<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only
(as permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CAMBRIDGE HEART, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X]No Fee Required.
[_]Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[_]Fee paid previously with preliminary materials.
[_]Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
CAMBRIDGE HEART, INC.
One Oak Park Drive
Bedford, Massachusetts 01730
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 21, 1999
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the
"Meeting") of Cambridge Heart, Inc., a Delaware corporation (the "Company")
will be held at the offices of Hale and Dorr LLP, 26th floor, 60 State Street,
Boston, Massachusetts 02109, on December 21, 1999, at 10:00 a.m., local time,
for the purpose of considering and voting upon the following matters:
1. Approval of (i) an amendment to the Company's 1996 Equity Incentive
Plan increasing the number of shares of Common Stock reserved for issuance
from 1,000,000 to 1,300,000, and (ii) the continuation of the Company's
1996 Equity Incentive Plan.
2. To transact such other business as may properly come before the
Meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice of Meeting. The Board of Directors has no
knowledge of any other business to be transacted at the Meeting or at any
adjournment or postponement thereof.
The Board of Directors has fixed the close of business on November 16, 1999
as the record date for the determination of stockholders entitled to notice of
and to vote at the Meeting or any adjournment or postponement thereof. A list
of such stockholders will be available for examination by any stockholder, for
any purpose germane to the Meeting, during ordinary business hours for ten
days prior to the Meeting at the office of the Secretary of the Company at the
above address, and at the time and place of the Meeting.
If you would like to attend the Meeting and your shares are held by a
broker, bank or other nominee, you must bring to the Meeting a recent
brokerage statement or a letter from the nominee confirming your beneficial
ownership of such shares. You must also bring a form of personal
identification. In order to vote your shares at the Meeting, you must obtain
from the nominee a proxy issued in your name.
By Order of the Board of Directors,
Eric Dufford, Secretary
Bedford, Massachusetts
November 22, 1999
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE PROMPTLY COMPLETE,
DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED ENVELOPE. NO
POSTAGE NEED BE AFFIXED IF THE PROXY CARD IS MAILED IN THE UNITED STATES.
<PAGE>
CAMBRIDGE HEART, INC.
One Oak Park Drive
Bedford, Massachusetts 01730
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 21, 1999
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Cambridge Heart, Inc., a Delaware
corporation (the "Company") for use at a Special Meeting of Stockholders (the
"Meeting") to be held on December 21, 1999, at 10:00 a.m., local time, at Hale
and Dorr LLP, 26th floor, 60 State Street, Boston, Massachusetts 02109, and at
any adjournment or postponement thereof. All proxies will be voted in
accordance with the stockholders' instructions, and, if no choice is
specified, the shares will be voted in favor of the matters set forth in the
accompanying Notice of Meeting. Any proxy may be revoked by a stockholder at
any time before its exercise by delivery of written revocation to the
Secretary of the Company. Attendance at the Meeting will not in itself be
deemed to revoke a Proxy unless the stockholder gives affirmative notice at
the Meeting that the stockholder intends to revoke the Proxy and vote in
person.
On November 16, 1999, the record date for the determination of stockholders
entitled to notice of and to vote at the Meeting, there were issued and
outstanding and entitled to vote 13,921,649 shares of Common Stock, $.001 par
value per share (the "Common Stock"). Each share entitles the record holder to
one vote on each matter.
Voting Securities and Votes Required
The holders of a majority of the shares of Common Stock outstanding and
entitled to vote at the Meeting shall constitute a quorum for the transaction
of business at the Meeting. Shares of Common Stock present in person or
represented by proxy (including shares which abstain or do not vote with
respect to one or more of the matters presented for stockholder approval) will
be counted for purposes of determining whether a quorum exists at the Meeting.
The affirmative vote of the holders of a majority of the shares of Common
Stock voting on the matter is required to approve the amendment to, and
continuation of, the Company's 1996 Equity Incentive Plan. Shares held by
stockholders who abstain from voting as to a particular matter, and shares
held in "street name" by brokers or nominees who indicate on their proxies
that they do not have discretionary authority to vote such shares as to a
particular matter, will not be counted as votes in favor of such matter, and
also will not be counted as shares voting on such matter. Accordingly,
abstentions and "broker non-votes" will have no effect on the voting on a
matter that requires the affirmative vote of a certain percentage of the
shares voting on the matter.
THE NOTICE OF MEETING AND THIS PROXY STATEMENT ARE BEING MAILED TO
STOCKHOLDERS ON OR ABOUT NOVEMBER 22, 1999. A COPY OF THE COMPANY'S ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998, AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"), EXCLUDING EXHIBITS,
WILL BE FURNISHED WITHOUT CHARGE TO ANY STOCKHOLDER UPON WRITTEN REQUEST TO
THE COMPANY, ONE OAK PARK DRIVE, BEDFORD, MASSACHUSETTS, 01730, ATTENTION:
ROBERT B. PALARDY. EXHIBITS WILL BE PROVIDED UPON WRITTEN REQUEST AND PAYMENT
OF AN APPROPRIATE PROCESSING FEE.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of Common Stock by (i) each stockholder known to the
Company to be the beneficial owner of more than 5% of the outstanding shares
of Common Stock, (ii) each current director of the Company, (iii) the
Company's Chief Executive Officer and the executive officers named in the
Summary Compensation Table below and (iv) all directors and executive officers
of the Company as a group. Unless otherwise indicated in the footnotes to the
table, (i) all information set forth in the table is as of October 31, 1999
and (ii) the address for each director and executive officer of the Company
is: c/o Cambridge Heart, Inc., One Oak Park Drive, Bedford, MA 01730.
<TABLE>
<CAPTION>
Number of Shares Percentage of
Beneficially Owned (1) Class Outstanding
---------------------- -----------------
<S> <C> <C>
Goldman, Sachs & Co. ................. 1,859,400 (2) 13.4%
Dr. Richard J. Cohen, M.D., Ph.D. .... 1,317,385 (3) 9.5%
Jeffrey M. Arnold..................... 741,863 (4) 5.1%
Harris A. Berman...................... 20,833 (5) *
J. Daniel Cole........................ 21,667 (6) *
Rolf S. Stutz......................... 25,000 (7) *
Robert B. Palardy..................... 20,750 (8) *
Eric Dufford.......................... 28,249 (9) *
Andra Thomas.......................... 18,750 (10) *
All directors and executive officers
as a group (9 persons)............... 2,194,497(11) 15.1%
</TABLE>
- --------
* Represents less than 1% of the outstanding Common Stock.
(1) The Company believes that each stockholder has sole voting and investment
power with respect to the shares listed, except as otherwise noted. The
number of shares beneficially owned by each stockholder is determined
under rules of the Commission, and the information is not necessarily
indicative of ownership for any other purpose. Under such rules,
beneficial ownership includes any shares as to which the person has sole
or shared voting power or investment power and also any shares which the
individual has the right to acquire within 60 days after October 31, 1999
through the exercise of any stock option or other right. The inclusion
herein of any shares of Common Stock deemed beneficially owned does not
constitute an admission by such stockholder of beneficial ownership of
those shares of Common Stock. Shares of Common Stock which an individual
or entity has a right to acquire within the 60-day period following
October 31, 1999 pursuant to the exercise of options or warrants are
deemed to be outstanding for the purposes of computing the percentage
ownership of such individual or entity, but are not deemed to be
outstanding for the purpose of computing the percentage ownership of any
other person or entity shown in the table.
(2) Consists of shares held by the Goldman Sachs Group, L.P. as reported in a
Schedule 13G filed with the Securities and Exchange Commission on January
11, 1999. The business address of Goldman, Sachs & Co. is 85 Broad
Street, New York, NY 10004.
(3) Includes 8,000 shares of Common Stock of the Company issuable to Dr.
Cohen within 60 days of October 31, 1999 upon exercise of stock options.
(4) Includes 583,200 shares of Common Stock of the Company issuable to Mr.
Arnold within 60 days of October 31, 1999 upon exercise of stock options.
(5) Includes 10,833 shares issuable to Dr. Berman within 60 days of October
31, 1999 upon exercise of stock options.
(6) Includes 21,667 shares of Common Stock of the Company issuable to Mr.
Cole within 60 days of October 31, 1999 upon exercise of stock options.
(7) Includes 25,000 shares of Common Stock of the Company issuable to Mr.
Stutz within 60 days of October 31, 1999 upon exercise of stock options.
(8) Includes 18,750 shares of Common Stock issuable to Mr. Palardy within 60
days of October 31, 1999 upon exercise of stock options.
2
<PAGE>
(9) Includes 22,500 shares of Common Stock issuable to Mr. Dufford within 60
days of October 31, 1999 upon exercise of stock options.
(10) Consists of 18,750 shares of Common Stock issuable to Ms. Thomas within
60 days of October 31, 1999 upon exercise of stock options.
(11) Includes a total of 708,700 shares which the executive officers and
directors together have a right to acquire pursuant to outstanding
options or warrants exercisable within 60 days after October 31, 1999.
To the knowledge of the Company, there are no agreements among any of the
foregoing persons or entities with respect to the voting of shares of Common
Stock of the Company.
DIRECTORS
Compensation of Directors
The Company's non-employee directors, other than those representing major
stockholders of the Company, receive a fee of $1,500 per meeting of the Board
of Directors. All non-employee directors receive reasonable travel and out-of-
pocket expenses for attendance at meetings of the Board of Directors. Non-
employee directors are also eligible to receive stock options under the 1996
Director Stock Option Plan (the "Director Plan"). See--"Director Option Plan."
In April 1998, Dr. Berman was granted options under the Director Plan to
purchase 10,000 shares of Common Stock at $9.25 per share, the fair market
value per share on the date of grant. These options will vest in equal annual
installments over two years after the date of grant. At the same time, Dr.
Berman was granted options under the 1996 Equity Incentive Plan to purchase
15,000 shares of Common Stock at $9.25 per share, the fair market value on the
date of grant. These options will vest in equal annual installments over three
years after the date of grant.
Director Option Plan
The Director Plan was adopted by the Board of Directors in May 1996, was
approved by the stockholders in June 1996, and became effective on August 7,
1996. Under the terms of the Director Plan, options (the "Director Options")
to purchase 10,000 shares of Common Stock will be granted to each person who
becomes a non-employee director and who is not otherwise affiliated with the
Company, effective as of the date of initial election to the Board of
Directors. The Director Options will vest in equal annual installments over
three years after the date of grant. Director Options will become immediately
exercisable upon the occurrence of a change in control (as defined in the
Director Plan). A total of 100,000 shares of Common Stock may be issued upon
the exercise of stock options granted under the Director Plan. The exercise
price of options granted under the Director Plan will equal the closing price
of the Common Stock on the Nasdaq National Market on the date of grant.
3
<PAGE>
EXECUTIVE OFFICERS
Compensation of Executive Officers
Summary Compensation
The following table sets forth certain information with respect to the
compensation, for the last three fiscal years, of the Company's Chief
Executive Officer and each of the two other most highly compensated executive
officers who were serving as executive officers on December 31, 1998 (the
"Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term \
Compensation
Annual Compensation(1) Awards(2)
------------------------ ------------------------
Securities
Underlying All Other
Name and Principal Position Year Salary Bonus Options Compensation
- --------------------------- --------------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Jeffrey M. Arnold............ 1998 $ 225,000 $ 67,500 25,000 --
President and Chief 1997 191,458 30,000 -- --
Executive Officer 1996 172,525 60,000 -- --
Eric Dufford................. 1998 164,013 20,000 90,000(3) --
Vice President, Marketing 1997 59,712 10,000 75,000 --
and Sales and Secretary
Robert B. Palardy............ 1998 134,167 15,000 75,000(4) --
Vice President, Finance and 1997 18,250 4,167 75,000 --
Administration and Chief
Financial Officer
</TABLE>
- --------
(1) Perquisites for the Named Executive Officers listed in the table did not
exceed the lesser of $50,000 or 10% of total salary and bonus for the
respective fiscal years and accordingly have been omitted in accordance
with the rules of the Commission.
(2) The Company does not have a long-term compensation plan that includes
long-term incentive payouts. No stock appreciation rights ("SARs") have
been granted to or are held by any of the Named Executive Officers.
(3) These options were originally granted on August 8, 1997 and April 28, 1998
and were repriced on October 16, 1998.
(4) These options were originally granted on November 11, 1997 and were
repriced on October 16, 1998.
4
<PAGE>
Option Grant Table. The following table sets forth certain information
regarding options granted during Fiscal 1998 by the Company to the Named
Executive Officers. The Company granted no SARs in Fiscal 1998.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Number of Stock Price
Securities Percent of Total Appreciation for
Underlying Options Granted Exercise or Option Term(2)
Options to Employees in Base Price Expiration ---------------------
Name Granted(1) Fiscal Year Per Share Date 5% 10%
---- ---------- ---------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey M. Arnold....... 25,000(3) 6% $9.375 4/16/08 $ 147,375 $ 373,625
Eric Dufford............ 75,000(4) 18% $ 5.00 10/16/08 $ 235,500 $ 597,750
15,000(4) 4% $ 5.00 10/16/08 $ 47,100 $ 119,550
Robert B. Palardy....... 75,000(4) 18% $ 5.00 10/16/08 $ 235,500 $ 597,750
</TABLE>
- --------
(1) The securities underlying the options are shares of Common Stock.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date. This table does not take into account actual
appreciation in the price of the Common Stock to date. Actual gains, if
any, on stock option exercises will depend on the future performance of
the Common Stock and the date on which the options are exercised. The
gains shown are net of the option exercise price, but do not reflect taxes
or other expenses associated with the exercise.
(3) All of these options were granted at the fair market value of the
Company's Common Stock on the date of grant. The options vest at a rate of
20% per year.
(4) All of these options were repriced to $5.00 in October 1998 and are deemed
to be new grants under applicable rules of the Securities and Exchange
Commission. The repriced options vest at a rate of 25% per year. See
"Report on Repricing of Options."
Year End Option Table. The following table sets forth certain information
regarding stock options exercised during Fiscal 1998 and held as of December
31, 1998 by the Named Executive Officers. The Company granted no SARs during
Fiscal 1998.
Aggregated Option Exercises in last Fiscal Year and Fiscal Year-End Option
Values
<TABLE>
<CAPTION>
Number of Shares Value of Unexercised
Underlying Unexercised In-the-Money Options at Fiscal
Shares Options at Fiscal Year-End Year-End($)(2)
Acquired on Value -------------------------- --------------------------------
Name Exercise Realized($)(1) Exercisable/Unexercisable Exercisable/($)/Unexercisable($)
---- ----------- -------------- -------------------------- --------------------------------
<S> <C> <C> <C> <C>
Jeffrey M. Arnold....... 80,000 564,000 539,900/101,600 3,036,938/571,500
Eric Dufford............ -- -- 0/90,000 0/506,250
Robert B. Palardy....... -- -- 0/75,000 0/421,875
</TABLE>
- --------
(1) Value based on last reported sale price of the Common Stock on the date of
exercise.
(2) Value based on last reported sale price of the Common Stock at the fiscal
year end ($5.625 per share) less the exercise price.
5
<PAGE>
Report on Repricing of Options
On October 16, 1998, the Board of Directors determined that certain stock
options held by employees and members of the Company's Scientific Advisory
Board ("SAB") had an exercise price significantly higher than the fair market
value of the Company's Common Stock, and therefore such options were not
providing the desired incentive to employees. Accordingly, the Board provided
employees, other than the Company's Chief Executive Officer, the right to
elect to surrender previously granted unexercised options with exercise prices
between $6.75 and $10.25 in return for new option grants at $5.00, the fair
market value of the Company's Common Stock on October 16, 1998. All vesting in
the exchanged options was forfeited by employees. The new options vest at the
rate of 25% each year over four years starting October 16, 1998. Options to
purchase 396,250 shares of Common Stock were surrendered by employees and
repriced, including an aggregate of 165,000 stock options surrendered by
Messrs. Dufford and Palardy. Options to purchase a total of 538,998 shares of
Common Stock were eligible for this program.
Members of the Company's SAB were granted the right to elect to surrender
previously granted unexercised options with an exercise price of $7.75 in
return for new option grants at $6.75, the fair market value of the Company's
Common Stock on October 21, 1998. All vesting in the exchanged options was
forfeited. The new options vest at the rate of 33% per year over three years
starting October 21, 1998. Options to purchase 40,000 shares of Common Stock
were surrendered by SAB members and repriced. Options to purchase a total of
60,000 shares of Common Stock were eligible for this program.
Option Repricing Table
The following table sets forth information with respect to all repricings of
options by the Named Executive Officers since Cambridge Heart became a public
company in August 1996.
Ten-Year Option Repricings
<TABLE>
<CAPTION>
Number of Length of
Securities Market Price Original Option
Underlying of Stock at Exercise Price New Term Remaining
Options Repriced Time of at Time of Exercise at Date of
Name Date (#) Repricing ($) Repricing ($) Price ($) Repricing
---- -------- ---------------- ------------- -------------- --------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Eric Dufford............ 10/16/98 75,000 5.00 7.625 5.00 3 years, 10 months
10/16/98 15,000 5.00 9.375 5.00 4 years, 6 months
Robert B. Palardy....... 10/16/98 25,000 5.00 8.875 5.00 4 years, 1 month
</TABLE>
6
<PAGE>
COMPENSATION COMMITTEE
The Compensation Committee of the Company's Board of Directors currently
consists of J. Daniel Cole, Rolf S. Stutz and Harris A. Berman, M.D.
Compensation Committee Interlocks and Insider Participation
No executive officer of the Company has served as a director or member of
the compensation committee (or other committee serving an equivalent function)
of any other entity, one of whose executive officers served as a member of the
Compensation Committee or director of the Company.
Report of the Compensation Committee on Executive Compensation
The Compensation Committee of the Company's Board of Directors is
responsible for establishing compensation policies with respect to the
Company's executive officers, including the Chief Executive Officer and the
Named Executive Officers, and setting the compensation for these individuals.
The Compensation Committee seeks to achieve three broad goals in connection
with the Company's executive compensation programs and decisions regarding
individual compensation. First, the Compensation Committee structures
executive compensation programs in a manner that the Committee believes will
enable the Company to attract and retain key executives. In order to ensure
continuity of certain key members of management, the Compensation Committee
has approved in the past multi-year employment contracts. Second, the
Compensation Committee establishes compensation programs that are designed to
reward executives for the achievement of specified business objectives of the
Company and/or the individual executive's particular business unit. By tying
compensation in part to particular goals, the Compensation Committee believes
that a performance-oriented environment is created for the Company's
executives. Finally, the Company's executive compensation programs are
intended to provide executives with an equity interest in the Company so as to
link a portion of the compensation of the Company's executives with the
performance of the Common Stock.
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally
disallows a tax deduction to public companies for compensation over $1,000,000
paid to its chief executive officer or any of its four other most highly
compensated executive officers. Qualifying performance-based compensation is
not subject to the deduction limit if certain requirements, such as
stockholder approval of a compensation plan, are met. Although the
Compensation Committee has considered the limitations on the deductibility of
executive compensation imposed by Section 162(m) in designing the Company's
executive compensation programs, the Committee believes that it is unlikely
that such limitations will affect the deductibility of the compensation to be
paid to the Company's executive officers in the near term. Based in part on
this judgment, the Compensation Committee has determined not to recommend to
the Company's Board of Directors that the bonus arrangements for the Company's
executive officers be submitted to the Company's stockholders for their
approval. The Compensation Committee believes that option grants at at least
fair market value and any stock awards made at fair market value under the
Company's 1996 Equity Incentive Plan should be exempt from the limitations of
Section 162(m).
The compensation programs for the Company's executives established by the
Compensation Committee consist of three elements based upon the objectives
described above: base salary; annual cash bonus; and a stock-based equity
incentive in the form of participation in the Company's 1996 Equity Incentive
Plan and/or Stock Purchase Plan. In establishing base salaries for executives,
the Compensation Committee monitors salaries at other companies, considers
historic salary levels of the individual and the nature of the individual's
responsibilities and compares the individual's base salary with those of other
executives at the Company. To the extent determined to be appropriate, the
Compensation Committee also considers general economic conditions, the
Company's financial performance and the individual's performance in
establishing base salaries of executives.
7
<PAGE>
During Fiscal 1998, Jeffrey M. Arnold was a party to a multi-year employment
agreement with the Company that provided for a bonus upon satisfaction of
certain criteria. Pursuant to such agreement, for Fiscal 1998 Mr. Arnold was
awarded a bonus of $67,500. The Compensation Committee believes that the base
salary levels provided for in Mr. Arnold's contract and the bonus criteria
established appropriate salary levels for Mr. Arnold in light of the factors
described above. Moreover, Mr. Arnold's employment agreement included
provisions prohibiting Mr. Arnold from engaging in a business competitive with
the Company during the term of the agreement and for one year after the
termination of his employment. The employment agreement with Mr. Arnold
expired on September 1, 1998. Mr. Arnold continues to be employed by the
Company as an employee at will.
The Compensation Committee generally structures cash bonuses not associated
with the above employment agreements by linking them to the achievement of
specified Company and/or business unit performance objectives. Pursuant to
such bonus policy, for Fiscal 1998 each of Messrs. Palardy, Dufford and Andra
Thomas were awarded a bonus of $15,000, $20,000 and $7,500, respectively.
Stock option grants in Fiscal 1998 were designed to link the overall
compensation of any executive officers receiving such awards with his
performance, in light of all other current and past compensation received by
such executive officer. Such grants, as a result of the applicable vesting
arrangements, also serve as a means for the Company to retain the services of
these individuals. In fiscal 1998, Mr. Arnold and Ms. Thomas each received
options to purchase 25,000 and 15,000 shares of Common Stock, respectively.
These option grants to the above Named Executive Officers were based on the
above described criteria. The exercise price of these options was equal to the
fair market value of the Company's Common Stock on the date of grant.
Compensation Committee
Harris A. Berman
J. Daniel Cole
8
<PAGE>
STOCK PERFORMANCE CHART
The following chart compares the percentage change in the cumulative total
stockholder return on the Common Stock during the period beginning August 2,
1996 (the date of the consummation of the Company's initial public offering)
and ending December 31, 1998 with the total return on the Nasdaq Stock Market
(U.S.) Index and the Dow Jones Advanced Medical Devices Index. The comparison
assumes $100 was invested on August 2, 1996 in the Common Stock and in each of
the foregoing indices and assumes reinvestment of dividends.
[GRAPH]
(Cumulative total return numbers provided by Research Data Group, Inc.)
PROPOSAL 1-- APPROVAL OF AN AMENDMENT TO
AND CONTINUANCE OF THE 1996 EQUITY INCENTIVE PLAN
The Board of Directors believes that the future growth and success of the
Company depends, in large part, on the ability of the Company to attract,
retain and motivate key personnel. Accordingly, on October 21, 1999 the Board
of Directors adopted, subject to stockholder approval, an amendment to the
Company's 1996 Equity Incentive Plan (the "1996 Plan") that would increase the
number of shares of Common Stock available for issuance under the 1996 Plan
from 1,000,000 shares to 1,300,000 shares. The Board believes this increase is
necessary in order to maintain a competitive position in attracting, retaining
and motivating key personnel because options for the purchase of 967,500
shares of Common Stock, net of forfeitures, have been granted since the
adoption of the 1996 Plan, leaving a balance of 32,500 shares reserved for
future option grants.
Section 162(m) of the Code generally disallows a tax deduction to public
companies for compensation over $1 million paid to the corporation's chief
executive officer and four other most highly compensated executive
9
<PAGE>
officers. Qualifying performance-based compensation is not subject to the
deduction limit if certain requirements are satisfied. In particular, income
recognized upon exercise of a stock option is not subject to the deduction
limit if the option is issued under a plan approved by the stockholders that
provides a limit to the number of shares that may be issued under the plan to
any individual.
In order for options and restricted stock awarded under the 1996 Plan, as
amended by the amendment, to comply with Section 162(m) of the Code after the
meeting, the continuance of the 1996 Plan must be approved by the
stockholders. If the stockholders do not vote to continue the 1996 Plan, the
Company will not grant any further options or make any further awards of
restricted stock under the 1996 Plan.
The Board of Directors believes that awards under the 1996 Plan, including
stock options, have been and will continue to be, an important compensation
element in attracting and retaining key employees who are expected to
contribute to the Company's growth and success. Accordingly, the Board of
Directors believes that the approval of the continuance of the 1996 Plan and
the approval of the amendment to the 1996 Plan are in the best interests of
the Company and its stockholders and recommends a vote in favor of these
proposals.
Summary of the 1996 Plan
The 1996 Plan was originally adopted by the Board of Directors on May 29,
1996 and approved by the stockholders of the Company in June 1996. The
principal provisions of the 1996 Plan are summarized below. This summary is
qualified in its entirety by reference to the 1996 Plan, a copy of which is
attached to the electronic copy of this Proxy Statement filed with the SEC and
may be accessed from the SEC's home page (www.sec.gov). In addition, a copy of
the 1996 Plan may be obtained by making a written request to the Secretary of
the Company.
Description of Awards under the 1996 Plan
The 1996 Plan provides for the grant of "incentive stock options" under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
options not intended to qualify as incentive stock options ("non-statutory
options"), restricted stock awards and other stock-based awards, including the
grant of shares based upon certain conditions, the grant of securities
convertible into Common Stock and the grant of stock appreciation rights
(collectively "Awards"). Currently, up to 1,000,000 shares of Common Stock
(subject to adjustment in the event of stock splits and other similar events)
may be issued pursuant to Awards granted under the 1996 Plan. The maximum
number of shares with respect to which Awards may be granted to any employee
under the 1996 Plan shall not exceed 300,000 shares of Common Stock per
calendar year.
On November 15, 1999, the last reported sale price of the Company's Common
Stock on the Nasdaq National Market was $2.75.
Eligibility
All of the employees, officers, directors, consultants and advisors of the
Company who are expected to contribute to the Company's future growth and
success (collectively "participants") are eligible to receive Awards under the
1996 Plan. Under present law, however, incentive stock options may only be
granted to employees.
As of October 31, 1999, the Company had forty employees and four non-
employee directors, all of whom were eligible to participate in the 1996 Plan.
The granting of Awards under the Plan is discretionary, as more fully
described below, and the number of individuals receiving Awards varies from
year to year depending upon factors such as the number of promotions and the
Company's hiring needs during the year. The Company cannot now determine the
number of shares of Common Stock to be awarded in the future to any particular
person or group. From the initial adoption of the 1996 Plan through October
31, 1999: options to purchase an aggregate of 125,000 shares thereunder had
been granted to Jeffrey M. Arnold, President and Chief Executive Officer of
the
10
<PAGE>
Company; options to purchase an aggregate of 110,000 shares thereunder had
been granted to Eric Dufford, Vice President of the Company, Marketing and
Sales and Secretary of the Company; options to purchase an aggregate of 90,000
shares thereunder had been granted to Robert B. Palardy, Vice President of the
Company, Finance and Administration and Chief Financial Officer of the
Company; options to purchase an aggregate of 485,000 shares thereunder had
been granted to all current executive officers of the Company as a group;
options to purchase an aggregate of 45,000 shares thereunder had been granted
to all current directors who are not executive officers of the Company as a
group; and options to purchase an aggregate of 333,500 shares thereunder had
been granted to all employees of the Company who are not executive officers.
All options are nontransferable other than by will or the law of descent and
distribution and, in the case of options which are not incentive stock
options, pursuant to a qualified domestic relations order. Incentive stock
options are exercisable during the lifetime of the option holder only while
the option holder is in the employ of the Company, or within three months
after termination of employment. In the event that termination is due to death
or disability, or if death occurs within three months after termination, the
option is exercisable for a one-year period thereafter.
Administration of the 1996 Plan
The 1996 Plan is administered by the Compensation Committee of the Board of
Directors. Subject to the provisions of the 1996 Plan, the Compensation
Committee has the authority to select the employees to whom options are
granted and determine the terms of each option, including (i) the number of
shares of Common Stock subject to the option, (ii) when the option becomes
exercisable, (iii) the option exercise price, which, in the case of incentive
stock options, must be at least 100% (110% in the case of incentive stock
options granted to a stockholder possessing more than 10% of the total
combined voting power of all classes of stock of the Company) of the fair
market value of the Common Stock as of the date of grant, and (iv) the
duration of the options (which, in the case of incentive stock options, may
not exceed ten years from the day of the grant or five years in the case of
incentive stock options granted to stockholders possessing more than 10% of
the total combined voting power of all classes of stock of the Company).
The Compensation Committee may, in its sole discretion, include additional
provisions in any option or Award granted or made under the 1996 Plan, so long
as not inconsistent with the 1996 Plan or applicable law. The Compensation
Committee may also, in its sole discretion, accelerate or extend the date or
dates on which all or any particular option or options granted under the 1996
Plan may be exercised.
Payment of the option exercise price may be made in cash, shares of Common
Stock, a combination of cash or stock, by a broker-assisted cashless exercise
or by any other method (including delivery of a promissory note payable on
terms specified by the Compensation Committee) approved by the Compensation
Committee consistent with Section 422 of the Code and Rule 16b-3 ("Rule 16b-
3") under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
To the extent not exercised, all options granted under the 1996 Plan shall
terminate immediately prior to a dissolution or liquidation of the Company. In
the event of a merger of the Company or the sale of substantially all of the
assets of the Company, the Board of Directors shall have the discretion to
accelerate the vesting of the options granted under the 1996 Plan.
Federal Income Tax Consequences
The following summary of the United States federal income tax consequences
that generally will arise with respect to awards granted under the 1996 Plan
and with respect to the sale of Common Stock acquired under the 1996 Plan.
Incentive Stock Options
In general, a participant will not recognize taxable income upon the grant
or exercise of an incentive stock option. Instead, a participant will
recognize taxable income with respect to an incentive stock option only upon
11
<PAGE>
the sale of Common Stock acquired through the exercise of the option ("ISO
Stock"). The exercise of an incentive stock option, however, may subject the
participant to the alternative minimum tax.
Generally, the tax consequences of selling ISO Stock will vary with the
length of time that the participant has owned the ISO Stock at the time it is
sold. If the participant sells ISO Stock after having owned it for at least
two years from the date the option was granted (the "Grant Date") and one year
from the date the option was exercised (the "Exercise Date"), then the
participant will recognize long-term capital gain in an amount equal to the
excess of the sale price of the ISO Stock over the exercise price.
If the participant sells ISO Stock for more than the exercise price prior to
having owned it for at least two years from the Grant Date and one year from
the Exercise Date (a "Disqualifying Disposition"), then all or a portion of
the gain recognized by the participant will be ordinary compensation income
and the remaining gain, if any, will be a capital gain. This capital gain will
be a long-term capital gain if the participant has held the ISO Stock for more
than one year prior to the date of sale.
Non-statutory Stock Options
As in the case of an incentive stock option, a participant will not
recognize taxable income upon the grant of a non-statutory stock option.
Unlike the case of an incentive stock option, however, a participant who
exercises a non-statutory stock option generally will recognize ordinary
compensation income in an amount equal to the excess of the fair market value
of the Common Stock acquired through the exercise of the option ("NSO Stock")
on the Exercise Date over the exercise price.
With respect to any NSO Stock, a participant will have a tax basis equal to
the exercise price plus any income recognized upon the exercise of the option.
Upon selling NSO Stock, a participant generally will recognize capital gain or
loss in an amount equal to the excess of the sale price of the NSO Stock over
the participant's tax basis in the NSO Stock. This capital gain or loss will
be long-term gain or loss if the participant has held the NSO Stock for more
than one year prior to the date of the sale.
Restricted Stock
A participant will not recognize taxable income upon the grant of a
restricted stock award unless the participant makes an election under Section
83(b) of the Code (a "Section 83(b) Election"). If the participant makes a
Section 83(b) Election within 30 days of the date of the grant, then the
participant will recognize ordinary compensation income, for the year in which
the Award is granted, in an amount equal to the difference between the fair
market value of the Common Stock at the time the award is granted and the
purchase price paid for the Common Stock. If a Section 83(b) Election is not
made, then the participant will recognize ordinary compensation income, at the
time that the forfeiture provisions or restrictions on transfer lapse, in an
amount equal to the difference between the fair market value of the Common
Stock at the time of such lapse and the original purchase price paid for the
Common Stock. The participant will have a tax basis in the Common Stock
acquired equal to the sum of the price paid and the amount of ordinary
compensation income recognized.
Upon the disposition of the Common Stock acquired pursuant to a restricted
stock award, the participant will recognize a capital gain or loss in an
amount equal to the difference between the sale price of the Common Stock and
the participant's tax basis in the Common Stock. This capital gain or loss
will be a long-term capital gain or loss if the shares are held for more than
one year. For this purpose, the holding period shall begin just after the date
on which the forfeiture provisions or restrictions lapse if a Section 83(b)
Election is not made, or just after the award is granted if a Section 83(b)
Election is made.
Other Stock-Based Awards
The tax consequences associated with any other stock-based Award granted
under the 1996 Plan will vary depending on the specific terms of such Award.
Among the relevant factors are whether or not the Award has a readily
ascertainable fair market value, whether or not the Award is subject to
forfeiture provisions or restrictions on transfer, the nature of the property
to be received by the participant under the Award and the participant's
holding period and tax basis for the Award or underlying Common Stock.
12
<PAGE>
Tax Consequences to the Company
The grant of an Award under the 1996 Plan will have no tax consequences to
the Company. Moreover, in general, neither the exercise of an incentive stock
option nor the sale of any Common Stock acquired under the 1996 Plan will have
any tax consequences to the Company. The Company generally will be entitled to
a business-expense deduction, however, with respect to any ordinary
compensation income recognized by a participant under the 1996 Plan, including
in connection with a restricted stock award or as a result of the exercise of
a non-statutory stock option or a Disqualifying Disposition. Any such
deduction will be subject to the limitations of Section 162(m) of the Code.
The Board of Directors believes the adoption of this amendment and
continuance of the 1996 Plan are in the best interests of the Company and its
stockholders and recommends a vote FOR the adoption of each of these
proposals.
OTHER MATTERS
The Board of Directors does not know of any other matters which may come
before the Meeting. However, if any other matters are properly presented to
the Meeting, it is the intention of the persons named in the accompanying
proxy to vote, or otherwise act, in accordance with their judgment on such
matters.
All costs of solicitations of proxies will be borne by the Company. In
addition to solicitations by mail, the Company's directors, officers and
regular employees, without additional remuneration, may solicit proxies by
telephone, telecopy, personal interviews, and other means. Brokers, custodians
and fiduciaries will be requested to forward proxy soliciting material to the
owners of stock held in their names, and the Company will reimburse them for
their out-of-pocket expenses in connection therewith.
Deadline for Submission of Stockholder Proposals for the 2000 Annual Meeting
Proposals of stockholders intended to be presented at the 2000 Annual
Meeting of Stockholders must be submitted to the Secretary of the Company at
its offices, One Oak Park Drive, Bedford, Massachusetts 01730, no later than
December 16, 1999 in order to be considered for inclusion in the Proxy
Statement relating to that meeting.
If a stockholder of the Company wishes to present a proposal before the 2000
Annual Meeting, but does not wish to have the proposal considered for
inclusion in the Company's proxy statement and proxy card, such stockholder
must also give written notice to the Secretary of the Company at the address
noted above. The Secretary must receive such notice not less than 60 days nor
more than 90 days prior to the 2000 Annual Meeting; provided that, in the
event that less than 70 days' notice or prior public disclosure of the date of
the 2000 Annual Meeting is given or made, notice by the stockholder must be
received not later than the close of business on the 10th day following the
date on which such notice of the date of the meeting was mailed or such public
disclosure was made, whichever occurs first. If a stockholder fails to provide
timely notice of a proposal to be presented at the 2000 Annual Meeting, the
proxies designated by the Board of Directors of the Company will have
discretionary authority to vote on any such proposal.
By Order of the Board of Directors,
Eric Dufford, Secretary
November 22, 1999
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. PROMPT RESPONSE WILL
GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING AND YOUR COOPERATION WILL BE
APPRECIATED.
13
<PAGE>
AMENDMENT TO
1996 EQUITY INCENTIVE PLAN
OF
CAMBRIDGE HEART, INC.
The Cambridge Heart, Inc. 1996 Equity Incentive Plan (the "Plan"), is
hereby amended as set forth below:
1. Section 5(a) of the Plan is hereby amended be deleting the first
sentence thereof and substituting the following therefor:
"Subject to adjustment under subsection (b) below, Awards may be
made under the Plan for up to 1,300,000 shares of Common Stock."
2. In all other respects, the Plan shall remain in full force and effect.
Adopted by the
Board of Directors
on October 21, 1999
Presented to the
Stockholders for their
approval on December 21, 1999
<PAGE>
CAMBRIDGE HEART, INC.
1996 EQUITY INCENTIVE PLAN
--------------------------
1. Purpose
-------
The purpose of this 1996 Equity Incentive Plan (the "Plan") of Cambridge
Heart, Inc., a Delaware corporation (the "Company"), is to advance the interests
of the Company by enhancing its ability to attract and retain key employees,
consultants and others who are in a position to contribute to the Company's
future growth and success.
2. Definitions
-----------
"Award" means any Option, Stock Appreciation Right, Performance Shares,
-----
Restricted Stock or Unrestricted Stock awarded under the Plan.
"Board" means the Board of Directors of the Company.
-----
"Code" means the Internal Revenue Code of 1986, as amended from time to
----
time.
"Committee" means a committee of not less than two members of the Board
---------
appointed by the Board to administer the Plan, provided that if and when the
Common Stock is registered under Section 12 of the Exchange Act, each member of
the Committee shall be a "disinterested person" within the meaning of Rule 16b-3
under the Exchange Act ("Rule 16b-3").
"Common Stock" means Common Stock, par value $.001 per share, of the
------------
Company.
"Company" means Cambridge Heart, Inc. and, except where the context
-------
otherwise requires, all present and future subsidiaries of Cambridge Heart, Inc.
as defined in Section 424(f) of the Code.
"Designated Beneficiary" means the beneficiary designated by a Participant,
----------------------
in a manner determined by the Board, to receive amounts due or exercise rights
of the Participant in the event of the Participant's death. In the absence of an
effective designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
------------
time to time.
<PAGE>
"Fair Market Value" means, with respect to Common Stock or any other
-----------------
property, the fair market value of such property as determined by the Board in
good faith or in the manner established by the Board from time to time.
"Incentive Stock Option" means an option to purchase shares of Common Stock
----------------------
awarded to a Participant under Section 6 which is intended to meet the
requirements of Section 422 of the Code or any successor provision.
"Nonstatutory Stock Option" means an option to purchase shares of Common
-------------------------
Stock awarded to a Participant under Section 6 which is not intended to be an
Incentive Stock Option.
"Option" means an Incentive Stock Option or a Nonstatutory Stock Option.
------
"Participant" means a person selected by the Board to receive an Award
-----------
under the Plan.
"Performance Shares" mean shares of Common Stock which may be earned by the
------------------
achievement of performance goals established for a Participant under Section 8.
"Reporting Person" means a person subject to Section 16 of the Exchange Act
----------------
or any successor provision.
"Restricted Period" means the period of time selected by the Board during
-----------------
which shares subject to a Restricted Stock Award may be repurchased by or
forfeited to the Company.
"Restricted Stock" means shares of Common Stock awarded to a Participant
----------------
under Section 9.
"Stock Appreciation Right" or "SAR" means a right to receive any excess in
------------------------
Fair Market Value of shares of Common Stock over the exercise price of the Award
granted to a Participant under Section 7.
"Unrestricted Stock" means shares of Common Stock awarded to a Participant
------------------
under Section 9(c).
3. Administration
--------------
The Plan will be administered by the Board. The Board shall have authority
to make Awards and to adopt, amend and repeal such administrative rules,
guidelines and practices relating to the Plan as it shall deem advisable from
time to time, and to interpret the provisions of the Plan. The Board's decisions
shall
-2-
<PAGE>
be final and binding. No member of the Board shall be liable for any action or
determination relating to the Plan made in good faith. To the extent permitted
by applicable law, the Board may delegate to one or more executive officers of
the Company the power to make Awards to Participants who are not Reporting
Persons and all determinations under the Plan with respect thereto, provided
that the Board shall fix the maximum amount of such Awards to be made by such
executive officers and a maximum amount for any one Participant. To the extent
permitted by applicable law, the Board may appoint a Committee to administer the
Plan and, in such event, all references to the Board in the Plan shall mean such
Committee or the Board. All decisions by the Board or the Committee pursuant to
the Plan shall be final and binding on all persons having or claiming any
interest in the Plan or in any Award.
4. Eligibility
-----------
All of the Company's employees, officers, directors, consultants and
advisors who are expected to contribute to the Company's future growth and
success, other than persons who have irrevocably elected not to be eligible, are
eligible to be Participants in the Plan. Incentive Stock Options may be awarded
only to persons eligible to receive Incentive Stock Options under the Code.
5. Stock Available for Awards
--------------------------
(a) Subject to adjustment under subsection (b) below, Awards may be made
under the Plan for up to 1,000,000 shares of Common Stock. If any Award in
respect of shares of Common Stock expires or is terminated unexercised or is
forfeited for any reason or settled in a manner that results in fewer shares
outstanding than were initially awarded, the shares subject to such Award or so
surrendered, as the case may be, to the extent of such expiration, termination,
forfeiture or decrease, shall again be available for award under the Plan,
subject, however, in the case of Incentive Stock Options, to any limitation
required under the Code and provided that shares made available pursuant to this
sentence shall be available for Awards to Reporting Persons only to the extent
consistent with Rule 16b-3. Shares issued under the Plan may consist in whole or
in part of authorized but unissued shares or treasury shares.
(b) In the event that the Board, in its sole discretion, determines that
any stock dividend, extraordinary cash dividend, recapitalization,
reorganization, merger, consolidation, split-up, spin-off, combination or other
similar transaction affects the Common Stock such that an adjustment is required
in order to
-3-
<PAGE>
preserve the benefits or potential benefits intended to be made available under
the Plan, then the Board, subject, in the case of Incentive Stock Options, to
any limitation required under the Code, shall equitably adjust any or all of (i)
the number and kind of shares in respect of which Awards may be made under the
Plan, (ii) the number and kind of shares subject to outstanding Awards, and
(iii) the award, exercise or conversion price with respect to any of the
foregoing, and if considered appropriate, the Board may make provision for a
cash payment with respect to an outstanding Award, provided that after an IPO,
the number of shares subject to any Award shall always be a whole number.
(c) The Board may grant Awards under the Plan in substitution for stock and
stock based awards held by employees of another corporation who concurrently
become employees of the Company as a result of a merger or consolidation of the
employing corporation with the Company (or a subsidiary of the Company) or the
acquisition by the Company (or a subsidiary of the Company) of property or stock
of the employing corporation. The substitute Awards shall be granted on such
terms and conditions as the Board considers appropriate in the circumstances.
(d) Subject to adjustment under Section 5(b), the maximum number of shares
with respect to which an Award may be granted to any employee under the Plan
shall not exceed 300,000 per calendar year. For purposes of calculating such
maximum number, (a) an Award shall continue to be treated as outstanding
notwithstanding its repricing, cancellation or expiration and (b) the repricing
of an outstanding Award or issuance of a new Award in substitution for a
cancelled Award shall be deemed to constitute the grant of a new additional
Award separate from the original grant of the Award that is repriced or
cancelled.
6. Stock Options
-------------
(a) General
-------
(i) Subject to the provisions of the Plan, the Board may award
Incentive Stock Options and Nonstatutory Stock Options, and determine the number
of shares of Common Stock to be covered by each Option, the option price of such
Option and the conditions and limitations applicable to the exercise of such
Option. The terms and conditions of Incentive Stock Options shall be subject to
and comply with Section 422 of the Code, or any successor provision, and any
regulations thereunder.
(ii) The Board shall establish the exercise price at the time each
Option is awarded. In the case of Incentive Stock
-4-
<PAGE>
Options, such price shall not be less than 100% of the Fair Market Value of the
Common Stock on the date of award.
(iii) Each Option shall be exercisable at such times and subject to
such terms and conditions as the Board may specify in the applicable Award or
thereafter. The Board may impose such conditions with respect to the exercise of
Options, including conditions relating to applicable federal or state securities
laws, as it considers necessary or advisable.
(iv) Options granted under the Plan may provide for the payment of
the exercise price by delivery of cash or check in an amount equal to the
exercise price of such Options or, to the extent permitted by the Board at or
after the award of the Option, by (A) delivery of shares of Common Stock owned
by the optionee for at least six months (or such shorter period as is approved
by the Board), valued at their Fair Market Value, (B) delivery of a promissory
note of the optionee to the Company on terms determined by the Board, (C)
delivery of an irrevocable undertaking by a broker to deliver promptly to the
Company sufficient funds to pay the exercise price or delivery of irrevocable
instructions to a broker to deliver promptly to the Company cash or a check
sufficient to pay the exercise price, (D) payment of such other lawful
consideration as the Board may determine, or (E) any combination of the
foregoing.
(v) The Board may provide for the automatic award of an Option
upon the delivery of shares to the Company in payment of the exercise price of
an Option for up to the number of shares so delivered.
(vi) The Board may at any time accelerate the time at which all or
any part of an Option may be exercised.
(b) Incentive Stock Options
-----------------------
Options granted under the Plan which are intended to be Incentive
Stock Options shall be subject to the following additional terms and conditions:
(i) All Incentive Stock Options granted under the Plan shall, at
the time of grant, be specifically designated as such in the option agreement
covering such Incentive Stock Options. The Option exercise period shall not
exceed ten years from the date of grant.
(ii) If any employee to whom an Incentive Stock Option is to be
granted under the Plan is, at the time of the grant of such option, the owner of
stock possessing more than 10% of the
-5-
<PAGE>
total combined voting power of all classes of stock of the Company (after taking
into account the attribution of stock ownership rule of Section 424(b) and of
the Code), then the following special provisions shall be applicable to the
Incentive Stock Option granted to such individual:
(x) The purchase price per share of the Common Stock subject to
such Incentive Stock Option shall not be less than 110% of the Fair Market
Value of one share of Common Stock at the time of grant; and
(y) The option exercise period shall not exceed five years from
the date of grant.
(iii) For so long as the Code shall so provide, options granted to
any employee under the Plan (and any other incentive stock option plans of the
Company) which are intended to constitute Incentive Stock Options shall not
constitute Incentive Stock Options to the extent that such options, in the
aggregate, become exercisable for the first time in any one calendar year for
shares of Common Stock with an aggregate Fair Market Value (determined as of the
respective date or dates of grant) of more than $100,000.
(iv) No Incentive Stock Option may be exercised unless, at the time
of such exercise, the Participant is, and has been continuously since the date
of grant of his or her Option, employed by the Company, except that:
(x) an Incentive Stock Option may be exercised within the period
of three months after the date the Participant ceases to be an employee of
the Company (or within such lesser period as may be specified in the
applicable option agreement), provided, that the agreement with respect to
--------
such Option may designate a longer exercise period and that the exercise
after such three-month period shall be treated as the exercise of a
Nonstatutory Stock Option under the Plan;
(y) if the Participant dies while in the employ of the Company,
or within three months after the Participant ceases to be such an employee,
the Incentive Stock Option may be exercised by the Participant's Designated
Beneficiary within the period of one year after the date of death (or
within such lesser period as may be specified in the applicable Option
agreement); and
(z) if the Participant becomes disabled (within the meaning of
Section 22(e)(3) of the Code or any successor
-6-
<PAGE>
provision thereto) while in the employ of the Company, the Incentive Stock
Option may be exercised within the period of one year after the date of
death (or within such lesser period as may be specified in the applicable
Option agreement).
For all purposes of the Plan and any Option granted hereunder, "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations (or any successor regulations). Notwithstanding the
foregoing provisions, no Incentive Stock Option may be exercised after its
expiration date.
(v) Incentive Stock Options shall not be assignable or transferable
by the person to whom they are granted, either voluntarily or by operation of
law, except by will or the laws of descent and distribution, and, during the
life of the optionee, shall be exercisable only by the optionee.
7. Stock Appreciation Rights
-------------------------
(a) The Board may grant SARs entitling recipients on exercise of the SAR to
receive an amount, in cash or Common Stock or a combination thereof (such form
to be determined by the Board), determined in whole or in part by reference to
appreciation in the Fair Market Value of the Common Stock between the date of
the Award and the exercise of the Award. A SAR shall entitle the Participant to
receive, with respect to each share of Common Stock as to which the SAR is
exercised, the excess of the share's Fair Market Value on the date of exercise
over its Fair Market Value on the date the SAR was granted. The Board may also
grant SARs that provide that, following a change in control of the Company (as
defined by the Board at the time of the Award), the holder of such SAR will be
entitled to receive, with respect to each share of Common Stock subject to the
SAR, an amount equal to the excess of a specified value (which may include an
average of values) for a share of Common Stock during a period preceding such
change in control over the Fair Market Value of a share of Common Stock on the
date the SAR was granted.
(b) SARs may be granted in tandem with, or independently of, Options
granted under the Plan. A SAR granted in tandem with an Option which is not an
Incentive Stock Option may be granted either at or after the time the Option is
granted. A SAR granted in tandem with an Incentive Stock Option may be granted
only at the time the Option is granted.
(c) When SARs are granted in tandem with Options, the following provisions
will apply:
-7-
<PAGE>
(i) The SAR will be exercisable only at such time or times, and to
the extent, that the related Option is exercisable and will be exercisable in
accordance with the procedure required for exercise of the related Option.
(ii) The SAR will terminate and no longer be exercisable upon the
termination or exercise of the related Option, except that a SAR granted with
respect to less than the full number of shares covered by an Option will not be
reduced until the number of shares as to which the related Option has been
exercised or has terminated exceeds the number of shares not covered by the SAR.
(iii) The Option will terminate and no longer be exercisable upon the
exercise of the related SAR.
(iv) The SAR will be transferable only with the related Option.
(v) A SAR granted in tandem with an Incentive Stock Option may be
exercised only when the market price of the Common Stock subject to the Option
exceeds the exercise price of such Option.
(d) A SAR not granted in tandem with an Option will become exercisable at
such time or times, and on such conditions, as the Board may specify.
(e) The Board may at any time accelerate the time at which all or any part
of the SAR may be exercised.
8. Performance Shares
------------------
(a) The Board may make Performance Share Awards entitling recipients to
acquire shares of Common Stock upon the attainment of specified performance
goals. The Board may make Performance Share Awards independent of or in
connection with the granting of any other Award under the Plan. The Board in its
sole discretion shall determine the performance goals applicable under each such
Award, the periods during which performance is to be measured, and all other
limitations and conditions applicable to the awarded Performance Shares;
provided, however, that the Board may rely on the performance goals and other
standards applicable to other performance plans of the Company in setting the
standards for Performance Share Awards under the Plan.
(b) Performance Share Awards and all rights with respect to such Awards may
not be sold, assigned, transferred, pledged or otherwise encumbered.
-8-
<PAGE>
(c) A Participant receiving a Performance Share Award shall have the rights
of a stockholder only as to shares actually received by the Participant under
the Plan and not with respect to shares subject to an Award but not actually
received by the Participant. A Participant shall be entitled to receive a stock
certificate evidencing the acquisition of shares of Common Stock under a
Performance Share Award only upon satisfaction of all conditions specified in
the agreement evidencing the Performance Share Award.
(d) The Board may at any time accelerate or waive any or all of the goals,
restrictions or conditions imposed under any Performance Share Award.
9. Restricted and Unrestricted Stock
---------------------------------
(a) The Board may grant Restricted Stock Awards entitling recipients to
acquire shares of Common Stock, subject to the right of the Company to
repurchase all or part of such shares at their purchase price (or to require
forfeiture of such shares if purchased at no cost) from the recipient in the
event that conditions specified by the Board in the applicable Award are not
satisfied prior to the end of the applicable Restricted Period or Restricted
Periods established by the Board for such Award. Conditions for repurchase (or
forfeiture) may be based on continuing employment or service or achievement of
pre-established performance or other goals and objectives.
(b) Shares of Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered, except as permitted by the Board, during the
applicable Restricted Period. Shares of Restricted Stock shall be evidenced in
such manner as the Board may determine. Any certificates issued in respect of
shares of Restricted Stock shall be registered in the name of the Participant
and, unless otherwise determined by the Board, deposited by the Participant,
together with a stock power endorsed in blank, with the Company (or its
designee). At the expiration of the Restricted Period, the Company (or such
designee) shall deliver such certificates to the Participant or if the
Participant has died, to the Participant's Designated Beneficiary.
(c) The Board may, in its sole discretion, grant (or sell at a purchase
price determined by the Board, which shall not be lower than 85% of Fair Market
Value on the date of sale) to Participants shares of Common Stock free of any
restrictions under the Plan ("Unrestricted Stock").
(d) The purchase price for each share of Restricted Stock and Unrestricted
Stock shall be determined by the Board of
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Directors. Such purchase price may be paid in the form of past services or such
other lawful consideration as is determined by the Board.
(e) The Board may at any time accelerate the expiration of the Restricted
Period applicable to all, or any particular, outstanding shares of Restricted
Stock.
10. General Provisions Applicable to Awards
---------------------------------------
(a) Applicability of Rule 16b-3. Those provisions of the Plan which make an
---------------------------
express reference to Rule 16b-3 shall apply to the Company only at such time as
the Company's Common Stock is registered under the Exchange Act, or any
successor provision, and then only to Reporting Persons.
(b) Reporting Person Limitations. Notwithstanding any other provision of
----------------------------
the Plan, to the extent required to qualify for the exemption provided by Rule
16b-3, (i) any Option, SAR, Performance Share Award or other similar right
related to an equity security issued under the Plan to a Reporting Person shall
not be transferable other than by will or the laws of descent and distribution
or pursuant to a qualified domestic relations order as defined by the Code or
Title I or the Employee Retirement Income Security Act ("ERISA"), or the rules
thereunder, and shall be exercisable during the Participant's lifetime only by
the Participant or the Participant's guardian or legal representative, and (ii)
the selection of a Reporting Person as a Participant and the terms of his or her
Award shall be determined only in accordance with the applicable provisions of
Rule 16b-3.
(c) Documentation. Each Award under the Plan shall be evidenced by an
-------------
instrument delivered to the Participant specifying the terms and conditions
thereof and containing such other terms and conditions not inconsistent with the
provisions of the Plan as the Board considers necessary or advisable. Such
instruments may be in the form of agreements to be executed by both the Company
and the Participant, or certificates, letters or similar documents, acceptance
of which will evidence agreement to the terms thereof and of this Plan.
(d) Board Discretion. Except as otherwise provided by the Plan, each type
----------------
of Award may be made alone, in addition to or in relation to any other type of
Award. The terms of each type of Award need not be identical, and the Board need
not treat Participants uniformly. Except as otherwise provided by the Plan or a
particular Award, any determination with respect to an Award may be made by the
Board at the time of award or at any time thereafter.
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(e) Termination of Status. Subject to the provisions of Section 6(b)(iv),
---------------------
the Committee shall determine the effect on an Award of the disability, death,
retirement, authorized leave of absence or other termination of employment or
other status of a Participant and the extent to which, and the period during
which, the Participant's legal representative, guardian or Designated
Beneficiary may exercise rights under such Award.
(f) Mergers, Etc. In the event of a consolidation, merger or other
------------
reorganization in which all of the outstanding shares of Common Stock are
exchanged for securities, cash or other property of any other corporation or
business entity (an "Acquisition") or in the event of a liquidation of the
Company, the Board of Directors of the Company, or the board of directors of any
corporation assuming the obligations of the Company, may, in its discretion,
take any one or more of the following actions as to outstanding Awards: (i)
provide that such Awards shall be assumed, or substantially equivalent Awards
shall be substituted, by the acquiring or succeeding corporation (or an
affiliate thereof) on such terms as the Board determines to be appropriate, (ii)
upon written notice to Participants, provide that all unexercised Options or
SARs will become exercisable in full and will terminate immediately prior to the
consummation of such transaction except to the extent exercised by the
Participant within a specified period following the date of such notice, (iii)
in the event of an Acquisition under the terms of which holders of the Common
Stock of the Company will receive upon consummation thereof a cash payment for
each share surrendered in the Acquisition (the "Acquisition Price"), make or
provide for a cash payment to each Participant equal to the difference between
(A) the Acquisition Price times the number of shares of Common Stock subject to
outstanding Options or SARs of such Participant (to the extent such Options or
SARs have exercise prices not in excess of the Acquisition Price) and (B) the
aggregate exercise price of all such outstanding Options or SARs, in exchange
for the termination of all such Options and SARs held by such Participants, and
(iv) provide that all or any outstanding Awards shall become exercisable or
realizable in full prior to the effective date of such Acquisition.
(g) Withholding. The Participant shall pay to the Company, or make
-----------
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in respect of Awards under the Plan no later than the date of the
event creating the tax liability. In the Board's discretion, and subject to such
conditions as the Board may establish, such tax obligations may be paid in whole
or in part in shares of Common Stock, including shares retained from the Award
creating the tax obligation, valued at their Fair Market Value. The Company may,
to the extent
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permitted by law, deduct any such tax obligations from any payment of any kind
otherwise due to the Participant.
(h) Foreign Nationals. Awards may be made to Participants who are foreign
-----------------
nationals or employed outside the United States on such terms and conditions
different from those specified in the Plan as the Board considers necessary or
advisable to achieve the purposes of the Plan or comply with applicable laws.
(i) Amendment of Award. The Board may amend, modify or terminate any
------------------
outstanding Award, including substituting therefor another Award of the same or
a different type, changing the date of exercise or realization and converting an
Incentive Stock Option to a Nonstatutory Stock Option, provided that the
Participant's consent to such action shall be required unless the Board
determines that the action, taking into account any related action, would not
materially and adversely affect the Participant.
(j) Cancellation and New Grant of Options. The Board of Directors shall
-------------------------------------
have the authority to effect, at any time and from time to time, with the
consent of the affected optionees, (i) the cancellation of any or all
outstanding Options under the Plan and the grant in substitution therefor of new
Options under the Plan covering the same or different numbers of shares of
Common Stock and having an option exercise price per share which may be lower or
higher than the exercise price per share of the cancelled Options or (ii) the
amendment of the terms of any and all outstanding Options under the Plan to
provide an option exercise price per share which is higher or lower than the
then current exercise price per share of such outstanding Options.
(k) Conditions on Delivery of Stock. The Company will not be obligated to
-------------------------------
deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan (i) until all
conditions of the Award have been satisfied or removed, (ii) until, in the
opinion of the Company's counsel, all applicable federal and state laws and
regulations have been complied with, (iii) if the outstanding Common Stock is at
the time listed on any stock exchange, until the shares to be delivered have
been listed or authorized to be listed on such exchange upon official notice of
notice of issuance, and (iv) until all other legal matters in connection with
the issuance and delivery of such shares have been approved by the Company's
counsel. If the sale of Common Stock has not been registered under the
Securities Act of 1933, as amended, the Company may require, as a condition to
exercise of the Award, such representations or agreements as the Company may
consider appropriate to avoid violation of such Act and may require that
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<PAGE>
the certificates evidencing such Common Stock bear an appropriate legend
restricting transfer.
11. Miscellaneous
-------------
(a) No Right To Employment or Other Status. No person shall have any claim
--------------------------------------
or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or service
for the Company. The Company expressly reserves the right at any time to dismiss
a Participant free from any liability or claim under the Plan, except as
expressly provided in the applicable Award.
(b) No Rights As Stockholder. Subject to the provisions of the applicable
------------------------
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed under
the Plan until he or she becomes the record holder thereof.
(c) Exclusion from Benefit Computations. No amounts payable upon exercise
-----------------------------------
of Awards granted under the Plan shall be considered salary, wages or
compensation to Participants for purposes of determining the amount or nature of
benefits that Participants are entitled to under any insurance, retirement or
other benefit plans or programs of the Company.
(d) Effective Date and Term. The Plan shall become effective upon the
-----------------------
closing of the Company's initial public offering. No Award granted under the
Plan shall become effective until the Plan shall have been approved by the
Company's stockholders. If such stockholder approval is not obtained within
twelve months after the date of the Board's adoption of the Plan, no Options
previously granted under the Plan shall be deemed to be Incentive Stock Options
and no Incentive Stock Options shall be granted thereafter. No Award may be made
under the Plan after May [ ], 2006, but Awards previously granted may extend
beyond that date.
(e) Amendment of Plan. The Board may amend, suspend or terminate the Plan
-----------------
or any portion thereof at any time, provided that no amendment shall be made
without stockholder approval if such approval is necessary to comply with any
applicable tax or regulatory requirement, including any requirements for
compliance with Rule 16b-3. Amendments requiring stockholder approval shall
become effective when adopted by the Board of Directors, but no Incentive Stock
Option granted after the date of such amendment shall become exercisable (to the
extent that such amendment to the Plan was required to enable the Company to
grant such Incentive Stock Option to a particular Participant) unless and until
such
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<PAGE>
amendment shall have been approved by the Company's stockholders. If such
stockholder approval is not obtained within twelve months of the Board's
adoption of such amendment, any Incentive Stock Options granted on or after the
date of such amendment shall terminate to the extent that such amendment to the
Plan was required to enable the Company to grant such option to a particular
Participant.
(f) Governing Law. The provisions of the Plan shall be governed by and
-------------
interpreted in accordance with the laws of the State of Delaware.
Adopted by the Board of Directors
on May 29, 1996
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<PAGE>
Please date, sign and mail your
proxy card back as soon as possible.
Special Meeting of Stockholders
CAMBRIDGE HEART, INC.
December 21, 1999
[Please Detach and Mail in the Envelope Provided]
[X] Please mark your
votes as in this
example.
FOR AGAINST ABSTAIN
1. Approval of (i) an amendment to the [ ] [ ] [ ]
Cambridge Heart, Inc. 1996 Equity Incentive
Plan. Increasing the number of shares of
Common Stock reserved for issuance from 1,000,000 to
1,300,000 and (ii) the continuance of the Cambridge Heart,
Inc. 1996 Equity Incentive Plan.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS
DIRECTED BY THE UNDERSIGNED. IF NO DIRECTION IS GIVEN WITH
RESPECT TO ANY PROPOSAL SPECIFIED ABOVE. THIS PROXY WILL BE
VOTED FOR SUCH PROPOSAL.
Attendance of the undersigned at the meeting or at any
adjourned session thereof will not be deemed to revoke this
proxy unless the undersigned shall affirmatively indicate
thereof the intention of the undersigned to vote said share
in person. If the undersigned hold(s) any of the shares of the
Company in a fiduciary, custodial or joint capacity or
capacities; this proxy is signed by the undersigned in every
such capacity as well as individually.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING
THE ENCLOSED ENVELOPE.
SIGNATURE(S)________________________________________________ DATE:______________
Note: Please sign name(s) exactly as appearing hereon. When signing as attorney,
executor, administrator or other fiduciary, please give your full title as
such. Joint owners should each sign personally.
<PAGE>
CAMBRIDGE HEART, INC.
PROXY PROXY
SPECIAL MEETING OF STOCKHOLDERS - DECEMBER 21, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned, having received notice of the meeting and the proxy
statement therefor, and revoking all prior proxies, hereby appoint(s) Jeffrey M.
Arnold and Robert B. Palardy, and each of them, attorneys or attorney of the
undersigned (with full power of substitution in them and each of them) for and
in the name(s) of the undersigned to attend the Special Meeting of Stockholders
of Cambridge Heart, Inc. (the "Company") to be held at the offices of Hale and
Dorr LLP, 60 State Street, Boston, Massachusetts, at 10:00 a.m. (local time), on
Tuesday, December 21, 1999 and any adjourned sessions thereof, and there to vote
and act upon the following matters in respect of shares of Common Stock of the
Company which the undersigned would be entitled to vote or act upon, with all
powers the undersigned would possess, if personally present. Each of the
following matters is being proposed by the Company.
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING, OR ANY ADJOURNMENT THEREOF.
(To Be Signed on Reverse Side)
