of the Company's Common Stock were issued and outstanding.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
NOMINEES
A board of six directors is to be elected at the Annual Meeting. Management
has nominated the six 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 six nominees named below, all of whom are
currently directors of the Company. At the Annual Meeting, the Board of
Directors, without further action by the stockholders, will be divided into
three classes. Each class of directors will consist of two or, in the future,
three directors, who will serve for a one, two or three year period or until
their successors are elected and qualified. Thereafter, directors will serve
staggered three year terms. Class I will consist of two directors (Richard D.
Randall and Robert F. Kuhling) serving a one-year term expiring at the Company's
1998 Annual Meeting of Stockholders. Class II will consist of two directors
(Thomas C. McConnell and Nancy S. Olson) serving a two-year term expiring at the
Company's 1999 Annual Meeting of Stockholders. Class III will consist of two
directors (Kathryn A. Tunstall and Sanford Fitch) serving a three-year term
expiring at the Company's 2000 Annual Meeting of Stockholders. 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 such nominee is unable or declines to serve as a
director at the time of the Annual Meeting, the proxy holders will vote in their
discretion for a substitute nominee. It is not expected that any nominee will be
unavailable. 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.
The names of the nominees, their ages as of February 28, 1997, and certain
other information about them are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION CLASS
- -------------------------------- --- ------------------------------------------------------------------ ---------
<S> <C> <C> <C>
Kathryn A. Tunstall............. 46 President, Chief Executive Officer and Director III
Sanford Fitch................... 56 Senior Vice President, Chief Financial Officer and Director III
Richard D. Randall (1)(2)....... 45 Chairman of the Board of Directors I
Robert F. Kuhling (2)........... 48 Director I
Thomas C. McConnell (2)......... 42 Director II
Nancy S. Olson (1).............. 41 Director II
</TABLE>
- ------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
2
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MS. TUNSTALL joined Conceptus in July 1993 as President, Chief Executive
Officer and a director. Prior to joining Conceptus, Ms. Tunstall spent seven
years as an executive officer and in senior marketing positions of the Edwards
Less Invasive Surgery Division of Baxter International ("Baxter"), a division
engaged in the research and development, manufacturing, and marketing of
cardiovascular catheters, serving as President from June 1990 to June 1993 and
serving as Vice President and Director of Worldwide Sales and Marketing from
November 1986 to June 1990. From 1980 to 1986, Ms. Tunstall held various
positions in manufacturing and marketing of McGaw Laboratories, a pharmaceutical
and medical device company, serving most recently as Vice President of
Marketing. Ms. Tunstall holds a B.A. in Economics from the University of
California and has also completed graduate level studies in Business and
Healthcare Administration. She serves as a director of RESOLVE, a non-profit
infertility support, education and advocacy organization.
MR. FITCH joined Conceptus as Vice President, Finance and Operations, Chief
Financial Officer and a director in December 1994 and was promoted to Senior
Vice President in February 1997, retaining his position as Chief Financial
Officer and Director as well. From January 1994 to December 1994, Mr. Fitch
served as Vice President, Finance and Operations and Chief Financial Officer of
Voyant Corporation, a video technology company. From December 1990 to January
1994, Mr. Fitch served as Chief Financial Officer of SanDisk Corp., a
manufacturer of flash memory devices. From November 1989 to August 1990, Mr.
Fitch served as Vice President, Finance and Operations and Chief Financial
Officer of Personics Corporation, an audio consumer products company. From 1983
through 1989, Mr. Fitch was the Chief Financial Officer of Komag Inc., a
manufacturer of rigid media for the disk drive industry. Mr. Fitch holds an
M.B.A. from the Stanford University Graduate School of Business.
MR. RANDALL has served as a director of Conceptus since December 1992 and
served as President, Chief Executive Officer from December 1992 to July 1993 and
Chief Financial Officer from December 1992 to January 1995. Mr. Randall has
served as President, Chief Executive Officer and Director of Innovasive Devices,
Inc., a medical device manufacturer, since January 1994. He currently also
serves as a director of Target Therapeutics, Inc. ("Target"), where he was
President and Chief Executive Officer from June 1989 to May 1993. Prior to
joining Target, Mr. Randall served in various capacities with Trimedyne, Inc., a
cardiovascular laser company, Baxter and the U.S.C.I. Division of Bard. Mr.
Randall holds a B.S. in Biology Education from State University of New York
College at Buffalo.
MR. KUHLING has served as a director of Conceptus since December 1992. Mr.
Kuhling has been a general partner of venture capital funds managed by ONSET
Ventures since 1987. Prior to 1987, he served as Director of Design Automation
Marketing at Sun Microsystems, Inc., a computer manufacturer, and Vice President
of Marketing and a division manager at General Electric-Calma, a software and
computer systems company. Mr. Kuhling currently serves on the Board of Directors
of Euphonix, Inc. Mr. Kuhling received an M.B.A. from the Harvard University
Graduate School of Business.
MR. MCCONNELL has served as a director of Conceptus since December 1992. Mr.
McConnell has been with New Enterprise Associates, a venture capital investment
firm, since 1985 and has served as a General Partner of that firm since 1989.
Prior to that, Mr. McConnell was a Product Manager at Apple Computer, Inc. and a
consultant with the Boston Consulting Group. Mr. McConnell is also a director of
Applied Imaging Corp., Cardiothoracic Systems, Innovasive Devices, Inc. and
Sequana Therapeutics. Mr. McConnell holds an M.B.A. from the Stanford University
Graduate School of Business.
MS. OLSON has served as a director of Conceptus since March 1994. Ms. Olson
has been Executive Vice President of St. Paul Venture Capital, Inc.,
specializing in health care and medical technology since July 1993. From March
1992 to June 1993, Ms. Olson served as a Managing Director of Dakin Securities
Corporation, a regional investment bank in San Francisco. From June 1990 to June
1993 she served as principal of Rx Capital, a financial advisory and business
consulting firm she founded to help organize and fund startup to midsized
medical biotechnology and healthcare companies. Prior to 1990, Ms. Olson was
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General Partner at Sequoia Capital. Ms. Olson is also a director of Biopsys
Medical, Inc. Ms. Olson holds an M.B.A. from the Wharton School of Business.
BOARD MEETINGS AND COMMITTEES
The Board of Directors held a total of nine meetings during the fiscal year
ended December 31, 1996. The Board of Directors has an Audit Committee and a
Compensation Committee. It does not have a nominating committee or a committee
performing the functions of a nominating committee.
The Audit Committee of the Board of Directors currently consists of
directors Randall and Olson. During the last fiscal year, one meeting was held.
The Audit Committee recommends engagement of the Company's independent auditors,
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.
The Compensation Committee of the Board of Directors currently consists of
directors Randall, Kuhling and McConnell. During the last fiscal year, six
meetings were held. In addition, five meetings of the Stock Option Subcommittee
were held. The Compensation Committee, or a subcommittee thereof, where
necessary, administers the Company's incentive compensation and benefit plans
(including stock plans) and in conjunction with the Board of Directors,
establishes salaries, incentives and other forms of compensation for directors,
officers and other employees.
None of the incumbent directors attended fewer than 75 percent of the
aggregate number of meetings of the Board of Directors (held while such director
was a member) and of the committees upon which such director served during
fiscal 1996.
DIRECTOR COMPENSATION
The Company currently does not compensate each director who is not an
employee for attendance at Board of Directors or committee meetings but does
reimburse each outside director for out-of-pocket expenses incurred in
connection with attendance at such meetings.
Pursuant to the Company's Stock Plan, on January 5, 1996, Mr. Randall was
granted an option to purchase 10,000 shares of Common Stock at an exercise price
of $10.00, and on January 24, 1996, directors Kuhling, McConnell and Olson were
each granted options to purchase 9,000 shares of Common Stock at an exercise
price of $10.50 per share. 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 such plan, each person that was a nonemployee director
on the date of the Company's initial public offering was granted an option to
purchase 10,000 shares of Common Stock on the date of such offering (unless such
director had previously been granted an option to purchase shares of Common
Stock) and each person who thereafter first becomes a nonemployee director will
be granted an option to purchase 10,000 shares of Common Stock on the date on
which he or she first becomes a nonemployee director (the "First Option").
Thereafter, on the date of each annual meeting, each nonemployee director shall
be automatically granted an additional option to purchase 3,000 shares of Common
Stock (a "Subsequent Option") if, on such date, he or she shall have served on
the Company's Board of Directors for at least six months. The Directors' Plan
provides that the First Option shall become exercisable in installments as to
1/36th of the total number of shares subject to the First Option on each monthly
anniversary of the date of grant of the First Option; each Subsequent Option
shall become exercisable in installments as to 1/12th of the total number of
shares subject to the Subsequent Option on each monthly anniversary of the date
of grant of the Subsequent Option beginning on the second 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
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ten years. Pursuant to the Directors' Plan, on May 9, 1996, the non-employee
directors of the Company received stock options in connection with their service
on the Board of Directors in the amount of 3,000 shares at an exercise price of
$19.25 per share. There are no family relationships among the directors or
executive officers of the Company.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL OF THE NOMINEES LISTED
ABOVE FOR THE BOARD OF DIRECTORS OF THE COMPANY.
PROPOSAL NO. 2
APPROVAL OF AMENDMENTS TO THE 1993 STOCK PLAN
GENERAL
The Company's 1993 Stock Plan was adopted by the Board of Directors of the
Company on January 28, 1993 and approved by the stockholders in January 1994.
Amendments to the Stock Plan were approved by the Board of Directors in March
1994, May 1995 and October 1995 and by the stockholders in March 1994 and
January 1996. In February 1997, the Board of Directors adopted an amendment to
the Stock Plan, subject to stockholder approval, to increase the number of
shares of Common Stock reserved for issuance under the Stock Plan by 1,000,000
shares to an aggregate of 2,575,000 shares and to make certain other amendments
required by Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code").
The Board of Directors has considered the impact of Section 162(m) of the
Code, adopted under the Omnibus Budget Reconciliation Act of 1993, which section
disallows a deduction for any publicly held corporation for individual
compensation exceeding $1 million in any taxable year for the Chief Executive
Officer and four other most highly compensated executive officers, unless such
compensation meets the requirements for the "performance-based" exception to
that general rule. The Board has determined that certain amendments to the Stock
Plan will help ensure that options and stock purchase rights granted under the
Stock Plan meet the requirements for qualifying as performance-based
compensation, and in February 1997, the Board approved such amendments. These
amendments include a limitation on the number of shares of Common Stock which
may be granted under any option or stock purchase right to any one employee
during any fiscal year to a maximum of 800,000 shares and a requirement that the
exercise price of nonstatutory stock options or stock purchase rights granted to
a covered employee under Section 162(m) of the Code must be at least 100% of the
fair market value of the Common Stock on the date of the grant. At the Annual
Meeting, stockholders will be asked to approve the proposed amendments to the
Stock Plan.
The Company believes that long-term equity compensation in the form of stock
options is critical in order to attract qualified employees to the Company and
to provide incentive to and retain current employees, particularly in light of
the increasingly competitive environment for talented personnel. As of February
28, 1997, options for 1,021,856 shares were outstanding under the Stock Plan,
304,999 shares had been issued pursuant to stock option exercises or stock
purchase grants and 248,145 shares remained available for future grants. As of
February 28, 1997, the aggregate fair market value of shares subject to
outstanding options under the Stock Plan was $13,028,664, based upon the
estimated fair market value of the Common Stock as of such date. The Company's
Common Stock was not publicly traded prior to February 1, 1996. The actual
benefits, if any, to the holders of stock options issued under the Stock 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. The Board of
Directors believes that the number of shares currently available under the Stock
Plan is likely to be insufficient in light of potential continued growth in the
Company's operations. For this reason, the Board
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has determined that it is in the best interests of the Company to increase the
number of shares available for issuance under the Stock Plan.
Options granted under the 1993 Stock 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. No stock purchase rights have been
granted under the Stock Plan during the fiscal year ended December 31, 1996.
Shares not purchased under an option prior to its expiration will be available
for future option grants under the Stock Plan.
The Stock 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.
PURPOSE
The purposes of the 1993 Stock 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 Stock Plan may be administered by the Board of Directors or by a
committee of the Board of Directors. The Stock Plan is currently being
administered by the Board of Directors and the Compensation Committee of the
Board of Directors. The Compensation Committee (or a committee thereof), which
shall be constituted to satisfy the applicable requirement of Rule 16b-3 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Code
Section 162(m), has the exclusive authority to grant stock options and purchase
rights and otherwise administer the Stock Plan with respect to the Company's
officers and directors. Members of the Board of Directors receive no additional
compensation for their services in connection with the administration of the
Stock Plan.
ELIGIBILITY
The Stock Plan provides that either incentive stock options or nonstatutory
stock options may be granted to employees (including officers and directors) of
the Company or any of its subsidiaries. In addition, the Stock Plan provides
that nonstatutory stock options may be granted to consultants of the Company or
any of its subsidiaries. The Board of Directors or the Compensation Committee
selects the optionees and determines the number of shares to be subject to each
option. In making such determination, a number of factors are taken into
account, including the duties and responsibilities of the optionee, the value of
the optionee's services to the Company, the optionee's present and potential
contribution to the success of the Company, and other relevant factors.
The Stock Plan provides that the maximum number of shares of Common Stock
which may be granted under options to any one employee during any fiscal year
shall be 800,000, subject to adjustment as provided in the Stock Plan. There is
also a limit on the aggregate market value of shares subject to all incentive
stock options that may be granted to an optionee during any calendar year.
TERMS OF OPTIONS
Each option is evidenced by a stock option agreement between the Company and
the optionee. Under the Stock Plan as amended, 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
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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 Stock Plan is determined
by the Board of Directors or its committee and may not be less than 100 percent
of the fair market value of the Common Stock on the date the option is granted
in the case of incentive stock options, or 85 percent in the case of
nonstatutory stock options granted to optionees who are not "covered employees"
under Code Section 162(m). The fair market value per share is equal to the
closing price on The Nasdaq Stock Market on the date of grant. In the case of an
incentive stock option granted to an optionee who owns more than ten percent of
the total combined voting power of all classes of stock of the Company or any of
its subsidiaries, the exercise price must not be less than 110 percent of the
fair market value on the date of grant.
(c) TERMINATION OF EMPLOYMENT. If the optionee's employment or consulting
relationship terminates for any reason other than disability or death, options
under the Stock Plan may be exercised not later than three months 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 or her total and
permanent disability, options may be exercised within twelve months 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. If an optionee is unable to continue his or her
employment or consulting relationship with the Company as a result of his or her
disability that is not total and permanent, options may be exercised within six
months 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 Stock Plan, if an optionee should die while employed
or retained by the Company, options may be exercised within twelve months after
the date of death to the extent the options are exercisable on the date of
death. In no event may the option be exercised after expiration of its term.
(f) TERMINATION OF OPTIONS. The Stock Plan provides that options granted
under the Stock 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.
(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) DISSOLUTION, LIQUIDATION OR MERGER. In the event of the proposed
dissolution or liquidation of the Company, to the extent the option has not
previously been exercised, the Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action. In the event of a
merger of the Company with or into another corporation, the Option or Stock
Purchase Right shall be assumed or an equivalent option right shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation.
(i) OTHER PROVISIONS. The option agreement may contain such other terms,
provisions and conditions not inconsistent with the Stock Plan as may be
determined by the Board of Directors or its committee.
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RESTRICTED STOCK PURCHASE RIGHTS
The Stock Plan permits the granting of rights to purchase Common Stock of
the Company either alone, in addition to, or in tandem with other awards made by
the Company. Upon the granting of a stock purchase right under the Stock Plan,
the offeree is advised in writing of the terms, conditions and restrictions
related to the offer, including the number of shares of Common Stock that such
person is entitled to purchase, the price to be paid and the time in which such
person must accept such offer. The purchase price for stock purchased pursuant
to such rights shall not be less than 85 percent of the fair market value of
such shares on the date of grant. Stock purchase rights granted to persons
subject to Section 16 of the Exchange Act, will be subject to any restrictions
necessary to comply with Rule 16b-3.
Unless the Administrator of the Stock Plan determines otherwise, the
underlying stock purchase agreement for stock purchased pursuant to a stock
purchase right granted under the Stock Plan will grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's employment with the Company for any reason (including death or
disability).
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 Stock Plan.
AMENDMENT AND TERMINATION
The Board of Directors may amend the Stock Plan at any time or from time to
time or may terminate it without approval of the shareholders; provided,
however, that shareholder approval shall be obtained to the extent necessary and
desirable to comply with Rule 16b-3 or with Sections 162(m) and 422 of the Code.
However, no action by the Board of Directors or shareholders may alter or impair
any option previously granted under the Stock Plan. The Stock Plan shall
terminate in 2003, provided that any options then outstanding under the Stock
Plan shall remain outstanding until they expire by their terms.
PLAN BENEFITS
The Company cannot currently determine the number of shares subject to
options that may be granted in the future to executive officers and employees
under the Stock Plan. No stock options or stock purchase rights were granted to
the Named Executive Officers (as defined below) for the fiscal year ended
December 31, 1996.
FEDERAL INCOME TAX ASPECTS OF THE STOCK PLAN
Options granted under the Stock Plan may be either "incentive stock
options," as defined in Section 422 of the Code, or nonstatutory stock options.
If an option granted under the Stock 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
8
<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. Capital losses are allowed under Federal tax laws in full against
capital gains plus $3,000 of other income.
All other options which do not qualify as incentive stock options are
referred to as nonstatutory stock options. An optionee will not recognize any
taxable income under Federal tax laws at the time he or she is granted a
nonstatutory stock 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. The 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.
Stock purchases under the Stock Plan will generally be taxed in the same
manner as the exercise of a nonstatutory stock option.
REQUIRED VOTE
The approval of the amendments to the Stock Plan to increase the number of
shares reserved for issuance thereunder by 1,000,000 shares and to make certain
other amendments required by Section 162(m) of the Code requires the affirmative
vote of the holders of a majority of the total votes cast on the proposal at the
Annual Meeting in person or by proxy and entitled to vote.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL AND RATIFICATION
OF THE AMENDMENTS TO THE COMPANY'S 1993 STOCK PLAN TO INCREASE THE NUMBER OF
SHARES OF COMMON STOCK RESERVED FOR ISSUANCE THEREUNDER BY 1,000,000 SHARES AND
TO IMPLEMENT CERTAIN OTHER CHANGES RESULTING FROM APPLICABLE LAW. THE EFFECT OF
AN ABSTENTION IS THE SAME AS THAT OF A VOTE AGAINST THE PROPOSAL.
PROPOSAL NO. 3
APPROVAL OF AUDITORS
The Board of Directors has appointed the firm of Ernst & Young LLP,
independent public accountants, to audit the financial statements of the Company
for the fiscal year ending December 31, 1997. In the event the stockholders do
not ratify such appointment, the Board of Directors will reconsider its
selection. Representatives of Ernst & Young LLP are expected to be present at
the Annual Meeting and will have the opportunity to respond to appropriate
questions and to make a statement if they desire.
9
<PAGE>
REQUIRED VOTE
The ratification of the appointment of Ernst & Young LLP as the Company's
independent auditors 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 RATIFICATION OF THE APPOINTMENT
OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE YEAR ENDING
DECEMBER 31, 1997.
10
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
Common Stock as of February 28, 1997 as to (i) each person who is known by the
Company to beneficially own more than five percent of the Company's Common
Stock, (ii) each of the Company's directors, (iii) each of the executive
officers named in the Summary Compensation Table on page 13, and (iv) all
directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
-----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER (1) NUMBER PERCENT
- ----------------------------------------------------------------------- ---------- -----------
<S> <C> <C>
Target Therapeutics, Inc............................................... 1,418,856 15.38%
47201 Lakeview Boulevard
Fremont, CA 94538
Entities affiliated with New Enterprise Associates (2)................. 565,732 6.13%
2490 Sand Hill Road
Menlo Park, CA 94025
St. Paul Venture Capital, Inc. (3)..................................... 517,012 5.60%
8500 Normandale Lake Blvd., Suite 1940
Bloomington, MN 55437
Robert F. Kuhling, Jr. (4)............................................. 430,906 4.67%
2490 Sand Hill Road
Menlo Park, CA 94025
Thomas C. McConnell (5)................................................ 990,761 10.73%
2490 Sand Hill Road
Menlo Park, CA 94025
Nancy S. Olson (6)..................................................... 520,012 5.63%
8500 Normandale Lake Blvd., Suite 1940
Bloomington, MN 55437
Richard D. Randall (7)................................................. 1,439,688 15.58%
734 Forest
Marborough, MA 01752
Kathryn A. Tunstall (8)................................................ 194,379 2.08%
Cynthia M. Domecus (9)................................................. 36,650 *
Sanford Fitch (10)..................................................... 88,193 *
James J. Messemer (11)................................................. 60,598 *
Julian N. Nikolchev (12)............................................... 110,923 1.19%
All directors and officers as a group (10 persons) (13)................ 3,476,685 36.28%
</TABLE>
- ------------------------
* Less than 1%.
(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) Represents 450,980 shares held by New Enterprise Associates V, Limited
Partnership, 12,900 shares held by Catalyst Ventures, Limited Partnership,
91,112 shares held by Chemicals and Materials Enterprise Associates, Limited
Partnership, 139 shares held by New Enterprise Associates IV, Limited
Partnership and 10,601 shares held by NEA Onset Partners, Limited
Partnership.
(3) St. Paul Venture Capital, Inc. is an affiliate of St. Paul Fire and Marine
Insurance Company, which is the owner of record of these shares.
11
<PAGE>
(4) Includes 417,647 shares held by ONSET Enterprise Associates, L.P., which
Mr. Kuhling may be deemed to beneficially own by virtue of his status as a
general partner of AU Management, L.P., a general partner of ONSET
Enterprise Associates, L.P. Mr. Kuhling disclaims beneficial ownership of
the shares held by such entity except to the extent of his proportionate
partnership interest therein. Also includes 3,000 shares issuable upon
exercise of options exercisable within 60 days of February 28, 1997.
(5) Includes 450,980 shares held by New Enterprise Associates V, Limited
Partnership, 91,112 shares held by Chemicals and Materials Enterprise
Associates, Limited Partnership, 12,900 shares held by Catalyst Ventures,
Limited Partnership, and 139 shares held by New Enterprise Associates IV,
Limited Partnership, which Mr. McConnell may be deemed to beneficially own
by virtue of his status as a general partner of NEA Partners V, Limited
Partnership (the general partner of New Enterprise Associates V, Limited
Partnership), NEA Chemicals and Materials Partners, Limited Partnership (a
general partner of Chemicals and Materials Enterprise Associated, Limited
Partnership), NEA Partners IV, Limited Partnership (a general partner of
Catalyst Ventures, Limited Partnership and also the general partner of New
Enterprise Associates IV, Limited Partnership). Also includes 417,647 shares
held by ONSET Enterprise Associates, Limited Partnership and 10,601 shares
held by NEA Onset Partners, Limited Partnership, which Mr. McConnell may be
deemed to beneficially own by virtue of his status as a general partner of
NEA Onset Partners, Limited Partnership, a general partner of ONSET
Enterprise Associates, Limited Partnership. Mr. McConnell disclaims
beneficial ownership of the shares held by such entities except to the
extent of his proportionate partnership interest therein. Also includes
3,000 shares issuable upon exercise of options exercisable within 60 days of
February 28, 1997.
(6) Includes 517,012 shares held by St. Paul Fire and Marine Insurance Company,
which Ms. Olson may be deemed to beneficially own by virtue of her status as
an Executive Vice President of St. Paul Venture Capital, Inc., an affiliate
of St. Paul Fire and Marine Insurance Company. Ms. Olson disclaims
beneficial ownership of the shares held by such entity. Also includes 3,000
shares issuable upon exercise of options exercisable within 60 days of
February 28, 1997.
(7) Includes 1,418,856 shares held by Target Therapeutics, Inc., which Mr.
Randall may be deemed to beneficially own by virtue of his status as a
member of the Board of Directors of Target. Mr. Randall disclaims beneficial
ownership of the shares held by such entity. Also includes 12,499 shares
issuable to Mr. Randall upon exercise of options exercisable within 60 days
of February 28, 1997.
(8) Includes 110,456 shares issuable upon exercise of options exercisable
within 60 days of February 28, 1997.
(9) Includes 35,278 shares issuable upon exercise of options exercisable within
60 days of February 28, 1997.
(10) Includes 36,804 shares issuable upon exercise of options exercisable within
60 days of February 28, 1997.
(11) Includes 59,373 shares issuable upon exercise of options exercisable within
60 days of February 28, 1997.
(12) Includes 29,674 shares held by Julian N. Nikolchev and Betsy M. Nikolchev,
Trustees of the Nikolchev Family Trust U/D/T dated July 22, 1994. Also
includes 71,249 shares issuable upon exercise of options exercisable within
60 days of March 26, 1997.
(13) Includes 2,501,600 shares beneficially owned by entities affiliated with
Mr. McConnell, Mr. Kuhling, Mr. Randall, and Ms. Olson for which they
disclaim beneficial ownership other than to the extent of their
proportionate interest therein. Also includes 356,255 shares issuable upon
exercise of options exercisable within 60 days of February 28, 1997.
12
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation received in the fiscal years
ended December 31, 1995 and December 31, 1996 by (i) the Company's Chief
Executive Officer and (ii) the Company's four other most highly paid executive
officers who earned in excess of $100,000 during the fiscal year ended December
31, 1996 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------------------- -------------
OTHER ANNUAL SECURITIES
BONUS COMPENSATION UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY ($) ($)(1) ($)(2) OPTIONS (#)
- ---------------------------------------------------- --------- ---------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Kathryn A. Tunstall................................. 1996 $ 173,106 $ 36,500 $ 690 --
President and Chief Executive Officer 1995 162,900 32,100 20,833(3) 116,666
Cynthia M. Domecus.................................. 1996 144,906 28,800 194 --
Senior Vice President, Clinical Research, 1995 125,675 16,200 -- 40,000
Regulatory Affairs and Quality Assurance
Sanford Fitch....................................... 1996 145,350 23,200 1,398 --
Senior Vice President and Chief Financial Officer 1995 127,731 20,025 -- 74,999(4)
James J. Messemer................................... 1996 134,400 19,800 186 --
Vice President, Business Development 1995 105,000 14,700 -- 26,666
Julian N. Nikolchev................................. 1996 126,082 18,000 274 --
Chief Technology Officer 1995 116,579 18,000 -- 33,333
</TABLE>
- ------------------------
(1) 1996 bonuses represent bonuses paid in 1997 to executive officers for fiscal
1996 performance. 1995 bonuses represent bonuses paid in 1996 to executive
officers for fiscal 1995 performance. Bonuses to executive officers are paid
at the discretion of the Board of Directors.
(2) Except as otherwise set forth, represents premiums paid by the Company for
group term life insurance in 1996.
(3) Represents the reimbursement of certain transportation expenses.
(4) Mr. Fitch was also issued 50,000 shares of the Company's Common Stock at a
purchase price of $0.48 per share on March 1, 1995. These shares are subject
to a repurchase right in the Company's favor that lapses over a four-year
period from December 19, 1994. These shares participate in dividends if and
when declared. At the end of 1996, based upon an estimated fair market value
of the Company's Common Stock of $10.25 per share, these purchased shares
had an aggregate value of $488,500 in excess of the amount paid therefor.
OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1996
The Company did not grant stock options to purchase Common Stock of the
Company during the fiscal year ended December 31, 1996 to any of the Named
Executive Officers. The Company has never granted stock purchase rights to
executive officers.
The following table sets forth certain information for the Named Executive
Officers with respect to the exercise of options to purchase Common Stock during
the fiscal year ended December 31, 1996.
13
<PAGE>
AGGREGATED OPTION EXERCISES IN THE YEAR ENDED
DECEMBER 31, 1996 AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON
STOCK UNDERLYING VALUE OF UNEXERCISED IN-
SHARES UNEXERCISED OPTIONS AT THE-MONEY OPTIONS AT
ACQUIRED ON VALUE DECEMBER 31, 1996 (#) DECEMBER 31, 1996 ($)(1)
EXERCISE REALIZED -------------------------- --------------------------
NAME (#) ($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kathryn A. Tunstall................... 13,500 $ 177,325 93,789 92,710 $ 715,622 $ 395,546
Cynthia M. Domecus.................... 7,777 142,019 29,166 36,390 234,159 232,390
Sanford Fitch......................... -- -- 30,553 44,446 214,222 229,522
James J. Messemer..................... -- -- 54,095 25,904 491,978 150,818
Julian N. Nikolchev................... 10,000 95,800 68,471 19,862 644,865 111,851
</TABLE>
- ------------------------
(1) Calculated by determining the difference between the estimated fair market
value of the Company's Common Stock as of December 31, 1996 ($10.25 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.
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S
PREVIOUS FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, THAT MIGHT INCORPORATE FUTURE FILINGS,
INCLUDING THIS PROXY STATEMENT, IN WHOLE OR IN PART, THE FOLLOWING REPORT AND
THE PERFORMANCE GRAPH ON PAGE 17 SHALL NOT BE INCORPORATED BY REFERENCE INTO ANY
SUCH FILINGS.
COMPENSATION COMMITTEE REPORT
The following is a report of the Compensation Committee of the Board of
Directors (the "Committee") describing the compensation policies applicable to
the Company's executive officers during the fiscal year ended December 31, 1996.
The Committee, comprised of directors Kuhling, McConnell and Randall, recommends
salaries, incentives and other forms of compensation for directors, officers and
other employees of the Company, administers the Company's various incentive
compensation and benefit plans (including stock plans) and recommends policies
relating to such incentive compensation and benefit plans; provided, however,
that a subcommittee consisting of directors Kuhling and McConnell administers
the Company's 1993 Stock Plan with respect to grants to officers and directors.
Executive officers who are also directors have not participated in deliberations
or decisions involving their own compensation.
EXECUTIVE OFFICER COMPENSATION
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
stockholder 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 for and do
participate in these compensation plans.
14
<PAGE>
BASE SALARIES FOR FISCAL 1996
The Compensation Committee evaluates the performance and recommends the
salary of the Company's Chief Executive Officer, Kathryn Tunstall, and all other
executive officers. Survey data is 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 17. 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. Generally, salaries paid to the Company's executive officers in
fiscal 1996 were within the targeted range. While it is the Committee's intent
to continue to review periodically base salary information to monitor
competitive ranges within the applicable market, including consideration of the
Company's geographic location and individual job responsibilities, it is further
the intent of the Committee to maintain a close relationship between the
Company's performance and the base salary component of its executive officers'
compensation.
STOCK OPTION AWARDS FOR FISCAL 1996
The Company's 1993 Stock Plan provides for the issuance of stock options to
officers and employees of the Company to purchase shares of the Company's Common
Stock at an exercise price equal to the fair market value of such stock on the
date of the option grant. The Company's stock options typically vest over a 48
month period in increments of 12.5 percent after the initial six months and 2.08
percent each month thereafter. Stock options are granted to the Company's
executive officers and other employees both as a reward for past individual and
corporate performance and as an incentive for future performance. The Committee
believes that stock based performance compensation arrangements are essential in
aligning the interests of management and the stockholders in enhancing the value
of the Company's equity.
During fiscal 1996, the Committee approved grants of stock options to
certain employees, including one executive officer, in connection with the
hiring or promotion of such employees. In addition, in February 1997, the
Committee approved grants of stock options to certain employees, including each
executive officer, pursuant to the attainment of certain corporate objectives
and which awards were based substantially upon individual and departmental
performance during fiscal 1996 and tenure with the Company. The February 1997
grants were made pursuant to the Company's Stock Plan. However, because there
are insufficient shares available under the Stock Plan for such options, such
grants will only be effective at such time as sufficient shares are available
under the Stock Plan. Accordingly, assuming that, at the Annual Meeting, the
stockholders approve the increase in the number of shares reserved for issuance
under the Stock Plan, the exercise price for the options granted in February
1997 will be determined as of the date of the Annual Meeting. See "Proposal No.
2 Approval of Amendments to the 1993 Stock Plan."
BONUS AWARDS FOR FISCAL 1996
In conjunction with the establishment of a fiscal 1996 bonus pool early in
the fiscal year, the Committee established certain performance objectives,
including corporate profit and departmental goals, which, when met, would result
in bonus payments to employees, including executive officers, in varying amounts
based upon the degree of achievement of the established objectives and
compensation level. In February 1997, the Committee approved bonuses for
executive officers and employees in recognition of their efforts in contributing
to the Company's fiscal 1996 performance. Bonuses earned by the Company's
executive officers for performance in fiscal 1996 ranged from 14.3 percent to
21.1 percent of their respective base salary amounts.
15
<PAGE>
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The fiscal 1996 compensation of Kathryn A. Tunstall, the Company's Chief
Executive Officer ("CEO"), consisted of base salary and a bonus. As with other
executive officers of the Company, the amounts of the CEO's stock option and
bonus awards are based on attainment of a combination of corporate and
individual performance objectives. Ms. Tunstall's fiscal year-end bonus of
$36,500, or 21.1 percent of her base salary, and stock options of 140,000 shares
granted in February 1997 reflects the Committee's judgment as to Ms. Tunstall's
personal performance during the fiscal year as well as her role in the
attainment of the Company's overall objectives.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Committee has considered the impact of Section 162(m) of the Internal
Revenue Code adopted under the Omnibus Budget Reconciliation Act of 1993, which
section disallows a deduction for any publicly held corporation for individual
compensation exceeding $1 million in any taxable year for the CEO and four other
most highly compensated executive officers, unless such compensation meets the
requirements for the "performance-based" exception to the general rule. Since
the cash compensation paid by the Company to each of its executive officers is
expected to be well below $1 million and the Committee believes that options
granted under the Company's 1993 Stock Plan will meet the requirements for
qualifying as performance-based, the Committee believes that this section will
not affect the tax deductions available to the Company. It will be the
Committee's policy to qualify, to the extent reasonable, the executive officers'
compensation for deductibility under applicable tax law.
Submitted by the Compensation
Committee
of the Board of Directors
Robert F. Kuhling
Thomas C. McConnell
Richard R. Randall
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the meetings held in the year ended December 31, 1996, the following
individuals served on the Company's Compensation Committee: Richard D. Randall,
Robert F. Kuhling and Thomas C. McConnell. Messrs. McConnell and Kuhling have
never served as officers or employees of the Company. Mr. Randall served as the
Company's Chief Executive Officer and Chief Financial Officer from December 1992
until July 1993.
16
<PAGE>
PERFORMANCE GRAPH
The following graph compares, since the time that the Company's Common Stock
has been registered under Section 12 of the Securities Exchange Act of 1934
(beginning February 1, 1996), the cumulative total stockholder return for the
Company's Common Stock, assuming reinvestment of all dividends, to the
cumulative return over such period of The Nasdaq Stock Market--U.S. Index and
the S&P Medical Products & Supplies Index. The graph assumes that $100 was
invested on February 1, 1996, the date of the Company's initial public offering
of Common Stock, 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 $19.50, the
closing price at which such stock was first offered to the public by the Company
on that date.
COMPARISON OF TOTAL RETURN
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
2/1/96 3/29/96 6/28/96 9/30/96 12/31/96 2/28/97
<S> <C> <C> <C> <C> <C> <C>
Conceptus, Inc. 100.000 103.846 87.180 70.513 52.564 65.385
Nasdaq Stock Market-US 100.000 102.987 110.805 114.723 120.718 122.398
S&P Medical Products & Supplies 100.000 98.251 96.839 107.387 107.957 113.910
</TABLE>
17
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 1992, the Company issued to Target 666,666 shares of Series A
Preferred Stock with value of $0.75 per share along with a warrant to purchase
up to 1,000,000 shares of Common Stock at an exercise price of $1.50 per share,
in exchange for the grant of an exclusive license to technology and certain
supply commitments. Target converted this warrant into 892,857 shares of Common
Stock in connection with the Company's initial public offering. Mr. Randall
currently serves on Target's Board of Directors and served as President and
Chief Executive Officer of Target from June 1989 until May 1993 and as Chairman
of the Board from April 1993 until May 1994. Pursuant to the License Agreement,
Target granted to the Company an exclusive, worldwide, royalty-free license,
with the right to sublicense, to use any of Target's technology, and to use,
make and sell products incorporating the Target technology, in the field of
reproductive physiology (the "Conceptus field"). The Company granted back to
Target an exclusive, worldwide, royalty-free license, with the right to
sublicense, to use Conceptus technology (made up of the Company's improvements
on Target technology and the Company's own developments for use in the Conceptus
field), and to use, make and sell products incorporating the Conceptus
technology, in the fields of interventional neuroradiology, interventional
radiology, interventional cardiology and interventional electrophysiology (but
excluding the Conceptus field). These license grants apply to any technology
existing on the date of the agreement or subsequently developed through February
1, 1996. This agreement will terminate upon the later of December 2002 or the
expiration of all patent rights in the Target technology. The agreement also
includes provisions preventing Target from engaging in certain research,
marketing, sales or acquisition activities in the Conceptus field during the
life of the agreement. In connection with such transaction, Target and Conceptus
also agreed that during the two year period following the Company's initial
public offering of securities, Target would not acquire Conceptus capital stock
to the extent that doing so would cause Target's ownership interest in the
Company to exceed the greater of 20% of the outstanding voting stock prior to
such acquisition or the percentage held by Target immediately prior to the
effectiveness of the registration statement covering the Company's initial
public offering.
In March 1994, Target extended to the Company a $300,000 lease line of
credit for the lease of test, production or other machinery and equipment and
computer hardware, fixtures and furniture, on a sale and leaseback basis, with
payment terms varying between three and four years depending on the type of
equipment involved. Conceptus drew down the entire amount of the lease line and
at December 31, 1996 approximately $114,000 remains payable by the Company under
the lease line. In connection with the extension of the lease line, Target also
loaned to the Company an additional $209,000 pursuant to two promissory notes
secured by certain tangible property of the Company similar in type to that
subject to the lease line. These notes are payable over a three to four year
period (depending on the nature of the collateral involved), and bear interest
at the rate of 8.5% per annum, compounded monthly. At December 31, 1996,
approximately $40,000 of the principal balance remains outstanding under these
notes. In connection with this lease line and secured loan transaction, the
Company issued to Target a warrant to purchase up to an additional 12,000 shares
of Common Stock at an average exercise price of $4.05 per share, which warrant
was exercised in connection with the Company's initial public offering at an
aggregate price of $48,600.
In March 1994 and May 1995, as part of the Company's third and fourth rounds
of financing, Target purchased an additional aggregate of 101,102 shares of
Preferred Stock for a total of $500,000. The Company has also reimbursed Target
for certain employee benefit expenses incurred by Target on the Company's
behalf. For the year ended December 31, 1996, approximately $177,000 was paid
and no additional payments are due to Target under this arrangement. This
agreement was discontinued at December 31, 1996. Upon the closing of the
Company's initial public offering, each outstanding share of Preferred Stock was
converted into one share of Common Stock.
On January 20, 1997, Target executed an Agreement and Plan of Merger (the
"Merger Agreement") with Boston Scientific Corporation, a Delaware corporation
("BSC"), pursuant to which a wholly owned
18
<PAGE>
subsidiary of BSC will be merged with and into Target (the "Merger"). Pursuant
to the Merger Agreement, each share of common stock of Target will be converted
into the right to receive 1.07 shares of common stock of BSC. The Merger is
intended to be a tax-free stock-for-stock exchange for federal income tax
purposes and a pooling of interests for accounting purposes. Consummation of the
Merger is subject to certain closing conditions, including approval by the
stockholders of Target and regulatory approval.
All future transactions, including any loans from the Company to its
officers, directors, principal stockholders 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 stockholders, 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
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 greater than ten
percent Stockholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.
To the Company's knowledge, all of these filing requirements have been
satisfied with the following exceptions: (a) Target Therapeutics, Inc. was late
in filing a Form 4 for the month of December 1996 in connection with a sale of
the Company's stock; (b) Mr. Randall was late in filing three Form 4's, one for
the month of May 1996 reporting his annual automatic director's option grant and
in connection with Target's sale of the Company's stock, one for the month of
August 1996 in connection with two sales of the Company's stock by Target, and
one for the month of December 1996 in connection with Target's sale of the
Company's stock; (c) Mr. McConnell amended the Form 4 filed for the month of May
1996 to include the annual automatic director's option grant he received from
the Company and amended the Form 4 filed for the month of November 1996 to
report a sale of the Company's stock by Catalyst Ventures, L.P; (d) Catalyst
Ventures, L.P. amended the Form 4 filed for the month of November 1996 to report
a sale of the Company's shares; and (e) Mr. Kuhling amended his year end report
on Form 5 to report a distribution of shares of the Company's stock made to him
without consideration by New Enterprise Associates. In making this statement,
the Company has relied solely upon review of the copies of such reports
furnished to the Company and written representations from its officers and
directors that no other reports were required.
OTHER MATTERS
The Board of Directors knows of no other matters to be submitted to the
meeting. If any other matters properly come before the meeting, then the persons
named in the enclosed form of proxy will vote the shares they represent in such
manner as the Board may recommend.
BY ORDER OF THE BOARD OF DIRECTORS
Michael W. Hall
SECRETARY
Dated: April 4, 1997
19
<PAGE>
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
CONCEPTUS, INC.
1997 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of Conceptus, Inc., a Delaware corporation, hereby
acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy
Statement, each dated April 4, 1997, and hereby appoints Kathryn A. Tunstall and
Sandford Fitch, or either of them, as proxies and attorneys-in-fact with full
power to each of substitution, on behalf and in the name of the undersigned, to
represent the undersigned at the 1997 Annual Meeting of Stockholders of
Conceptus, Inc. to be held on May 13, 1997, at 11:00 a.m., at Hotel Sofitel, 223
Twin Dolphin Drive, Redwood City, California 94065, and at any adjournment(s) or
postponement(s) thereof, and to vote all shares of Common Stock that the
undersigned would be entitled to vote if then and there personally present, on
the matters set forth on the reverse side, and in their discretion, upon such
other matter or matters that may properly come before the meeting and any
adjournment(s) thereof.
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; (2) for the
approval and ratification of the amendments to the Company's 1993 Stock Plan to
increase the number of shares of Common Stock reversed for issuance thereunder
by 1,000,000 shares to an aggregate of 2,575,000 shares and to implement certain
other changes resulting from applicable law; (3) for ratification of the
appointment of Ernst & Young LLP as independent auditors; and as said proxies
deem advisable on such other matters as may come before the meeting.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
SEE REVERSE
SIDE
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<PAGE>
Please mark
your votes as
in this
example /X/
FOR all nominees WITHHOLD authority to
listed to the left vote for all nominees
(except as indicated) listed to the left
1. Election of Directors / / / /
NOMINEES: Richard D. Randall
Kathryn A. Tunstall
Sanford Fitch
Robert F. Kuhling
Thomas C. McConnell
Nancy S. Olson
If you wish to withhold authority to vote for any individual nominee, strike a
line through that nominee's name in the list above.
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FOR AGAINST ABSTAIN
2. To approve and ratify the amendments to the / / / / / /
Company's 1993 Stock Plan to increase the
number of shares of Common Stock reserved
for issuance thereunder by 1,000,000 shares
to an aggregate of 2,575,000 shares and to
implement certain other changes resulting
from applicable law.
3. To ratify the appointment of Ernst & Young LLP / / / / / /
as the Company's independentauditors for the
fiscal year ending December 31, 1997.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD USING THE ENCLOSED ENVELOPE.
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR,
TRUSTEE, OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
Signature(s) Date
------------------------------------------------- ------------
NOTE: This Proxy should be marked, dated, signed by the stockholder(s) exactly
as his or her name appears hereon, and returned in the enclosed envelope.
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