UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
ICU Medical, Inc.
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(Name of Registrant as Specified In Its Charter)
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Notes:
ICU MEDICAL, INC.
951 CALLE AMANECER
SAN CLEMENTE, CALIFORNIA 92673
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 13, 2003
----------------------
This Annual meeting of Stockholders of ICU Medical, Inc. (the "Company") will be
held by means of remote communication on the Internet at the Company's web site,
www.icumed.com, and by conference telephone at (800) 915-4836, on Friday, June
13, 2003 at 9:00 a.m., Pacific Daylight Time, for the following purposes:
1. To elect two directors of the Company to serve for a term
of three years and until their successors have been elected and
qualified;
2. To consider a proposal to approve the ICU Medical, Inc.
2003 Stock Option Plan;
3. To ratify the selection of Deloitte & Touche LLP,
independent auditors, as independent auditors for the Company for the
year ending December 31, 2003; and
4. To transact such other business as may properly come before
the Annual Meeting or any adjournment thereof.
The Board of Directors has determined that only holders of Common Stock
of record at the close of business on April 25, 2003 will be entitled to receive
notice of, and to vote at, the Annual Meeting or any adjournment thereof.
YOU MAY ATTEND THE ANNUAL MEETING BY EITHER CLICKING ON "ANNUAL
MEETING" ON OUR WEB SITE, WWW.ICUMED.COM, OR CALLING (800) 915-4836 FROM A
TOUCH-TONE TELEPHONE. IF YOU HOLD STOCK CERTIFICATES REGISTERED IN YOUR OWN
NAME, YOU WILL NEED THE CONTROL NUMBER PRINTED ON THE ATTACHMENT TO THE ENCLOSED
PROXY CARD TO VERIFY THAT YOU ARE A STOCKHOLDER OF RECORD. IF YOUR STOCK IS HELD
IN "STREET NAME" BY YOUR BROKER OR OTHER NOMINEE, YOU WILL NEED TO PROVIDE THE
NAME OF YOUR BROKER OR NOMINEE TO GAIN ACCESS TO THE ANNUAL MEETING.
By Order of the Board of Directors
/S/ Francis J. O'Brien
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Francis J. O'Brien, Secretary
San Clemente, CA
May 2, 2003
YOUR VOTE IS IMPORTANT
Even though you plan to attend the Annual Meeting in person by means of
remote communication, please complete, sign, date and return the enclosed proxy
promptly or submit your proxy over the Internet or by telephone. If you attend
the Annual Meeting electronically, you may withdraw your proxy and vote in
person. You will find information on submitting your proxy over the Internet and
by telephone and information about voting in person at the Annual Meeting on the
reverse side of this notice.
THANK YOU FOR ACTING PROMPTLY
HOW DO I SUBMIT MY PROXY?
You will have the opportunity to attend the Annual Meeting by means of
remote communication and vote during the Annual Meeting if you choose. Whether
or not you vote during the Annual Meeting, it is important that your shares be
represented and voted. If you are a stockholder of record, you can give a proxy
to have your shares voted at the Annual Meeting either:
o by mailing the enclosed proxy card in the enclosed envelope;
o electronically, using the Internet; or
o over the telephone by calling a toll-free number.
The internet and telephone proxy submission procedures are set up for
your convenience and are designed to verify your identity, to allow you to give
voting instructions, and to confirm that those instructions have been properly
recorded. If you are a stockholder of record and you would like to submit your
proxy by telephone or by using the Internet, please refer to the specific
instructions on the attachment to the enclosed proxy card. If you wish to submit
your proxy by mail and you return your signed proxy to us before the annual
meeting, we will vote your shares as you direct.
If you hold your shares in "street name," you must give voting
instructions in the manner prescribed by your broker or nominee. Your broker or
nominee has enclosed or provided a voting instruction card for you to use in
directing the broker or nominee how to vote your shares.
HOW CAN I VOTE MY SHARES IN PERSON AT THE MEETING?
If you are a stockholder of record, you may vote your shares at the
Annual Meeting by telecopier or facsimile. The procedures for voting during the
Annual Meeting are designed to verify your identity and allow you to vote. You
should retain the attachment to the proxy card enclosed with this Proxy
Statement on which your unique control number appears. You will need to write
this control number on your ballot to verify your identity.
To vote during the meeting, access the Company's website at
www.icumed.com and click on the icon that says "Voting Ballot." You may download
and print the ballot. Alternatively, you may request that a ballot be faxed to
you by calling Investor Relations at (800) 824-7890 any time before 4:00 PM PDT
on June 12, 2003. After you have marked your votes and recorded your control
number on your ballot, you may fax the ballot to the Company at (949) 366-8368.
Ballots must be received before the polls are closed during the Annual Meeting
to be counted. We anticipate that the polls will be open from approximately 9:15
to 9:40 AM PDT on June 13, 2003.
Even if you currently plan to attend the Annual Meeting, we recommend
that you also submit your proxy as described above so that your vote will be
counted if you later decide not to attend the Annual Meeting. If you vote by
proxy and then decide to attend the Annual Meeting, you will be able to vote
during the Annual Meeting, even if you have previously submitted your proxy.
YOUR VOTE IS IMPORTANT. THANK YOU FOR VOTING.
1
ICU MEDICAL, INC.
951 CALLE AMANECER
SAN CLEMENTE, CALIFORNIA 92673
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of ICU Medical, Inc. (the "Company") for
use at the Annual Meeting of Stockholders to be held by means of remote
communication on the internet at the Company's web site, www.icumed.com, and by
conference telephone at (800) 915-4836, on Friday, June 13, 2003 at 9:00 a.m.,
Pacific Daylight Time, and at any adjournments thereof, for the purposes set
forth herein and in the accompanying Notice.
The approximate date of mailing of this Proxy Statement and the
accompanying proxy is May 2, 2003. This Proxy Statement was also posted on the
Company's web site, www.icumed.com, on May 2, 2003.
ATTENDANCE BY REMOTE COMMUNICATION
The Annual Meeting will be held entirely by remote communication on the
Internet, as permitted by Delaware law. There will be no physical location at
which stockholders may attend the Annual Meeting, but stockholders may attend
and participate in the meeting electronically. Stockholders who participate in
the Annual Meeting by means of remote communication will be deemed to be present
in person and will be able to vote during the Annual Meeting at the times that
the polls are open. Stockholders who wish to attend the meeting should go to
www.icumed.com and click on "Annual Meeting" or telephone (800) 915-4846 at
least 10 minutes before the beginning of the meeting to register their
attendance and complete the verification procedures to confirm that they were
stockholders of record as of April 25, 2003, the record date. Stockholders of
record will need to provide the control number on the attachment to the enclosed
proxy card to verify their identity.
Beneficial owners whose stock is held for them in street name by their
brokers or other nominees may also attend the meeting by going to www.icumed.com
and click on "Annual Meeting" or telephoning (800) 915-4836 at least 10 minutes
before the beginning of the meeting. Such beneficial owners may not vote at the
meeting, and may only cause their shares to be voted by providing voting
instructions to the persons who hold the beneficial owners' shares for them.
Beneficial owners will need to provide the name of the broker or other nominee
that holds their shares to gain access to the meeting.
There is additional information about voting at the Annual Meeting on
the opposite page. Stockholders may also obtain additional information about
accessing and voting at the Annual Meeting by calling Investor Relations at
800-824-7890.
PROXY INFORMATION
A stockholder giving a proxy may revoke it at any time before it is
exercised by filing with the Secretary of the Company a written notice of
revocation or a duly executed proxy bearing a later date. The powers of the
proxy holders will be suspended if the person executing the proxy is present at
the Annual Meeting electronically and elects to vote in person. Subject to such
revocation or suspension, all shares represented by each properly executed proxy
received by the Company will be voted in accordance with the instructions
indicated thereon, and if instructions are not indicated, will be voted in favor
of (i) the election of the nominees for director named in, or otherwise
nominated as set forth in this Proxy Statement, (ii) the proposal to approve the
the ICU Medical, Inc. 2003 Stock Option Plan and, (iii) the proposal to ratify
the selection of indepdent auditors.
2
RECORD DATE AND VOTING
As of April 25, 2003 the outstanding voting securities of the Company
consisted of 13,780,657 shares of $.10 par value Common Stock. Each stockholder
of record at the close of business on April 25, 2003 is entitled to one vote for
each share then held on each matter submitted to a vote of stockholders. The
presence in person electronically or by proxy of holders of a majority of the
issued and outstanding Common Stock will constitute a quorum for the transaction
of such business as shall properly come before the meeting.
Directors are elected by a plurality of the votes of the shares present
in person electronically or by proxy and entitled to vote on the election of
directors. Generally, stockholder approval of other matters, such as the
approval of the ICU Medical, Inc. 2003 Stock Option Plan and ratification of the
selection of independent auditors, requires the affirmative vote of a majority
of the shares present in person or represented by proxy and entitled to vote on
the matter. Shares voted to abstain on such a matter will be treated as entitled
to vote on the matter and will thus have the same effect as "no" votes. Broker
non-votes on such matters are not counted as entitled to vote on a matter in
determining the number of affirmative votes required for approval of the matter,
but are counted as present for quorum purposes.
The term "broker non-votes" refers to shares held by a broker in street
name that are present by proxy but are not voted on a matter pursuant to rules
prohibiting brokers from voting on non-routine matters without instructions from
the beneficial owner of the shares. The election of directors and ratification
of the selection of independent certified public accountants are generally
considered to be routine matters on which brokers may vote without instructions
from beneficial owners. Approval of the ICU Medical, Inc. 2003 Stock Option Plan
may be deemed a non-routine matter on which brokers may not vote without
instructions from beneficial owners.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as to shares of Common Stock
owned as of April 25, 2003, by (i) each person who, insofar as the Company has
been able to ascertain, beneficially owned more than five percent of the
outstanding Common Stock, (ii) each director, (iii) each nominee for election as
a director, and (iv) all directors and officers as a group. Unless otherwise
indicated in the footnotes following the table, and subject to community
property laws where applicable, the Company believes that the persons as to whom
the information is given have sole voting and investment power over the shares
listed as beneficially owned. The business address of the George A. Lopez, M.D.
Second Family Limited Partnership, the Lopez Family Trust, George A. Lopez, M.D.
and Diana K. Lopez, M.D. is 951 Calle Amanecer, San Clemente, California 92673.
3
SHARES OF COMMON STOCK OF THE COMPANY
SHARES PERCENT
OWNED OF
BENEFICIALLY CLASS(1)
------------ --------
George A. Lopez, M.D......................................................... 3,579,494(3) 22.2%
George A. Lopez, M.D. Second Family Limited Partnership ..................... 1,186,843(2) 8.6%
Diana K. Lopez, M.D. ........................................................ 197,623(4) 1.4%
Wasatch Advisors, Inc. ...................................................... 2,235,965(8) 16.2%
150 Social Hall Avenue, Salt Lake City, UT 84111
FMR Corp. ................................................................... 1,560,303(8) 11.3%
82 Devonshire Street, Boston, MA 02109
Kayne Anderson Rudnick Investment Management, LLC............................ 863,807(8) 6.3%
1800 Avenue of the Stars, Second Floor, Los Angeles, CA 90067
Arbor Capital Management, LLC................................................ 767,200(8) 5.6%
One Financial Plaza, 129 South Sixth Street Minneapolis, MN 55402
Deutsche Bank AG............................................................. 761,247(8) 5.5%
Taununsanlage 12, D-60325, Frankfurt am Main, Federal Republic of Germany
Jack W. Brown................................................................ 30,000(6) *
John J. Connors.............................................................. 26,250(6) *
Michael T. Kovalchik III, M.D................................................ 28,312(6) *
Joseph R. Saucedo............................................................ 19,130(6) *
Richard H. Sherman, M.D...................................................... 101,551(6) *
Robert S. Swinney, M.D....................................................... 25,750(6) *
All officers and directors as a group (11 persons)........................... 3,849,650(7) 23.5%
-----------
* Less than one percent
(1) Based on total shares of Common Stock outstanding plus outstanding options
to acquire Common Stock currently exercisable or exercisable within 60 days
held by the beneficial owner whose percent of outstanding stock is
calculated.
(2) Dr. George A. Lopez is the general partner of the George A. Lopez, M.D.
Second Family Limited Partnership (the "Partnership") and holds a
one-percent general partnership interest in the Partnership. As general
partner, he has the power to vote and power to dispose of the 1,186,843
shares owned by the Partnership and may be deemed to be beneficial owners
of such shares. Trusts for the benefit of Dr. Lopez's children, the
Christopher George Lopez Children's Trust and the Nicholas George Lopez
Children's Trust, own a 99% limited partnership interest in the
Partnership. Dr. Lopez is not trustee of and has no interest in his
children's Trusts. Except to the extent of the undivided one percent
general partnership interest in the assets of the Partnership, Dr. Lopez
disclaims any beneficial ownership of the shares owned by the Partnership.
(3) Includes options to acquire 2,369,428 shares. Also includes the 1,186,843
shares owned by the Partnership, as to which shares Dr. Lopez disclaims any
beneficial ownership except to the extent described in Note (2). Includes
23,223 shares owned by the Lopez Family Trust. Dr. George A. Lopez and his
wife, Dr. Diana K. Lopez, are trustees and beneficiaries of the Family
Trust; except to the extent of their pecuniary interests as beneficiaries
of the Family Trust, the Drs. Lopez disclaim any beneficial ownership of
the shares owned by the Family Trust. Does not include 174,400 held by Dr.
Diana K. Lopez as Trustee of the Lopez CRT #1 for the benefit of the Drs.
Lopez, as to which shares he has no voting or investment power and
disclaims any beneficial ownership.
(4) Includes 174,400 shares held by Dr. Diana K. Lopez as trustee of the Lopez
CRT #1 for the benefit of Drs. Diana K. Lopez and George A. Lopez and
23,223 shares held by her as trustee of the Lopez Family Trust.
(5) Does not include 750 shares owned by Dr. Swinney's wife as to which he has
no voting or investment power and disclaims any beneficial ownership.
(6) Includes options to acquire 18,750 shares.
(7) Includes options to acquire 2,515,664 shares.
(8) Information included solely in reliance information included in a Statement
on Schedule 13D or 13G filed with the Securities and Exchange Commission by
the indicated holder.
4
ELECTION OF DIRECTORS
NOMINEES AND DIRECTORS
Two directors, of the seven directors currently constituting the Board
of Directors, are to be elected at the Annual Meeting and to hold office until
the 2005 Annual Meeting and until their successors are elected and qualified.
The Company's Board of Directors is divided into three classes. Each year a
different class of directors is elected at the Annual Meeting to a three-year
term.
In the election of directors, the proxy holders intend to vote for the
election of Jack W. Brown and Richard H. Sherman, M.D., who are now members of
the Board and whose current terms of office are expiring. It is not anticipated
that the nominees will decline or be unable to serve as directors. If, however,
that should occur, the proxy holders will vote the proxies in their discretion
for any nominee designated to fill the vacancy by the present Board of
Directors.
CURRENT
DIRECTOR TERM
NAME AGE SINCE EXPIRES PRINCIPAL OCCUPATION
---- --- ----- ------- --------------------
George A. Lopez, M.D. .............. 55 1984 2004 Chairman of the Board, President and Chief
Executive Officer of the Company
Jack W. Brown....................... 63 1992 2003 Former Chairman of the Board and President of
Gish Biomedical, Inc., disposable medical
devices
John J. Connors, Esquire............ 63 1992 2005 Patent Attorney, Connors & Associates, a legal
network serving inventors and entrepreneurs
Michael T. Kovalchik III, M.D. ..... 57 1989 2005 Physician and Director of Gambro Healthcare
Kidney Center, Torrington, Connecticut;
Chairman Ethics Committee, Charlotte
Hungerford Hospital, Torrington, Connecticut
Joseph R. Saucedo................... 59 2001 2005 Chairman and President of Bolsa Resources,
Inc., a management consulting firm
Richard H. Sherman, M.D. ........... 56 1990 2003 Physician, Bay Health, Milford, Delaware
Robert S. Swinney, M.D. ............ 57 1998 2004 Physician and member of the faculty of the Los
Angeles County-University of Southern
California Medical Center
Dr. Lopez is the founder of the Company and has served as Chairman of
the Board, President and Chief Executive Officer for more than five years. Dr.
Lopez has held various offices and served as a director of the Company since its
founding in 1984 with some interruptions in service.
Messrs. Brown, Connors and Saucedo and Drs. Kovalchik, Sherman and
Swinney have been engaged in their current occupations for more than five years.
Mr. Connors previously served as a director from December 1988 to July 1989. Dr.
Swinney previously served as a director from 1989 to October 1995.
5
SPECIAL COMMITTEES AND ATTENDANCE AT MEETINGS
The Board of Directors has an Audit Committee, which consists of
Messrs. Brown, Connors and Saucedo. As more fully described in the Audit
Committee Charter, the Audit Committee selects independent public accountants,
reviews reports from the Company's independent public accountants and reviews
with them the scope and results of the audit engagement. The Audit Committee met
seven times in 2002.
The Board of Directors has a Compensation Committee of the Board,
consisting of Messrs. Brown, Connors and Saucedo, Drs. Kovalchik, Sherman and
Swinney. The Compensation Committee, as more fully described in the Compensation
Committee Report, approves salary practices for executive personnel, establishes
the compensation of executive officers and authorizes the grant of stock
options. The Compensation Committee met six times in 2002.
During 2002, the Board met 16 times. Each director attended more than
75% of the total of all meetings of the Board and any committees on which he
serves.
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT
During 2002, the Compensation Committee (the "Committee") consisted of
six directors who are not employees or former employees of, or consultants to,
the Company. The Committee approves salary practices for executive personnel,
reviews the performance of the Company and the executive officers, sets
performance objectives, establishes the compensation of executive officers,
including the Chief Executive Officer, and authorizes the grant of options under
the 1993 Stock Incentive Plan.
The Company's policy in compensating executive officers is to establish
methods and levels of compensation that will provide strong incentives to
promote the profitability and growth of the Company and reward superior
performance and that are sufficiently competitive to attract, retain and
motivate highly competent management personnel. Compensation of executive
officers includes base salary, performance-based incentive bonuses and
stock-based programs.
The Committee has adopted an executive compensation policy which
provides a base salary and, if certain performance objectives are met, incentive
bonuses and stock options. The Committee considers total compensation paid to
executive officers holding comparable positions in comparable companies and for
2002 set base salaries of the Company's executive officers at or above the
middle of the range of comparable compensation. Upon achievement of performance
objectives established by the Committee, officers other than Dr. Lopez could
receive, in addition to base salaries, bonuses in amounts ranging from 20% to
33% of their base salaries. The policy through 1998 also provided for the
semi-annual award of stock options ranging in value from 25% to 30% of base
semi-annual salary, based on an option valuation model, which were awarded as
described below. If performance objectives are achieved and officers receive the
entire amount of incentive compensation available to them, their compensation
could be at the highest percentiles of compensation for comparable positions.
The Committee believes that performance-based and stock-based compensation serve
to align the interests of the executive officers with the interests of the
Company's stockholders.
Stock options to be received by officers pursuant to the executive
compensation policy described above are awarded under the 1993 Plan. Options
granted under the 1993 Plan through 1999 become exercisable on the achievement
of performance objectives established by the Committee or 10 years from the date
of grant. The 1993 Plan and the performance objectives are designed so that the
options will motivate the officers toward and reward them for achievement of the
performance objectives.
In November 1997, the Committee accelerated option grants to officers
other than Dr. Lopez by a one-time grant of options covering the estimated
number of shares which otherwise would be covered by options that the Company
would expect to award over a five year period under the executive compensation
policy described above. The options were granted with the understanding that no
additional options would be granted to the recipients under the executive
compensation policy for five years. At the time that the options were granted,
the Committee established a series of performance objectives, which, if met,
6
would cause the options to become exercisable earlier than 10 years from the
date of grant. It was expected that the performance objectives would not be met
until at least several years after the expected awards normally would have been
made, which, in fact, happened and the objectives as to 40% of the options have
still not been met. The Committee further provided that options could not be
exercised as to more than 20% cumulatively of the covered shares each year from
1998 through 2002.
Bonuses were paid to officers who were deemed to have met the
performance objectives for the first and second halves of 2002. Messrs. Costello
and Riggs each received an option in 2002 under a provision of the 1993 Plan
that provides for automatic grants of options to each employee, including
officers, every five years on the anniversary date of his or her employment.
Additional options were granted to Mr. Costello in January 1999, coincident with
a salary adjustment, and in September 2001, in connection with a special
incentive program.
The base salary paid to Dr. Lopez in 2002 was set by the Committee in
accordance with the Company's executive compensation policy at near the middle
of the range of total compensation paid to chief executive officers of companies
that the Committee deemed to be comparable to the Company. Under the executive
compensation policy, Dr. Lopez received incentive bonuses of 110% of his base
salary. Additionally, in 2003, Dr. Lopez was granted options to purchase 75,000
shares in each of the first and second quarters and 50,000 shares in each of the
third and fourth quarters. The executive compensation policy sets the incentive
bonuses and the value of stock options to be awarded to Dr. Lopez at a higher
percentage of his base salary than that awarded to other officers. The Committee
believes that in view of the Chief Executive Officer's overall responsibility
for the success of the Company, it is appropriate that a larger portion of his
compensation be contingent on performance.
April 22, 2003
COMPENSATION COMMITTEE
Michael T. Kovalchik III, M.D., Chair
Jack W. Brown
John J. Connors
Joseph R. Saucedo
Richard H. Sherman, M.D.
Robert S. Swinney, M.D.
7
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows the compensation earned for the past three
years by each of the Company's executive officers whose 2002 compensation
exceeded $100,000 (the "named executive officers").
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------
SECURITIES UNDERLYING ALL OTHER
NAME AND POSITION YEAR SALARY ($) BONUS(1) OPTIONS (#) COMPENSATION ($)
----------------- ----- ----------- --------- ---------------------- ----------------
George A. Lopez......................... 2002 $340,000 $374,000 250,000 (2) $44,369 (5)
Chairman of the Board, 2001 340,000 374,000 300,000 (2) 41,268 (5)
President and Chief Executive Officer 2000 325,000 179,780 375,000 (2) 38,428 (5)
1,100,000 (3)
1,100,000 (4)
Francis J. O'Brien ..................... 2002 200,000 75,000 12,500(2) 2,125 (6)
Secretary, Treasurer and 2001 200,000 50,000 1,500 (2) 2,125 (6)
Chief Financial Officer 2000 200,000 51,030 1,027 (2) 2,125 (6)
2002 180,000 60,000 11,000 (2) 2,125 (6)
Richard A. Costello..................... 2001 180,000 70,000 15,000 (2) 2,125 (6)
Vice President of Sales 2000 165,000 56,030 1,027 (2) 2,125 (6)
Steven C. Riggs......................... 2002 116,792 33,900 23,750 (2) 1,884 (6)
Vice President of Operations
----------------
(1) Bonus amounts are included in the year earned rather than the year
actually paid; a portion is paid in the following year.
(2) Options to acquire shares of the Company.
(3) Options to acquire shares of Budget Medical Products, a wholly owned
subsidiary of the Company. (4) Options to acquire shares of SetFinder,
Inc., a wholly owned subsidiary of the Company.
(5) Includes dollar value of life insurance premiums paid by the Company,
based on the cost of term life insurance, plus the dollar value, on an
actuarial basis, of the net cash surrender value accruing to the Diana
Lopez Insurance Trust as owner of the life insurance policy on Dr.
Lopez of $42,244 in 2002, $39,161 in 2001 and $36,303 in 2000 and
Company matching contributions under Section 401(k) retirement plan for
employees of $2,125 in each year.
(6) Company matching contribution under section 401(k) retirement plan.
8
STOCK OPTION GRANTS
Options to purchase Common Stock of the Company were granted in 2002 to
employees under the ICU Medical, Inc. 1993 Stock Incentive Plan ("1993 Plan"),
which provides for the grant of options to purchase up to 7,162,500 shares. The
exercise price of options granted under the 1993 Plan is the fair market value
of the Common Stock on the date of grant. All options granted under the 1993
Plan through April 2000 expire eleven years from issuance and are
time-accelerated options which vest upon the earlier of the Company achieving
specific operating performance levels or ten years from the date of grant.
Options granted since April 2000 expire eleven years from issuance and vest in
equal annual amounts on the first, second and third anniversary of issuance
except for 16,500 options granted in 2001 (five years on certain options granted
in 2002) and 22,500 options granted in 2002 which were time-accelerated options;
10,000 of those vest ten years from issuance and 12,500 vest five years from
issuance, in both cases if specific operating performance levels are not
previously met. The Company may issue more time-accelerated options in the
future.
In 2000, two of the Company's wholly owned subsidiaries, Budget Medical
Products and SetFinder, Inc. adopted stock option plans. Options were to expire
ten years from issuance, except Incentive Stock Options which were to expire
five years from issuance. Options vested in equal annual amounts on the first,
second and third anniversary of issuance. The subsidiary companies had certain
rights to repurchase shares issued under options for as long as the subsidiary
was not subject to the reporting requirements of the Securities Exchange Act of
1934. In 2002, non-director employees of the subsidiaries exchanged the options
to acquire stock of the subsidiaries, which options were estimated to have an
exercise price no less than the fair value of the subsidiaries stock, for
options to buy the Company's Common Stock at fair market value on the exchange
date. In January 2003, the remaining option holders, consisting solely of the
Company's directors, agreed to surrender their options for no consideration, and
the stock option plans of the subsidiaries were terminated.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
-------------------------------------------------------------
NUMBER OF % OF TOTAL EXERCISE POTENTIAL REALIZABLE VALUE AT
SECURITIES OPTIONS OR BASE ASSUMED ANNUAL RATES OF
UNDERLYING GRANTED TO PRICE STOCK PRICE APPRECIATION
OPTIONS EMPLOYEES PER SHARE EXPIRATION FOR OPTION TERM
NAME GRANTED (#) IN 2002 ($/SH) DATE 5% ($) (1) 10% ($) (1)
---- ----------- ------- ------ ---- ---------- -----------
ICU Medical, Inc.
-----------------------------------------
George A. Lopez, M.D. 75,000 11% $ 33.55 3/8/13 $1,554,977 $ 4,056,588
75,000 11% 30.18 6/9/13 2,047,642 5,341,841
50,000 7% 36.03 9/9/13 1,266,180 3,303,181
50,000 7% 36.87 12/9/13 1,524,921 3,978,178
Francis J. O'Brien 12,500 2% 36.04 9/20/13 319,963 834,713
Richard A. Costello 10,000 1% 36.04 9/20/13 255,971 667,771
1,000 * 36.17 9/28/13 25,693 67,027
Steven C. Riggs 7,500 1% 30.32 1/2/13 161,531 421,399
8,000 1% 30.09 6/4/13 170,993 446,082
3,750 * 29.86 7/1/13 79,540 207,503
3,500 * 36.04 9/20/13 89,602 233,752
1,000 * 35.75 10/5/13 25,395 66,249
Alison D. Burcar 1,000 * 30.02 6/10/13 21,324 55,631
2,500 * 36.04 9/20/13 64,002 166,966
----------------
* Less than 1%
(1) The rates of stock appreciation reflected in the table are assumed solely
for the purpose of compliance with the rules of the Securities and Exchange
Commission relating to the disclosure of executive compensation. The
Company's Common Stock has at times appreciated at rates substantially
different than the assumed rates and at other times the value of the Common
Stock has declined. Neither the assumed appreciation rates nor the actual
changes in the share value of the Company's common stock since the dates of
option grants are necessarily indicative of any future value of the Common
Stock. The actual realizable value of the options may be substantially
greater or less than that reflected in the table depending on the actual
changes in the share value during the options' terms.
9
STOCK OPTION EXERCISES AND HOLDINGS
AGGREGATED OPTION EXERCISES IN 2002 AND YEAR-END OPTION VALUES
The following table contains information about stock options exercised
during 2002, and stock options held at December 31, 2002, by the named executive
officers of the Company.
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED VALUE OPTIONS AT YEAR-END(#) YEAR-END($)
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- -------- ------------------------- -------------------------
ICU Medical, Inc.
------------------------------
George A. Lopez, M.D. ...... 521,737 $12,635,119 2,302,762 / 525,000 $ 62,574,085 / $ 5,479,375
Francis J. O'Brien ......... 72,500 2,308,137 1,472 / 90,585 26,101 / 2,316,760
Alison D. Burcar............ 3,375 94,441 6,625 / 3,500 170,966 / 9,655
Richard A. Costello ........ 79,857 2,026,745 1,114 / 71,413 29,164 / 1,561,481
Steven C. Riggs ............ 3,000 75,414 17,693 / 32,083 404,263 / 301,694
Budget Medical Products (1)
------------------------------
George A. Lopez, M.D. ...... 0 0 733,333 / 366,667 $ 0 / $ 0
SetFinder, Inc. (1)
------------------------------
George A. Lopez, M.D. ...... 0 0 733,333 / 366,667 $ 0 / $ 0
-------------
(1) Options surrendered for no consideration in January 2003.
PERFORMANCE GRAPH
The following graph shows the total stockholder return on the Company's
Common Stock based on the market price of the Common Stock from January 1, 1998
to December 31, 2002 and the total returns of the Nasdaq Stock Market National
Market Tier Index and Common Stocks of a peer group selected by the Company for
the same period.
COMPARISON OF TOTAL RETURN FROM JANUARY 1, 1998 TO DECEMBER 31, 2002
AMONG ICU MEDICAL, INC., THE NASDAQ STOCK MARKET INDEX AND PEER GROUP
[PERFORMANCE GRAPH HERE]
1/1/98 12/31/1998 12/31/1999 12/31/2000 12/31/2001 12/31/2002
------ ---------- ---------- ---------- ---------- ----------
ICU Medical, Inc. 100.0 177.8 123.2 243.4 359.6 452.1
Nasdaq 100.0 141.0 261.5 157.4 124.9 86.3
Peer Group 100.0 81.9 116.0 116.8 175.9 182.3
10
Assumes $100 invested on January 1, 1998 in the Company's Common Stock,
the Nasdaq Stock Market National Market Tier Index and the Peer Group.
The companies in the peer group selected by the Company are Gish
Biomedical, Inc., Microtek Medical Holdings, Inc., Merit Medical Systems, Inc.,
Utah Medical Products, Inc. and Vital Signs, Inc. The basis for the selection of
the companies in the peer group is that, like the Company, they are all small to
mid-size producers of medical products.
DIRECTORS' COMPENSATION
During 2002, the Company paid directors who were not employees of the
Company an annual retainer of $10,000 plus $1,000 per day for attendance at
meetings of the Board and $500 if the meeting is conducted telephonically. Pay
for attendance at meetings of Committees of the Board is $750 per day, and $375
if the meeting is conducted telephonically. In addition, under the 2001
Directors' Stock Option Plan, adopted in November 2001 and approved by
stockholders in May 2002, the Company awarded to each non-employee director
options to purchase 1,875 shares of Common stock in November 2001, options for
15,000 shares in May 2002 and options for 1,875 shares automatically quarterly
thereafter. The Directors' Stock Award Plan, under which each non-employee
director was automatically awarded 1,500 shares annually, was terminated upon
stockholder approval of the 2001 Directors' Stock Option Plan and the award
payable in 2002 was not made.
EMPLOYMENT AGREEMENTS
The Company has an employment agreement with each named executive
officer, which provides for an annual base salary and a bonus payable in cash
and options to acquire the Company's Common Stock under the 1993 Plan based on
achievement of specified performance goals. Unless earlier terminated, the
employment agreements expire on June 30, 2003, at which time they may be renewed
for successive six-month periods. The provisions for bonuses payable in options
to acquire the Company's Common Stock for all except Dr. Lopez were, in effect,
superceded by an award of stock options in November 1997 in place of options
that might have been awarded over the succeeding five years. Options granted
through April 2000 vest only upon the earliest of the Company achieving specific
operating performance levels or ten years from the date of grant (referred to as
"time accelerated options"). Options granted after April 2000 vest in equal
annual amounts on the first, second and third anniversary of issuance, except
for 15,000 options granted to Mr. Costello in 2001, and 12,500 and 10,000
options granted to Messrs. O'Brien and Costello, respectively, in 2002, which
are time accelerated options.
The Company also has an agreement with Dr. Lopez which generally
provides that, in the event the Company undergoes a change in control, as
defined, and his employment is terminated, or certain negative changes in
condition of employment occur, within 24 months of a change in control, he will
be entitled to three times his annual salary and bonus, payment of bonus through
the date of termination or change in conditions, and continuation of benefits
for three years, and any stock options he hold will vest in full. In addition,
if any payments are subject to excise tax under Section 4999 of the Internal
Revenue Code of 1986, as amended, he will be entitled to a "gross up" of
payments to offset the effect of the excise tax. The company will not be
entitled to a tax deduction for any payments made under the agreement that are
subject to the excise tax.
APPROVAL OF ICU MEDICAL, INC. 2003 STOCK OPTION PLAN
On April 10, 2003, the Board adopted, subject to stockholder approval,
ICU Medical, Inc.'s 2003 Stock Option Plan, to be effective upon stockholder
approval. The Company will continue to grant options to purchase Common Stock
under the Amended and Restated 1993 Stock Incentive Plan (the "1993 Plan") until
it expires in January 2005 or no shares remain available for future grants,
whichever occurs first. As of March 31, 2003, of the total shares available
under the 1993 Plan, 6,751,744 shares were subject to outstanding or exercised
options and 410,756 shares were available for future grants, for a combined
total of 7,162,500 shares. The number of shares of Common Stock reserved under
the 2003 Stock Option Plan will be 1,500,000 shares, and the fair market value
of such shares as of March 31, 2003 was $41,265,000. A copy of the 2003 Stock
Option Plan is attached hereto as Exhibit A.
11
The purpose of the 2003 Stock Option Plan is to enhance the long-term
stockholder value of the Company by offering opportunities to eligible
individuals to participate in the growth in value of the equity of the Company.
The Board believes that the 2003 Stock Option Plan will assist the Company in
attracting, motivating and retaining key employees and provide long-term,
performance-based incentives that will unify the interests of key employees and
stockholders.
SUMMARY OF THE 2003 STOCK OPTION PLAN
THE FOLLOWING SUMMARY HIGHLIGHTS THE TERMS OF THE 2003 STOCK OPTION
PLAN BUT DOES NOT INCLUDE ALL OF THE DETAILED TERMS AND PROVISIONS OF THE 2003
STOCK OPTION PLAN. STOCKHOLDERS ARE ENCOURAGED TO READ IN ITS ENTIRETY THE 2003
STOCK OPTION PLAN, WHICH IS ATTACHED AS EXHIBIT A TO THE PROXY STATEMENT. IF
THERE IS A DISCREPANCY BETWEEN THE TERMS OF THE 2003 STOCK OPTION PLAN AND THE
FOLLOWING SUMMARY, THE 2003 STOCK OPTION PLAN WILL CONTROL.
DESCRIPTION OF THE 2003 STOCK OPTION PLAN
ELIGIBILITY AND GRANT OF OPTIONS. The Company may grant options to
purchase Common Stock under the 2003 Stock Option Plan to employees of the
Company and its subsidiaries, directors of its subsidiaries who are neither
employees of the Company or its subsidiaries nor directors of the Company, and
individuals who are consultants to the Company. Each employee, other than
"Ineligible Nonresidents," as defined in the 2003 Stock Option Plan,
automatically will receive an option to purchase 1,000 shares every fifth year
on the anniversary of the employee's first day of employment as long as the
employee remains continuously employed. The exercise price of options granted
automatically is the fair market value of the Common Stock on the fifth
anniversary date. No such option will be granted under the 2003 Stock Option
Plan to an optionee who receives a similar automatic option under the 1993 Plan
on the same date.
Except for options granted automatically on the fifth anniversaries of
employment, the Compensation Committee of the Board of Directors (the
"Committee") will determine which employees of the Company will be granted
additional options, the number of shares subject to each option and the price,
terms and conditions, consistent with the 2003 Stock Option Plan, of each
option. In some cases, officers of the Company are entitled by terms of their
employment agreements to receive quarterly or semiannual grants of options; in
some cases, grants are automatic and in other cases, the grant will occur only
if certain predetermined performance objectives are achieved. See "Election of
Directors - Executive Compensation." The number of shares subject to options
granted to any one employee in any calendar year may not exceed 500,000.
Options granted under the 2003 Stock Option Plan may be either
"incentive stock options," as defined in Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), or nonstatutory stock options.
EXERCISE PRICE AND PAYMENT. The exercise price of options granted under
the 2003 Stock Option Plan may not be less than 100% of the fair market value of
the Common Stock on the date of grant. The closing price of the Common Stock on
the Nasdaq Stock Market National Market Tier on March 31, 2003 was $27.51. The
exercise price may be paid in cash, check, or wire transfer. In addition, under
certain circumstances and as permitted by law, the Committee may elect to permit
payment of the exercise price by delivery of shares of the Company's Common
Stock already owned by the optionee, a broker assisted same day sale,
full-recourse promissory note, any combination of the foregoing, or any other
form or method permitted by law.
EXERCISE OF STOCK OPTIONS. The Committee determines at the time it
grants the options when they may be exercisable. The Committee may specify that
options shall be exercisable on their grant date, in accordance with a schedule
related to the grant date, upon achievement of performance goals established by
the Committee or any combination of the passage of time or performance goals as
the Committee shall specify.
Performance objectives for the vesting of options may be expressed in
terms of operating results or operating ratios of the Company or its individual
divisions or affiliates, such as sales, sales of particular products, gross
margins, net income or return on investment, or may be stated in terms of the
performance of individual optionees. Upon achievement of the performance
objectives related to specific options, those options will become exercisable in
such installments as the Committee determines at the time of grant. If the
performance objectives are not achieved, options will not be exercisable until a
specified date in the future before the scheduled expiration of the option.
12
Unexercised options will expire 10 years after the date of grant or
such earlier date as established by the Committee.
Options intended to be incentive stock options under the Code may not
vest at a rate of more than $100,000 in fair market value of stock (measured on
grant date) during any calendar year. This vesting limitation will be applied by
deferring the exercisability of options to the extent necessary to satisfy the
limitation to a year when the vesting limitation is met, or in certain
circumstances treating them as nonstatutory options.
Options may be exercised for a period of 30 days after an optionee
ceases to be an employee, director or consultant of the Company or an affiliate
("Termination") for any reason other than normal retirement, permanent
disability or death. Options may be exercised within 90 days after Termination
because of normal retirement or within one year after Termination because of
death or permanent disability. In the case of Termination because of death or
permanent disability, all Options, including those not otherwise exercisable at
the date of Termination, may be exercised. All Options may also be exercised
within one year after death in the event of an optionee's death within 90 days
after Termination because of permanent disability. To the extent otherwise
exercisable at the date of Termination, Options may also be exercised within one
year after Termination in the event of an optionee's permanent disability within
90 days after Termination because of normal retirement, or within one year after
death in the event of an optionee's death within 90 days after Termination
because of normal retirement.
ADJUSTMENT OF SHARES. The 2003 Stock Option Plan provides for
adjustments to the number of shares subject to the 2003 Stock Option Plan, the
exercise price and number of shares subject to outstanding options and the
Option Limit in the event of any stock dividend, recapitalization, split-up,
combination or exchange of the Common Stock. In the event that the Company
distributes to its stockholders shares of a subsidiary of the Company, any
option outstanding under the Plan at the date of such distribution shall
automatically become an option to purchase the number of shares of Common Stock
of the Company as to which the option has not yet been exercised plus, for each
such unexercised option share, the same number of shares or fraction of a share
of the subsidiary as was distributed in respect of one share of Common Stock of
the Company. In the event of liquidation or dissolution, or a corporate
reorganization in which the Company is not the survivor (other than a
reorganization resulting from a change in control), the options terminate unless
the Committee accelerates the time of exercise to a date prior to such event or
unless the options are assumed by, and replaced by options of, the Company's
successor.
If the Company merges with another entity in a transaction in which the
Company is not the surviving entity or undergoes a change in control, the Board,
at its discretion, may accelerate the vesting and termination of outstanding
options, cancel the options in exchange for cash payments to the optionees or
arrange for substitution of options on equity securities other than the
Company's common stock in exchange for outstanding options. The Board need not
adopt the same rules for each option or each optionee. However, if the Company
is a party to a merger or other transaction in which the stockholders of the
Company, immediately before the transaction, own 50% or less of the total
combined voting power or value of the Company immediately after the transaction,
vesting of all outstanding options shall be accelerated and they shall become
exercisable in full on the date of the transaction.
If options expire or terminate without having been exercised in full,
the unpurchased shares may again be subject to additional options granted under
the 2003 Stock Option Plan. The 2003 Stock Option Plan will continue in effect
until such time as it may be terminated by the Company's Board of Directors.
Incentive stock options may not be granted after April 10, 2013.
ADMINISTRATION AND OPERATION OF THE 2003 STOCK OPTION PLAN. The 2003
Stock Option Plan is administered by the Committee. In addition to determining
the terms of and granting options, the Committee will interpret the 2003 Stock
Option Plan, adopt any rules and regulations necessary for its proper
administration and take any other action it deems necessary or advisable for the
2003 Stock Option Plan.
13
FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING IS A GENERAL SUMMARY OF THE TYPICAL FEDERAL INCOME TAX
CONSEQUENCES OF THE ISSUANCE AND EXERCISE OF OPTIONS UNDER THE 2003 STOCK OPTION
PLAN. IT DOES NOT DESCRIBE STATE OR OTHER TAX CONSEQUENCES OF THE ISSUANCE AND
EXERCISE OF OPTIONS.
NONSTATUTORY STOCK OPTIONS. The grant of a nonstatutory option under
the 2003 Stock Option Plan will have no federal income tax effect on the
optionee or the Company. Upon the exercise of a nonstatutory option, the
optionee generally will have compensation taxable as ordinary income (subject to
withholding) in an amount equal to the excess over the exercise price of the
fair market value of the shares on the date of exercise. (Special rules may
apply to an optionee subject to Section 16(b) of the Securities Exchange Act of
1934, as amended.) The Company will be entitled to a deduction in the same
amount. The tax basis of the shares received by the optionee will be their fair
market value on the exercise date. Upon the disposition of the shares, any
difference between the tax basis of the shares and the amount realized on the
disposition will be treated as a short-term or long-term capital gain or loss,
depending on how long the shares were held. The Company may allow nonstatutory
options to be transferred subject to conditions and restrictions imposed by the
Committee; special tax rules may apply on such a transfer.
INCENTIVE STOCK OPTIONS. The grant of an incentive stock option under
the 2003 Stock Option Plan will have no federal income tax effect on the
optionee or the Company. Upon the exercise of an incentive stock option, the
optionee will not recognize any income for "regular" tax purposes. However, any
excess of the fair market value (on the date of exercise) of the stock subject
to an incentive stock option over the exercise price of the option (the "option
spread") will be includible in the optionee's "alternative minimum taxable
income" for purposes of the alternative minimum tax. If the optionee does not
dispose of the shares acquired upon exercise of an incentive stock option until
more than two years after the option grant date and more than one year after
exercise of the option, any gain upon sale of the shares will be a long-term
capital gain. If shares are sold or otherwise disposed of before both of these
periods have expired (a "disqualifying disposition"), the option spread on the
date of exercise of the option (but not more than the amount of the gain on the
sale or other disposition) will be ordinary income in the year of the sale or
other disposition. If gain on a disqualifying disposition exceeds the amount
treated as ordinary income, the excess will be taxable as capital gain (which
will be long-term capital gain if the shares have been held more than one year
after the date of exercise of the option). The Company is not entitled to a
federal income tax deduction in connection with incentive stock options, except
to the extent that the optionee has taxable ordinary income on a disqualifying
disposition.
OTHER. In the case of both incentive stock options and nonstatutory
options, special federal income tax rules apply if the optionee uses previously
acquired Common Stock of the Company to pay all or part of the exercise price of
the option or to satisfy withholding taxes.
Exercise of options which become exercisable as a result of a change in
control could also result in an excise tax on the optionee's option income
(subject to withholding) (i.e., the excess of the fair market value of the
shares on the date of exercise over the exercise price) and in a loss of the
Company's federal income tax deduction.
VOTE REQUIRED TO APPROVE THE 2003 STOCK OPTION PLAN
Approval of the 2003 Stock Option Plan will require the affirmative
vote of a majority of the shares present in person or by proxy at the Annual
Meeting and entitled to vote on the proposal to approve the 2003 Stock Option
Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL
OF THE 2003 STOCK OPTION PLAN.
14
SELECTION OF AUDITORS
The Audit Committee of the Board of Directors of the Company has
selected Deloitte & Touche LLP, independent auditors, as independent auditors of
the Company for the year ending December 31, 2002, and has further directed that
management submit the selection of independent auditors for ratification by the
stockholders at the Annual Meeting. Deloitte & Touche LLP audited the Company's
financial statements for the first time in 2002. Representatives of Deloitte &
Touche LLP are expected to be present at the Annual Meeting and will have an
opportunity to make a statement if they so desire and respond to appropriate
questions.
On June 18, 2002, we dismissed Arthur Andersen LLP ("Andersen") as our
independent accountant. Andersen's report on our financial statements for either
2000 or 2001 did not contain an adverse opinion, a disclaimer of opinion or a
qualification. During 2000 and 2001 and the interim period of 2002 before we
dismissed Andersen, there were no disagreements on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, and there were no "reportable events" as defined in the regulations
of the Securities and Exchange Commission. The decision to change independent
accountants was approved by the Audit Committee.
We furnished Andersen a copy of our Current Report on Form 8-K dated
June 18, 2002 containing the foregoing disclosures, and requested Andersen to
furnish us a letter addressed to the Securities and Exchange Commission stating
whether Andersen agreed with the foregoing disclosures, or, if not, stating the
respects in which it does not agree. Andersen's letter stating that it agreed
with our disclosures was included as an exhibit to the Form 8-K.
On July 22, 2002, we engaged Deloitte & Touche LLP ("Deloitte") as our
independent accountant. During the past two years and the subsequent interim
period before we engaged Deloitte, the we had not (and no one on our behalf had)
consulted with Deloitte on the application of accounting principles to a
specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on our financial statements, or any other matter
that was either the subject of a disagreement or reportable event as set forth
in the regulations of the Securities and Exchange Commission.
AUDIT FEES
The aggregate fees and expenses billed by Deloitte & Touche LLP for the
audit of the Company's consolidated financial statements for the year ended
December 31, 2002 and the reviews of the quarterly consolidated financial
statements included in the Company's Forms 10-Q for that year were $48,200.
ALL OTHER FEES
During the year 2002, Deloitte & Touche LLP billed the Company
approximately $1,000 for non-audit services, all of which were audit-related
services in connection with an SEC filing.
We terminated Arthur Andersen LLP as our independent auditors in June
2002. In 2002 we paid Arthur Andersen LLP fees and expenses for the following
services:
Audit of 2001 consolidated financial statements and review of
the quarterly consolidated financial statements included in the
Company's March 31, 2002 Form 10-Q $47,040
Financial Information System and Design and Implementation Fees 58,459
All other fees:
Tax planning and return preparation 47,040
SEC filings 1,000
Other 500
The Audit Committee had considered whether the provision of non-audit
services was compatible with maintaining Arthur Andersen LLP's independence and
concluded that there was no incompatibility.
15
AUDIT COMMITTEE REPORT
During 2002, the Audit Committee ("the Committee") consisted of three
directors who are independent directors as defined by Nasdaq regulations. The
Company's Board of Directors on May 5, 2000 adopted a written Charter for the
Audit Committee, which was reviewed without change on October 17, 2002.
The Company's audited consolidated financial statements are included in
the Company's Annual Report to Shareholders and Form 10-K. The Audit Committee
has reviewed and discussed those financial statements with management of the
Company and has discussed with the independent auditors the matters required to
be discussed by Statement on Auditing Standards No. 61, "Communication with
Audit Committees," as amended. Further, the Committee has received the written
disclosures and the letter from the independent auditors required by
Independence Standards Board Standards No. 1, "Independence Discussions with
Audit Committees", as amended, and has discussed the independent auditor's
independence with them. Based on these reviews and discussions, the Audit
Committee has recommended to the Board of Directors that the audited
consolidated financial statements be included in the Company's Annual Report to
Shareholders and Form 10-K.
April 22, 2003
AUDIT COMMITTEE
Joseph R. Saucedo, Chair
John J. Connors
Jack W. Brown
OTHER MATTERS
The Company knows of no other matters to be brought before the Annual
Meeting. If any other matters are properly presented for action, the persons
named in the accompanying proxy intend to vote on such matters in their
discretion.
ANNUAL REPORT
The Company's Annual Report for the year ended December 31, 2002 is
being mailed to all stockholders together with this Proxy Statement. The
Company's Annual Report is also posted on the Company's web site,
www.icumed.com.
THE COMPANY WILL PROVIDE, WITHOUT CHARGE, A COPY OF ITS ANNUAL REPORT
ON FORM 10-K, INCLUDING FINANCIAL STATEMENTS AND RELATED SCHEDULES, FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION UPON REQUEST IN WRITING FROM ANY PERSON
WHO WAS A HOLDER OF RECORD, OR WHO REPRESENTS IN GOOD FAITH THAT HE OR SHE WAS A
BENEFICIAL OWNER, OF COMMON STOCK OF THE COMPANY ON APRIL 25, 2003. ANY SUCH
REQUEST SHALL BE ADDRESSED TO THE SECRETARY OF THE COMPANY AT 951 CALLE
AMANECER, SAN CLEMENTE, CA 92673. THE COMPANY'S ANNUAL REPORT ON FORM 10-K IS
ALSO POSTED ON THE COMPANY'S WEB SITE, WWW.ICUMED.COM.
NOMINATION OF DIRECTORS AND
SUBMISSION OF STOCKHOLDER PROPOSALS
Any stockholder who intends to nominate persons for election as
directors at an annual meeting shall give timely written notice to the Secretary
of the Company setting forth (a) as to each nominee whom the stockholder
proposes to nominate for election or reelection as a director, (i) the name,
age, business address and residence address of the nominee, (ii) the principal
16
occupation or employment of the nominee, (iii) the class and number of shares of
capital stock of the corporation which are beneficially owned by the nominee and
(iv) any other information concerning the nominee that would be required under
the rules of the Securities and Exchange Commission in a proxy statement
soliciting proxies for the election of such nominee; and (b) as to the
stockholder giving the notice, (i) the name and record address of the
stockholder and (ii) the class and number of shares of capital stock of the
Company which are beneficially owned by the stockholder. Such notice shall
include a signed consent of each such nominee to serve as a director of the
Company, if elected. The Company may require any proposed nominee to furnish
such other information as may reasonably be required by the Company to determine
the eligibility for such proposed nominee to serve as a director of the Company.
Any stockholder who intends to propose any business at a meeting shall give
timely written notice to the Secretary of the Company setting forth as to each
matter the stockholder proposes to bring before the meeting (i) a brief
description of the business to be brought before the meeting and the reasons for
conducting the business at the meeting, (ii) the name and record address of the
stock holder giving the notice, (iii) the class and number of shares of capital
stock of the Company that are beneficially owned by the stockholder, and by any
other stockholders known by the stockholder giving the notice to be supporting
the proposal and (iv) any material or financial interest of the stockholder in
such business. Either of the notices described above will be timely if it is
delivered to or mailed and received at the Company's executive offices not less
than 50 days nor more than 75 days prior to the date of the annual meeting,
unless the Company has given less than 60 days notice or prior public disclosure
of the date of the meeting, in which case the notice must be received by the
Company not less than 10 days after notice of the meeting was mailed or public
disclosure of the date of the meeting was made. A proposal that a stockholder
wants the Company to include in the Proxy Statement for the 2004 Annual Meeting
must be received by the Company at its principal executive offices by December
31, 2003, to be included in the Proxy Statement for that meeting, and all other
conditions for such inclusion must be satisfied.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors and persons who own more than 10% of the
Company's Common Stock to file reports on prescribed forms regarding ownership
of and transactions in the Common Stock with the Securities and Exchange
Commission and to furnish copies of such forms to the Company. Based solely on a
review of the forms received by it, the Company believes that with respect to
2002 the following Section 16(a) filings were not filed on a timely basis: one
filing each on Form 3 for Alison Burcar and Steven Riggs; two Form 4 filings for
Jack Brown; two Form 4 filings for John Connors; two Form 4 filings for Michael
Kovalchik; one Form 4 filing for Joseph Saucedo, two Form 4 filings for Richard
Sherman; one Form 4 filing for Robert Swinney and March Form 4 stock split
dividend reported on Form 5; one Form 4 filing each for Alison Burcar, Richard
Costello, and Francis J. O'Brien, all late by one day; March Form 4 stock split
dividend reported on Form 5 for Diana Lopez and George Lopez.
SOLICITATION OF PROXIES
The cost of this solicitation of proxies will be borne by the Company.
Solicitations will be made by mail, telephone or telegram and personally by
directors, officers and other employees of the Company, but such persons will
not receive compensation for such services over and above their regular
salaries. The Company will reimburse brokers, banks, custodians, nominees and
fiduciaries holding stock in their names or in the names of their nominees for
their reasonable charges and expenses in forwarding proxies and proxy material
to the beneficial owners of such stock.
BY ORDER OF THE BOARD OF DIRECTORS
/S/ Francis J. O'Brien
----------------------
Francis J. O'Brien, Secretary
17
EXHIBIT A
2003 STOCK OPTION PLAN
OF
ICU MEDICAL, INC.
1. PURPOSE OF THIS PLAN
The purpose of this 2003 Stock Option Plan of ICU Medical, Inc. is to enhance
the long-term stockholder value of ICU Medical, Inc. by offering opportunities
to eligible individuals to participate in the growth in value of the equity of
ICU Medical, Inc.
2. DEFINITIONS AND RULES OF INTERPRETATION
2.1 DEFINITIONS. This Plan uses the following defined terms:
(a) "ADMINISTRATOR" means the Board or the Committee.
(b) "AFFILIATE" means a "parent" or "subsidiary" (as each is
defined in Section 424 of the Code) of the Company and any other entity that the
Board or Committee designates as an "Affiliate" for purposes of this Plan.
(c) "APPLICABLE LAW" means any and all laws of whatever
jurisdiction, within or without the United States, and the rules of any stock
exchange or quotation system on which Shares are listed or quoted, applicable to
the taking or refraining from taking of any action under this Plan, including
the administration of this Plan and the issuance or transfer of Options or
Option Shares.
(d) "BOARD" means the board of directors of the Company.
(e) "CHANGE OF CONTROL" means any transaction or event that
the Board specifies as a Change of Control under Section 10.4.
(f) "CODE" means the Internal Revenue Code of 1986.
(g) "COMMITTEE" means a committee composed of Company
Directors appointed in accordance with the Company's charter documents and
Section 4.
(h) "COMPANY" means ICU Medical, Inc., a Delaware corporation.
(i) "COMPANY DIRECTOR" means a member of the Board.
(j) "CONSULTANT" means an individual who, or an employee of
any entity that, provides bona fide services to the Company or an Affiliate not
in connection with the offer or sale of securities in a capital-raising
transaction, but who is not an Employee.
(k) "DIRECTOR" means a member of the board of directors of the
Company or an Affiliate.
(l) "DIVESTITURE" means any transaction or event that the
Board specifies as a Divestiture under Section 10.5.
(m) "EMPLOYEE" means a regular employee of the Company or an
Affiliate, including an officer or Director, who is treated as an employee in
the personnel records of the Company or an Affiliate, but not individuals who
are classified by the Company or an Affiliate as: (i) leased from or otherwise
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employed by a third party, (ii) independent contractors, or (iii) intermittent
or temporary workers. The Company's or an Affiliate's classification of an
individual as an "Employee" (or as not an "Employee") for purposes of this Plan
shall not be altered retroactively even if that classification is changed
retroactively for another purpose as a result of an audit, litigation or
otherwise. An Optionee shall not cease to be an Employee due to transfers
between locations of the Company, or between the Company and an Affiliate, or to
any successor to the Company or an Affiliate that assumes the Optionee's Options
under Section 10. Neither service as a Director nor receipt of a director's fee
shall be sufficient to make a Director an "Employee."
(n) "EXCHANGE ACT" means the Securities Exchange Act of 1934.
(o) "EXECUTIVE" means, if the Company has any class of any
equity security registered under Section 12 of the Exchange Act, an individual
who is subject to Section 16 of the Exchange Act or who is a "covered employee"
under Section 162(m) of the Code, in either case because of the individual's
relationship with the Company or an Affiliate. If the Company does not have any
class of any equity security registered under Section 12 of the Exchange Act,
"Executive" means any (i) Director, (ii) officer elected or appointed by the
Board, or (iii) beneficial owner of more than 10% of any class of the Company's
equity securities.
(p) "EXPIRATION DATE" means, with respect to an Option, the
date stated in the Option Agreement as the expiration date of the Option or, if
no such date is stated in the Option Agreement, then the last day of the maximum
exercise period for the Option, disregarding the effect of an Optionee's
Termination or any other event that would shorten that period.
(q) "FAIR MARKET VALUE" means the value of Shares as
determined under Section 17.2.
(r) "FUNDAMENTAL TRANSACTION" means any transaction or event
described in Section 10.3.
(s) "GRANT DATE" means the date the Administrator approves the
grant of an Option or, in the case of an Option granted automatically pursuant
to Section 5.3, the applicable anniversary date of the Employee's first day of
employment by the Company or an Affiliate specified as the date of grant in
Section 5.3. However, if the Administrator specifies that the Grant Date of an
Option, other than an Option granted automatically pursuant to Section 5.3, is a
future date or the date on which a condition is satisfied, the Grant Date for
such Option is that future date or the date that the condition is satisfied.
(t) "INCENTIVE STOCK OPTION" means an Option intended to
qualify as an incentive stock option under Section 422 of the Code and
designated as an Incentive Stock Option in the Option Agreement for that Option.
(u) "INELIGIBLE NONRESIDENT" means an Employee who is a
resident of and/or has his or her principal place of employment in a country
(other than the United States of America) where, as determined by the
Administrator in its sole discretion, the grant of Options to Employees resident
and/or having their principal place of employment in such country, or the
exercise of such Options, would have significant adverse consequences to
Employees and/or the Company under the tax or securities laws of such country or
would require the Company or any Affiliate to effect a registration or
qualification under, or perfect an exemption from or other compliance with, the
securities laws of such country that the Administrator deems, in its sole
discretion, to be unduly burdensome.
(v) "NONSTATUTORY OPTION" means any Option other than an
Incentive Stock Option.
(w) "OFFICER" means an officer of the Company as defined in
Rule 16a-1 adopted under the Exchange Act.
(x) "OPTION" means a right to purchase Shares of the Company
granted under this Plan.
(y) "OPTION AGREEMENT" means the document evidencing the grant
of an Option, including this Plan in the case of each Option granted
automatically to each Employee (other than an Ineligible Nonresident) pursuant
to Section 5.3.
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(z) "OPTION PRICE" means the price payable under an Option for
Shares, not including any amount payable in respect of withholding or other
taxes.
(aa) "OPTION SHARES" means Shares covered by an outstanding
Option or purchased under an Option.
(bb) "OPTIONEE" means: (i) a person to whom an Option has been
granted, including a holder of a Substitute Option, and (ii) a person to whom an
Option has been transferred in accordance with all applicable requirements of
Sections 6.5, 7(h), and 16.
(cc) "PLAN" means this 2003 Stock Option Plan of ICU Medical,
Inc.
(dd) "QUALIFIED DOMESTIC RELATIONS ORDER" means a judgment,
order, or decree meeting the requirements of Section 414(p) of the Code.
(ee) "RULE 16B-3" means Rule 16b-3 adopted under Section 16(b)
of the Exchange Act.
(ff) "SECURITIES ACT" means the Securities Act of 1933.
(gg) "SHARE" means a share of the common stock of the Company
or other securities substituted for the common stock under Section 10.
(hh) "SUBSIDIARY DIRECTOR" means a director of a "subsidiary"
(as defined in Section 424 of the Code) of the Company who is neither an
Employee nor a Company Director.
(ii) "SUBSTITUTE OPTION" means an Option granted in
substitution for, or upon the conversion of, an option granted by another entity
to purchase equity securities in the granting entity.
(jj) "TERMINATION" means that the Optionee has ceased to be,
with or without any cause or reason, an Employee, Director or Consultant.
However, unless so determined by the Administrator or otherwise provided in this
Plan, "Termination" shall not include a change in status from an Employee,
Consultant or Director to another such status. An event that causes an Affiliate
to cease being an Affiliate shall be treated as the "Termination" of that
Affiliate's Employees, Directors, and Consultants.
2.2 RULES OF INTERPRETATION. Any reference to a "Section," without
more, is to a Section of this Plan. Captions and titles are used for convenience
in this Plan and shall not, by themselves, determine the meaning of this Plan.
Except when otherwise indicated by the context, the singular includes the plural
and vice versa. Any reference to a statute is also a reference to the applicable
rules and regulations adopted under that statute. Any reference to a statute,
rule or regulation, or to a section of a statute, rule or regulation, is a
reference to that statute, rule, regulation, or section as amended from time to
time, both before and after the effective date of this Plan and including any
successor provisions
3. SHARES SUBJECT TO THIS PLAN; TERM OF THIS PLAN
3.1 NUMBER OF OPTION SHARES. Subject to adjustment under Section 10,
the maximum number of Shares that may be issued under this Plan is 1,500,000.
When an Option is granted, the maximum number of Shares that may be issued under
this Plan shall be reduced by the number of Shares covered by that Option.
However, if an Option later terminates or expires without having been exercised
in full, the maximum number of Shares that may be issued under this Plan shall
be increased by the number of Shares that were covered by, but not purchased
under, that Option. By contrast, the repurchase of Option Shares by the Company
shall not increase the maximum number of Shares that may be issued under this
Plan.
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3.2 SOURCE OF SHARES. Option Shares may be: (a) Shares that have never
been issued, (b) Shares that have been issued but are no longer outstanding, or
(c) Shares that are outstanding and are acquired to discharge the Company's
obligation to deliver Option Shares. 3.3 TERM OF THIS PLAN
(a) This Plan shall be effective on, and Options may be
granted under this Plan on and after, the earliest date on which the Plan has
been both adopted by the Board and approved by the Company's stockholders.
(b) This Plan has no set termination date. However, it may be
terminated as provided in Section 13. Moreover, no Incentive Stock Option may be
granted after the time described in Section 7(b).
4. ADMINISTRATION
4.1 GENERAL
(a) The Board shall have ultimate responsibility for
administering this Plan. The Board may delegate certain of its responsibilities
to a Committee, which shall consist of at least two members of the Board. Where
this Plan specifies that an action is to be taken or a determination made by the
Board, only the Board may take that action or make that determination. Where
this Plan specifies that an action is to be taken or a determination made by the
Committee, only the Committee may take that action or make that determination.
Where this Plan references the "Administrator," the action may be taken or
determination made by the Board or the Committee. Moreover, all actions and
determinations by any Administrator are subject to the provisions of this Plan.
(b) So long as the Company has registered and outstanding a
class of equity securities under Section 12 of the Exchange Act, the Committee
shall consist of Company Directors who are "Non-Employee Directors" as defined
in Rule 16b-3 and who are "outside directors" as defined in Section 162(m) of
the Code.
4.1 AUTHORITY OF ADMINISTRATOR. Subject to the other provisions of this
Plan, the Administrator shall have the authority:
(a) to grant Options, including Substitute Options;
(b) to determine the Fair Market Value of Shares;
(c) to determine the Option Price of Options;
(d) to select the Optionees;
(e) to determine the times Options are granted;
(f) to determine the number of Shares subject to each Option;
(g) to determine the types of payment that may be used to
purchase Option Shares;
(h) to determine the types of payment that may be used to
satisfy withholding tax obligations;
(i) to determine the other terms of each Option, including but
not limited to the time or times at which Options may be exercised, whether and
under what conditions an Option is assignable, and whether an Option is a
Nonstatutory Option or an Incentive Stock Option;
(j) to modify or amend any Option;
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(k) to authorize any person to sign any Option Agreement or
other document related to this Plan on behalf of the Company;
(l) to determine the form of any Option Agreement or other
document related to this Plan, and whether that document, including signatures,
may be in electronic form;
(m) to interpret this Plan and any Option Agreement or
document related to this Plan;
(n) to correct any defect, remedy any omission, or reconcile
any inconsistency in this Plan, any Option Agreement or any other document
related to this Plan;
(o) to adopt, amend, and revoke rules and regulations under
this Plan, including rules and regulations relating to sub-plans and Plan
addenda;
(p) adopt, amend and revoke special rules and procedures,
which may be inconsistent with the terms of this Plan, set forth (if the
Administrator so chooses) in sub-plans regarding (for example) the operation and
administration of this Plan and the terms of Options, if and to the extent
necessary or useful to accommodate non-U.S. Applicable Law and practices as they
apply to Options and Option Shares held by, or granted or issued to, persons
working or resident outside of the United States or employed by Affiliates
incorporated outside the United States;
(q) to determine whether a transaction or event should be
treated as a Change of Control, a Divestiture or neither;
(r) to determine the effect of a Fundamental Transaction and,
if the Board determines that a transaction or event should be treated as a
Change of Control or a Divestiture, then the effect of that Change of Control or
Divestiture; and
(s) to make all other determinations the Administrator deems
necessary or advisable for the administration of this Plan.
4.3 SCOPE OF DISCRETION. Subject to the last sentence of this Section
4.3, on all matters for which this Plan confers the authority, right or power on
the Board or the Committee to make decisions, that body may make those decisions
in its sole and absolute discretion. Those decisions will be final, binding and
conclusive. Moreover, but again subject to the last sentence of this Section
4.3, in making those decisions the Board or Committee need not treat all persons
eligible to receive Options, all Optionees, all Options or all Option Shares the
same way. However, except as provided in Section 13.3, the discretion of the
Board or Committee is subject to the specific provisions and specific
limitations of this Plan, as well as all rights conferred on specific Optionees
by Option Agreements and other agreements.
5. PERSONS ELIGIBLE TO RECEIVE OPTIONS; AUTOMATIC GRANTS
5.1 ELIGIBLE INDIVIDUALS. Options (including Substitute Options) may be
granted to, and only to, Employees (other than Ineligible Nonresidents),
Subsidiary Directors and Consultants, including to prospective Employees (other
than Ineligible Nonresidents), Subsidiary Directors and Consultants conditioned
on the beginning of their service for the Company or an Affiliate. However,
Incentive Stock Options may be granted only to Employees (other than Ineligible
Nonresidents), as provided in Section 7(g).
5.2 SECTION 162(m) LIMITATION. So long as the Company is a "publicly
held corporation" within the meaning of Section 162(m) of the Code: (a) no
Employee or prospective Employee may be granted one or more Options within any
fiscal year of the Company under this Plan to purchase more than 500,000 Shares,
subject to adjustment under Section 10, and (b) Options may be granted to an
Executive only by the Committee (and, notwithstanding Section 4.1(a), not by the
Board). If an Option is cancelled without being exercised or if the Option Price
of an Option is reduced, that cancelled or repriced Option shall continue to be
counted against the limit on Options that may be granted to any individual under
this Section 5.2.
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5.3 GRANTS ON EACH FIFTH ANNIVERSARY OF EMPLOYMENT. Without any action
by the Administrator, each Employee other than an Ineligible Nonresident
automatically shall be granted an Option, on each anniversary of such Employee's
first day of employment by the Company or an Affiliate that occurs on or after
the date this Plan becomes effective and is a whole multiple of five years after
such first day of employment, so long as such Employee continues to be an
Employee, to purchase 1,000 Shares, subject to adjustment under Section 10.
Unless otherwise determined by the Administrator in its sole discretion, each
such Option is intended to be a Nonstatutory Option. Any such determination
changing the type of Options granted automatically pursuant to this Section 5.3
shall be effective for any or all Options, as determined by the Administrator,
granted automatically pursuant to this Section 5.3 on or after, but not before,
the date of the determination. This paragraph is intended only to facilitate the
automatic grant of Options to Employees other than Ineligible Nonresidents every
fifth year after they are first employed by the Company or an Affiliate without
the necessity of action by the Administrator and is not intended to grant to any
Employee any right to be granted an Option. Neither the Company nor any officer,
Director or member of the Committee shall have any liability to any Employee for
the failure to grant an Option or for any determination that any Employee is an
Ineligible Nonresident. Notwithstanding the foregoing or any other provision of
this Plan, no Option shall be granted to an Employee pursuant to this Section
5.3 on any date if on that date the Employee is automatically granted an option
to purchase 1,000 Shares pursuant to the provisions of any other stock option or
stock incentive plan of the Company in effect as of the effective date of this
Plan. The Committee may, from time to time and in its absolute discretion, (a)
suspend the operation of this Section 5.3, or (b) grant additional Options to
any Employee (other than an Ineligible Nonresident).
6. TERMS AND CONDITIONS OF OPTIONS
The following rules apply to all Options:
6.1 PRICE. No Option may have an Option Price less than 100% of the
Fair Market Value of the Shares on the Grant Date. The Option Price of each
Option granted automatically to each Employee (other than an Ineligible
Nonresident) pursuant to Section 5.3 shall be the Fair Market Value of the
Shares on the Grant Date. In no event will the Option Price of any Option be
less than the par value of the Shares issuable under the Option if that is
required by Applicable Law. The Option Price of an Incentive Stock Option shall
be subject to Section 7(f).
6.2 TERM. No Option shall be exercisable after its Expiration Date. No
Option may have an Expiration Date that is more than ten years after its Grant
Date. The Expiration Date of each Option granted automatically to each Employee
(other than an Ineligible Nonresident) pursuant to Section 5.3 shall be ten
years after its Grant Date. Additional provisions regarding the term of
Incentive Stock Options are provided in Sections 7(a) and 7(e).
6.3 VESTING. Options shall be exercisable: (a) on the Grant Date, (b)
in accordance with a schedule related to the Grant Date, the date the Optionee's
directorship of a subsidiary, employment or consultancy begins, or a different
date specified in the Option Agreement, (c) upon the achievement of performance
objectives established by the Administrator on the Grant Date or (d) based on
such combination of the passage of time and achievement of performance
objectives as the Administrator shall specify. Performance objectives may be
expressed in terms of the operating results or operating ratios of the Company
or its individual divisions or Affiliates, including, by way of example but
without limitation, net sales, net sales of particular products, gross margins,
net income or return on investment, or may be expressed in terms of the
performance of individual Optionees. Determination of the achievement of the
performance objectives shall be based on objective criteria and shall be in the
sole discretion of the Administrator unless the Administrator provides otherwise
in an Option Agreement. Any Option as to which vesting is based in whole or in
part upon the achievement of performance objectives shall be exercisable, even
if the performance objectives are not achieved, on such date(s), each of which
shall be at least 30 days before the Expiration Date of the Option, as the
Administrator shall provide in the Option Agreement on the Grant Date.
Notwithstanding the foregoing, each Option granted automatically to each
Employee (other than an Ineligible Nonresident) pursuant to Section 5.3 shall
become exercisable as to one-third of the number of Shares (rounded to the
closest number of whole Shares) on each of the first, second and third
anniversaries of the Grant Date, so that all Shares will be purchasable on the
third anniversary of the Grant Date. Additional provisions regarding the vesting
of Incentive Stock Options are provided in Section 7(c).
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6.4 FORM OF PAYMENT
(a) The Administrator shall determine the acceptable form and
method of payment for exercising an Option.
(b) Acceptable forms of payment for all Option Shares are
cash, check or wire transfer, denominated in U.S. dollars except as specified by
the Administrator for non-U.S. Employees or non-U.S. sub-plans.
(c) In addition, the Administrator may permit payment to be
made by any of the following methods, so long as permitted by Applicable Law:
(i) other Shares, or the designation of other Shares,
which (A) are "mature" shares for purposes of avoiding
variable accounting treatment under generally accepted
accounting principles (in general, mature shares are those
that have been owned by the Optionee for more than six months
on the date of surrender), and (B) have a Fair Market Value on
the date of surrender equal to the Option Price of the Shares
as to which the Option is being exercised;
(ii) provided that a public market exists for the
Shares, consideration received by the Company under a
procedure under which a broker-dealer that is a member of the
National Association of Securities Dealers advances funds on
behalf of an Optionee or sells Option Shares on behalf of an
Optionee (a "CASHLESS EXERCISE PROCEDURE"), provided that if
the Company extends or arranges for the extension of credit to
an Optionee under any Cashless Exercise Procedure, an Officer
or Director may participate in that Cashless Exercise
Procedure only if that is permitted by Applicable Law;
(iii) with respect only to Optionees who are not
Consultants as of the date of exercise, one or more promissory
notes meeting the requirement of Section 6.4(e), provided,
however, that if Shares are registered under Section 12 of the
Exchange Act, an Optionee who is an Officer or Director as of
the date of exercise may purchase Shares with a promissory
note only if that is permitted by Applicable Law; and
(iv) any combination of the methods of payment
permitted by any paragraph of this Section 6.4.
(d) The Administrator may also permit any other form or method
of payment for Option Shares permitted by Applicable Law.
(e) The promissory notes referred to in Section 6.4(c)(iii)
must be full recourse. Unless the Administrator specifies otherwise after taking
into account any relevant accounting issues, the notes shall bear interest at a
fair market value rate when the Option is exercised. Interest on the notes shall
also be at least sufficient to avoid imputation of interest under Sections 483,
1274 and 7872 of the Code. The notes and their administration shall at all times
comply with any applicable margin rules of the Federal Reserve. The portion of
the Option Price equal to the par value of the Option Shares shall in all events
be paid in cash. The notes may also include such other terms as the
Administrator specifies.
6.5 NONASSIGNABILITY OF OPTIONS. Except as set forth in any Option
Agreement, no Option shall be assignable or otherwise transferable by the
Optionee except by will or by the laws of descent and distribution. However,
Options may be transferred and exercised in accordance with a Qualified Domestic
Relations Order and may be exercised by a guardian or conservator appointed to
act for the Optionee. Incentive Stock Options may only be assigned in compliance
with Section 7(h).
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6.6 SUBSTITUTE OPTIONS. The Board may cause the Company to grant
Substitute Options in connection with the acquisition by the Company or an
Affiliate of equity securities of any entity (including by merger, tender offer
or other similar transaction) or all or a portion of the assets of any entity.
Any such substitution shall be effective when the acquisition closes. Substitute
Options may be Nonstatutory Options or Incentive Stock Options. Unless and to
the extent specified otherwise by the Board, Substitute Options shall have the
same terms and conditions as the options they replace, except that (subject to
Section 10) Substitute Options shall be Options to purchase Shares rather than
equity securities of the granting entity and shall have an Option Price that, as
determined by the Board in its sole and absolute discretion, properly reflects
the substitution.
6.7 REPRICINGS. Other than in accordance with Section 10, Options may
not be repriced, replaced, regranted through cancellation or modified without
stockholder approval, if the effect of the repricing, replacement, regrant or
modification would be to reduce the effective Option Price of the Options.
7. INCENTIVE STOCK OPTIONS
The following rules apply only to Incentive Stock Options and only to
the extent these rules are more restrictive than the rules that would otherwise
apply under this Plan. With the consent of the Optionee, or where this Plan
provides that an action may be taken notwithstanding any other provision of this
Plan, the Administrator may deviate from the requirements of this Section,
notwithstanding that any Incentive Stock Option modified by the Administrator
will thereafter be treated as a Nonstatutory Option.
(a) The Expiration Date of an Incentive Stock Option shall not
be later than ten years from its Grant Date, with the result that no Incentive
Stock Option may be exercised after the expiration of ten years from its Grant
Date. Notwithstanding the foregoing, except as otherwise provided in this Plan,
the Expiration Date of each Incentive Stock Option granted automatically to each
Employee (other than an Ineligible Nonresident) pursuant to Section 5.3 shall be
ten years after the Grant Date.
(b) No Incentive Stock Option may be granted more than ten
years from the date this Plan was approved by the Board.
(c) Options intended to be incentive stock options under
Section 422 of the Code that are granted to any single Optionee under all
incentive stock option plans of the Company and its Affiliates, including
incentive stock options granted under this Plan, may not vest at a rate of more
than $100,000 in Fair Market Value of stock (measured on the grant dates of the
options) during any calendar year. For this purpose, an option vests with
respect to a given share of stock the first time its holder may purchase that
share, notwithstanding any right of the Company to repurchase that share. Unless
the administrator of that option plan specifies otherwise in the related
agreement governing the option, this vesting limitation shall be applied by, to
the extent necessary to satisfy this $100,000 rule, deferring the exercisability
of certain options that were intended to be incentive stock options under
Section 422 of the Code when granted. The stock options or portions of stock
options whose exercisability will be deferred are those with the highest option
prices, whether granted under this Plan or any other equity compensation plan of
the Company or any Affiliate that permits that treatment. Those "deferred"
Incentive Stock Options shall become exercisable on the first day of the first
calendar year during which the "deferred" options satisfy the vesting
requirements of this Section 7(c), the other provisions of this Plan, and any
other controlling documents, including requirements relating to the expiration
and termination of options. However, the exercisability of an Option or portion
of an Option shall not be deferred (i) more than three years, or such other
whole number of years as may be specified by the Administrator in the related
agreement governing the Option, beyond the date the Option or portion of the
Option would have first become exercisable in the absence of deferral under this
Section 7(c), or (ii) beyond the Option's Expiration Date, and any Option or
portion of an Option that cannot be so deferred because of (i) or (ii) shall be
treated as a Nonstatutory Option exercisable in accordance with its vesting
schedule without regard to deferral under this Section 7(c). This Section 7(c)
shall not cause an Incentive Stock Option to vest before its original vesting
date or cause an Incentive Stock Option that has already vested to cease to be
vested.
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(d) In order for an Incentive Stock Option to be exercised for
any form of payment other than those described in Section 6.4(b), that right
must be stated at the time of grant in the Option Agreement relating to that
Incentive Stock Option.
(e) Any Incentive Stock Option granted to a Ten Percent
Stockholder, must have an Expiration Date that is not later than five years from
its Grant Date, with the result that no such Option may be exercised after the
expiration of five years from the Grant Date. A "TEN PERCENT STOCKHOLDER" is any
person who, directly or by attribution under Section 424(d) of the Code, owns
stock possessing more than ten percent of the total combined voting power of all
classes of stock of the Company or of any Affiliate on the Grant Date.
Notwithstanding the foregoing, the Expiration Date of each Incentive Stock
Option granted automatically pursuant to Section 5.3 to each Employee (other
than an Ineligible Nonresident) who is a Ten Percent Stockholder shall be five
years after the Grant Date.
(f) The Option Price of an Incentive Stock Option shall never
be less than the Fair Market Value of the Shares at the Grant Date. The Option
Price for the Shares covered by an Incentive Stock Option granted to a Ten
Percent Stockholder shall never be less than 110% of the Fair Market Value of
the Shares at the Grant Date. Notwithstanding the foregoing, the Option Price of
each Incentive Stock Option granted automatically to each Employee (other than
an Ineligible Nonresident) pursuant to Section 5.3 shall be the Fair Market
Value, or in the case of each such Employee who is a Ten Percent Stockholder
110% of the Fair Market Value, of the Shares on the Grant Date.
(g) Incentive Stock Options may be granted only to Employees
(other than Ineligible Nonresidents). If an Optionee changes status from an
Employee to a Consultant, that Optionee's Incentive Stock Options become
Nonstatutory Options if not exercised within the time period described in
Section 7(i) (determined by treating that change in status as a Termination
solely for purposes of this Section 7(g)).
(h) No rights under an Incentive Stock Option may be
transferred by the Optionee, other than by will or the laws of descent and
distribution. During the life of the Optionee, an Incentive Stock Option may be
exercised only by the Optionee. The Company's compliance with a Qualified
Domestic Relations Order, or the exercise of an Incentive Stock Option by a
guardian or conservator appointed to act for the Optionee, shall not violate
this Section 7(h).
(i) An Incentive Stock Option shall be treated as a
Nonstatutory Option if it remains exercisable after, and is not exercised
within, the three-month period beginning with the Optionee's Termination for any
reason other than the Optionee's death or disability (as defined in Section
22(e) of the Code). In the case of Termination due to death, an Incentive Stock
Option shall continue to be treated as an Incentive Stock Option if it remains
exercisable after, and is not exercised within, that three-month period provided
it is exercised before the Expiration Date. In the case of Termination due to
disability, an Incentive Stock Option shall be treated as a Nonstatutory Option
if it remains exercisable after, and is not exercised within, one year after the
Optionee's Termination.
(j) An Incentive Stock Option may be modified only by the
Board.
8. CONSULTING OR EMPLOYMENT RELATIONSHIP
Nothing in this Plan or in any Option Agreement, and no Option or the fact that
Option Shares remain subject to repurchase rights, shall: (a) interfere with or
limit the right of the Company or any Affiliate to terminate the employment or
consultancy of any Optionee at any time, whether with or without cause or
reason, and with or without the payment of severance or any other compensation
or payment, or (b) interfere with the application of any provision in any of the
Company's or any Affiliate's charter documents or Applicable Law relating to the
election, appointment, term of office, or removal of a Director.
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9. EXERCISE OF OPTIONS
9.1 IN GENERAL. An Option shall be exercisable in accordance with this
Plan and the Option Agreement under which it is granted.
9.2 TIME OF EXERCISE. An Option shall be considered exercised when the
Company receives: (a) written notice of exercise, on a form of exercise
agreement approved by the Administrator, from the person entitled to exercise
the Option, (b) full payment, or provision for payment, in a form and method
approved by the Administrator, for the Shares for which the Option is being
exercised and (c), with respect to Nonstatutory Options, payment, or provision
for payment, in a form approved by the Administrator, of all applicable
withholding taxes due upon exercise. An Option may not be exercised for a
fraction of a Share.
9.3 ISSUANCE OF OPTION SHARES. The Company shall issue Option Shares in
the name of the person properly exercising the Option. If the Optionee is that
person and so requests, the Option Shares shall be issued in the name of the
Optionee and the Optionee's spouse. The Company shall endeavor to issue Option
Shares promptly after an Option is exercised. However, until Option Shares are
actually issued, as evidenced by the appropriate entry on the stock books of the
Company or its transfer agent, the Optionee will not have the rights of a
stockholder with respect to those Option Shares, even though the Optionee has
completed all the steps necessary to exercise the Option. No adjustment shall be
made for any dividend, distribution or other right for which the record date
precedes the date the Option Shares are issued, except as provided in Section
10.
9.4 TERMINATION
(a) IN GENERAL. Except as provided in an Option Agreement or
in writing by the Administrator, and as otherwise provided in Sections 9.4(b),
(c), (d), (e), (f) and (g), after an Optionee's Termination the Optionee's
Options shall be exercisable to the extent (but only to the extent) they are
vested on the date of that Termination and only during the period ending 30 days
after the Termination, but in no event after the Expiration Date. To the extent
the Optionee does not exercise an Option within the time specified for exercise,
the Option shall automatically terminate.
(b) LEAVES OF ABSENCE. Unless otherwise provided in the Option
Agreement, no Option may be exercised more than 30 days after the beginning of a
leave of absence, other than a personal, military service or medical leave
approved by the Administrator with employment guaranteed upon return. Options
shall not continue to vest during a leave of absence, unless otherwise
determined by the Administrator with respect to an approved personal, military
service or medical leave with employment guaranteed upon return.
(c) DEATH OR DISABILITY. Unless otherwise provided in this
Plan or in the Option Agreement, if an Optionee's Termination is due to death or
disability (as determined by the Administrator with respect to Nonstatutory
Options and as defined by Section 22(e) of the Code with respect to Incentive
Stock Options), all unvested Options of that Optionee shall immediately vest and
all Options of that Optionee may be exercised for one year after that
Termination, but in no event after the Expiration Date. In the case of
Termination due to death, an Option may be exercised as provided in Section 16.
In the case of Termination due to disability, if a guardian or conservator has
been appointed to act for the Optionee and been granted this authority as part
of that appointment, that guardian or conservator may exercise the Option on
behalf of the Optionee. Death or disability occurring after an Optionee's
Termination shall not cause the Termination to be treated as having occurred due
to death or disability. However, in the case of an Optionee whose Termination is
due to disability (as provided in this Section 9.4(c)) and is not due to Cause,
if the Optionee dies within 90 days after that Termination, all Options of that
Optionee, may be exercised for one year after the date of death, but in no event
after the Expiration Date. In the case of an Optionee whose Termination is due
to the Optionee's retirement in accordance with the Company's or an Affiliate's
retirement policy and is not due to Cause, if the Optionee dies or becomes
disabled within 90 days after that Termination, all Options of that Optionee, to
the extent they are exercisable at the date of that Termination and at the date
of the Optionee's death or disability (without regard to such death or
disability), may be exercised for one year after the date of death or, in the
case of disability, for one year after the date of that Termination, but in no
event after the Expiration Date. To the extent an Option is not so exercised
within the time specified for its exercise, the Option shall automatically
terminate.
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(d) DIVESTITURE. If an Optionee's Termination is due to a
Divestiture, the Board may take any one or more of the actions described in
Section 10.3 or 10.4 with respect to the Optionee's Options.
(e) RETIREMENT. Unless otherwise provided in this Plan or in
the Option Agreement, if an Optionee's Termination is due to the Optionee's
retirement in accordance with the Company's or an Affiliate's retirement policy,
all Options of that Optionee to the extent exercisable at the Optionee's date of
retirement may be exercised for three months after the Optionee's date of
retirement, but in no event after the Expiration Date. To the extent the
Optionee does not exercise an Option within the time specified for exercise, the
Option shall automatically terminate.
(f) SEVERANCE PROGRAMS. Unless otherwise provided in the
Option Agreement, if an Optionee's Termination results from participation in a
voluntary severance incentive program of the Company or an Affiliate approved by
the Board, all Options of that Employee to the extent exercisable at the time of
that Termination shall be exercisable for one year after the Optionee's
Termination, but in no event after the Expiration Date. If the Optionee does not
exercise an Option within the time specified for exercise, the Option shall
automatically terminate.
(g) TERMINATION FOR CAUSE. If an Optionee's Termination is due
to Cause, all of the Optionee's Options shall automatically terminate and cease
to be exercisable at the time of Termination and the Administrator may rescind
any and all exercises of Options by the Optionee that occurred after the first
event constituting Cause. "Cause" means employment-related dishonesty, fraud,
misconduct or disclosure or misuse of confidential information, or other
employment-related conduct that is likely to cause significant injury to the
Company, an Affiliate, or any of their respective employees, officers or
directors (including, without limitation, commission of a felony or similar
offense), in each case as determined by the Administrator. "Cause" shall not
require that a civil judgment or criminal conviction have been entered against
or guilty plea shall have been made by the Optionee regarding any of the matters
referred to in the previous sentence. Accordingly, the Administrator shall be
entitled to determine "Cause" based on the Administrator's good faith belief. If
the Optionee is criminally charged with a felony or similar offense, that shall
be a sufficient, but not a necessary, basis for such a belief.
10. CERTAIN TRANSACTIONS AND EVENTS
10.1 IN GENERAL. Except as provided in this Section 10, no change in
the capital structure of the Company, merger, sale or other disposition of
assets or a subsidiary, change of control, issuance by the Company of shares of
any class of securities convertible into shares of any class, conversion of
securities or other transaction or event shall require or be the occasion for
any adjustments of the type described in this Section 10. Additional provisions
with respect to the foregoing transactions are set forth in Section 13.3.
10.2 CHANGES IN CAPITAL STRUCTURE. In the event of any stock split,
reverse stock split, recapitalization, combination or reclassification of stock,
stock dividend, spin-off or similar change to the capital structure of the
Company (not including a Fundamental Transaction or Change of Control), the
Board shall make whatever adjustments it concludes are appropriate to: (a) the
number and type of Options that may be granted under this Plan, (b) the number
and type of Options that may be granted to any individual under this Plan, (c)
the Option Price and number and class of securities issuable under each
outstanding Option and (d) the number and class of securities issuable under
each Option to be granted automatically pursuant to Section 5.3. The specific
adjustments shall be determined by the Board, except that the Board shall comply
with Section 10.6 to the extent, if any, that it applies. Unless the Board
specifies otherwise, any securities issuable as a result of any such adjustment
shall be rounded to the next lower whole security. The Board need not adopt the
same rules for each Option or each Optionee.
10.3 FUNDAMENTAL TRANSACTIONS. If the Company merges with another
entity in a transaction in which the Company is not the surviving entity or if,
as a result of any other transaction or event, other securities are substituted
for the Shares or Shares may no longer be issued (each a "FUNDAMENTAL
TRANSACTION"), then, notwithstanding any other provision of this Plan, the Board
shall do one or more of the following contingent on the closing or completion of
the Fundamental Transaction: (a) arrange for the substitution, in exchange for
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Options, of options to purchase equity securities other than Shares (including,
if appropriate, equity securities of an entity other than the Company) (an
"assumption" of Options) on such terms and conditions as the Board determines
are appropriate, (b) accelerate the vesting and termination of outstanding
Options, in whole or in part, so that Options can be exercised before or
otherwise in connection with the closing or completion of the Fundamental
Transaction or event but then terminate and (c) cancel or arrange for the
cancellation of Options in exchange for cash payments to Optionees. The Board
need not adopt the same rules for each Option or each Optionee.
10.4. CHANGES OF CONTROL. The Board may also, but need not, specify
that other transactions or events constitute a "CHANGE OF CONTROL". The Board
may do that either before or after the transaction or event occurs. Examples of
transactions or events that the Board may treat as Changes of Control are: (a)
the Company or an Affiliate is a party to a merger, consolidation, amalgamation,
or other transaction in which the beneficial stockholders of the Company,
immediately before the transaction, beneficially own securities representing 50%
or less of the total combined voting power or value of the Company immediately
after the transaction, (b) any person or entity, including a "group" as
contemplated by Section 13(d)(3) of the Exchange Act, acquires securities
holding 30% or more of the total combined voting power or value of the Company,
or (c) as a result of or in connection with a contested election of Company
Directors, the persons who were Company Directors immediately before the
election cease to constitute a majority of the Board. In connection with a
Change of Control, notwithstanding any other provision of this Plan, the Board
may take any one or more of the actions described in Section 10.3. In addition,
the Board may extend the date for the exercise of Options (but not beyond their
original Expiration Date). The Board need not adopt the same rules for each
Option or each Optionee. Notwithstanding the above, if the Company or an
Affiliate is a party to a merger, consolidation, amalgamation or other
transaction in which the beneficial stockholders of the Company, immediately
before the transaction, beneficially own securities representing 50% or less of
the total combined voting power or value of the Company immediately after the
transaction, vesting of all Options shall be accelerated and they shall become
exercisable in full on the date of the transaction.
10.5 DIVESTITURE. If the Company or an Affiliate sells or otherwise
transfers equity securities of an Affiliate to a person or entity other than the
Company or an Affiliate, or leases, exchanges or transfers all or any portion of
its assets to such a person or entity, and Section 10.6 does not apply, then the
Board may specify that such transaction or event constitutes a "DIVESTITURE". In
connection with a Divestiture, notwithstanding any other provision of this Plan,
the Board may take one or more of the actions described in Section 10.3 or 10.4
with respect to Options held by, for example, Employees, Directors or
Consultants for whom that transaction or event results in a Termination. The
Board need not adopt the same rules for each Option or each Optionee.
10.6 SPIN-OFFS. In the event that the Company distributes shares of
capital stock of a majority-owned subsidiary of the Company (a "Subsidiary") to
its stockholders for no consideration (a "Spin-off"), upon any exercise after
the date of the Spin-off (the "Distribution Date") of an Option that was granted
before the Distribution Date, the person entitled to exercise such Option shall
receive, in consideration of the payment of the exercise price in effect on the
Distribution Date or as adjusted thereafter pursuant to this Section 10, (a) the
Shares as to which the Option is exercised, (b) for each Share as to which the
Option is exercised, the same kind and amount of whole shares of capital stock
of the Subsidiary as were received in the Spin-off by the holders of Shares with
respect to each Share held by them at the Distribution Date and (c) cash in an
amount determined in the sole discretion of the Administrator in lieu of any
fractional share of the Subsidiary. The provisions of this Section 10.6 shall
not apply in respect of a particular Spin-off to any Options granted on or after
the Distribution Date of that Spin-off. The provisions of Section 10.2 shall
apply MUTATIS MUTANDIS to changes effected after the Distribution Date of a
Spin-off in the capitalization of the stock of a Subsidiary distributed in that
Spin-off. Prior to the Distribution Date of any Spin-off to which this Section
10.6 may become applicable, the Board shall cause all necessary and appropriate
corporate action to be taken by the Subsidiary whose shares are to be
distributed in the Spin-off to reserve for issuance on the exercise of Options
the appropriate number of shares of the Subsidiary and otherwise to effect the
provisions of this Section 10.6.
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10.7 DISSOLUTION. If the Company adopts a plan of dissolution, the
Board may cause Options to be fully vested and exercisable (but not after their
Expiration Date) before the dissolution is completed but contingent on its
completion. The Board need not adopt the same rules for each Option or each
Optionee. However, to the extent not exercised before the earlier of the
completion of the dissolution or their Expiration Date, Options shall terminate
just before the dissolution is completed.
10.8 CUT-BACK TO PRESERVE BENEFITS. If the Administrator determines
that the net after-tax amount to be realized by any Optionee, taking into
account any accelerated vesting, termination of repurchase rights, or cash
payments to that Optionee in connection with any transaction or event addressed
in this Section 10 would be greater if one or more of those steps were not taken
or payments were not made with respect to that Optionee's Options or Option
Shares, then and to that extent one or more of those steps shall not be taken
and payments shall not be made.
11. WITHHOLDING AND TAX REPORTING
11.1 TAX WITHHOLDING OPTION
(a) GENERAL. Whenever Option Shares are issued or become free
of restrictions, the Company may require the Optionee to remit to the Company an
amount sufficient to satisfy any applicable tax withholding requirement, whether
the related tax is imposed on the Optionee or the Company. The Company shall
have no obligation to deliver Option Shares or release Option Shares from an
escrow, or permit a transfer of Option Shares, until the Optionee has satisfied
those tax withholding obligations. Whenever payment in satisfaction of Options
is made in cash, the payment will be reduced by an amount sufficient to satisfy
all tax withholding requirements.
(b) METHOD OF PAYMENT. The Optionee shall pay any required
withholding using the forms of consideration described in Section 6.4(b), except
that, in the discretion of the Administrator, the Company may also permit the
Optionee to use any of the forms of payment described in Section 6.4(c)
available to the Optionee for payment for exercising his or her Option. The
Administrator may also permit Option Shares to be withheld to pay required
withholding. If the Administrator permits Option Shares to be withheld, the Fair
Market Value of the Option Shares withheld, as determined as of the date of
withholding, shall not exceed the amount determined by the applicable minimum
statutory withholding rates.
11.2 REPORTING OF DISPOSITIONS. Any holder of Option Shares acquired
under an Incentive Stock Option shall promptly notify the Administrator,
following such procedures as the Administrator may require, of the sale or other
disposition of any of those Option Shares if the disposition occurs during: (a)
the longer of two years after the Grant Date of the Incentive Stock Option and
one year after the date the Incentive Stock Option was exercised, or (b) such
other period as the Administrator has established.
12. COMPLIANCE WITH LAW
The grant of Options and the issuance and subsequent transfer of Option
Shares shall be subject to compliance with all Applicable Law, including all
applicable securities laws. Options may not be exercised, and Option Shares may
not be transferred, in violation of Applicable Law. Thus, for example, Options
may not be exercised unless: (a) a registration statement under the Securities
Act is then in effect with respect to the related Option Shares, or (b) in the
opinion of legal counsel to the Company, those Option Shares may be issued in
accordance with an applicable exemption from the registration requirements of
the Securities Act and any other applicable securities laws. The failure or
inability of the Company to obtain from any regulatory body the authority
considered by the Company's legal counsel to be necessary or useful for the
lawful issuance of any Option Shares or their subsequent transfer shall relieve
the Company of any liability for failing to issue those Option Shares or
permitting their transfer. As a condition to the exercise of any Option or the
transfer of any Option Shares, the Company may require the Optionee to satisfy
any requirements or qualifications that may be necessary or appropriate to
comply with or evidence compliance with any Applicable Law.
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13. Amendment or Termination of this Plan or Outstanding Options
13.1 AMENDMENT AND TERMINATION. The Board may at any time amend,
suspend or terminate this Plan.
13.2 STOCKHOLDER APPROVAL. The Company shall obtain the approval of the
Company's stockholders for any amendment to this Plan if stockholder approval is
necessary or desirable to comply with any Applicable Law or with the
requirements applicable to the grant of Options intended to be Incentive Stock
Options. The Board may also, but need not, require that the Company's
stockholders approve any other amendments to this Plan.
13.3 EFFECT. No amendment, suspension or termination of this Plan, and
no modification of any Option even in the absence of an amendment, suspension or
termination of this Plan, shall impair any existing contractual rights of any
Optionee unless the affected Optionee consents to the amendment, suspension,
termination or modification. However, no such consent shall be required if the
Board determines, in its sole and absolute discretion, that the amendment,
suspension, termination or modification: (a) is required or advisable in order
for the Company, the Plan or the Option to satisfy Applicable Law, to meet the
requirements of any accounting standard or to avoid any adverse accounting
treatment, or (b) in connection with any transaction or event described in
Section 10, is in the best interests of the Company or its stockholders. The
Board may, but need not, take the tax consequences to affected Optionees into
consideration in acting under the preceding sentence. Those decisions will be
final, binding and conclusive. Termination of this Plan shall not affect the
Administrator's ability to exercise the powers granted to it under this Plan
with respect to Options granted before the termination or Option Shares issued
under such Options even if those Option Shares are issued after the termination.
14. RESERVED RIGHTS
14.1 NONEXCLUSIVITY OF THIS PLAN. This Plan shall not limit the power
of the Company or any Affiliate to adopt other incentive arrangements including,
for example, the grant or issuance of stock options, stock or other equity-based
rights under other plans or independently of any plan.
14.2 UNFUNDED PLAN. This Plan shall be unfunded. Although bookkeeping
accounts may be established with respect to Optionees, any such accounts will be
used merely as a convenience. The Company shall not be required to segregate any
assets on account of this Plan, the grant of Options or the issuance of Option
Shares. The Company and the Administrator shall not be deemed to be a trustee of
stock or cash to be awarded under this Plan. Any obligations of the Company to
any Optionee shall be based solely upon contracts entered into under this Plan,
such as Option Agreements. No such obligations shall be deemed to be secured by
any pledge or other encumbrance on any assets of the Company. Neither the
Company nor the Administrator shall be required to give any security or bond for
the performance of any such obligations.
15. SPECIAL ARRANGEMENTS REGARDING OPTION SHARES
15.1 ESCROWS AND PLEDGES. To enforce any restrictions on Option Shares,
the Administrator may require their holder to deposit the certificates
representing Option Shares, with stock powers or other transfer instruments
approved by the Administrator endorsed in blank, with the Company or an agent of
the Company to hold in escrow until the restrictions have lapsed or terminated.
The Administrator may also cause a legend or legends referencing the
restrictions to be placed on the certificates. Any Optionee who delivers a
promissory note as partial or full consideration for the purchase of Option
Shares will be required to pledge and deposit with the Company some or all of
the Option Shares as collateral to secure the payment of the note. However, the
Administrator may require or accept other or additional forms of collateral to
secure the note and, in any event, the Company will have full recourse against
the maker of the note, notwithstanding any pledge or other collateral.
15.2 MARKET STANDOFF. If requested by the Company or a representative
of its underwriters in connection with a registration of any securities of the
Company under the Securities Act, Optionees or certain Optionees shall be
prohibited from selling some or all of their Option Shares during a period not
to exceed 180 days after the effective date of the Company's registration
statement. However, this restriction shall not apply to any registration
statement on Form S-8 or an equivalent registration statement.
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16. BENEFICIARIES
An Optionee may file a written designation of one or more beneficiaries who are
to receive the Optionee's rights under the Optionee's Options after the
Optionee's death. An Optionee may change such a designation at any time by
written notice. If an Optionee designates a beneficiary, the beneficiary may
exercise the Optionee's Options after the Optionee's death. If an Optionee dies
when the Optionee has no living beneficiary designated under this Plan, the
Company shall allow the executor or administrator of the Optionee's estate to
exercise the Option or, if there is none, the person entitled to exercise the
Option under the Optionee's will or the laws of descent and distribution. In any
case, no Option may be exercised after its Expiration Date.
17. MISCELLANEOUS
17.1 GOVERNING LAW. This Plan, the Option Agreements and all other
agreements entered into under this Plan, and all actions taken under this Plan
or in connection with Options or Option Shares, shall be governed by the
substantive laws, but not the choice of law rules, of the State of Delaware.
17.2 DETERMINATION OF VALUE. Fair Market Value shall be determined as
follows:
(a) LISTED STOCK. If the Shares are traded on any established
stock exchange or quoted on a national market system, Fair Market Value shall be
the mean between the highest and lowest sales prices for the Shares as quoted on
that stock exchange or system for the date the value is to be determined (the
"VALUE DATE") as reported in THE WALL STREET JOURNAL or a similar publication.
If no sales are reported as having occurred on the Value Date, Fair Market Value
shall be that mean price for the last preceding trading day on which sales of
Shares are reported as having occurred. If no sales are reported as having
occurred during the five trading days before the Value Date, Fair Market Value
shall be the mean between the highest and lowest bids for Shares on the Value
Date. If Shares are listed on multiple exchanges or systems, Fair Market Value
shall be based on sales or bids on the primary exchange or system on which
Shares are traded or quoted.
(b) STOCK QUOTED BY SECURITIES DEALER. If Shares are regularly
quoted by a recognized securities dealer but selling prices are not reported on
any established stock exchange or quoted on a national market system, Fair
Market Value shall be the mean between the high bid and low asked prices on the
Value Date. If no prices are quoted for the Value Date, Fair Market Value shall
be the mean between the high bid and low asked prices on the last preceding
trading day on which any bid and asked prices were quoted.
(c) NO ESTABLISHED MARKET. If Shares are not traded on any
established stock exchange or quoted on a national market system and are not
quoted by a recognized securities dealer, the Administrator (following
guidelines established by the Board or Committee) will determine Fair Market
Value in good faith. The Administrator will consider the following factors, and
any others it considers significant, in determining Fair Market Value: (i) the
price at which other securities of the Company have been issued to purchasers
other than Employees, Directors, or Consultants, (ii) the Company's net worth,
prospective earning power, dividend-paying capacity, and non-operating assets,
if any, and (iii) any other relevant factors, including the economic outlook for
the Company and the Company's industry, the Company's position in that industry,
the Company's goodwill and other intellectual property, and the values of
securities of other businesses in the same industry.
17.3 RESERVATION of Shares. During the term of this Plan, the Company
will at all times reserve and keep available such number of Shares as are still
issuable under this Plan.
17.4 ELECTRONIC COMMUNICATIONS. Any Option Agreement, notice of
exercise of an Option, or other document required or permitted by this Plan may
be delivered in writing or, to the extent determined by the Administrator,
electronically. Signatures may also be electronic if permitted by the
Administrator.
17.5 NOTICES. Unless the Administrator specifies otherwise, any notice
to the Company under any Option Agreement or with respect to any Options or
Option Shares shall be in writing (or, if so authorized by Section 17.4,
communicated electronically), shall be addressed to the Secretary of the
Company, and shall only be effective when received by the Secretary of the
Company.
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Adopted by the Board on: April 10, 2003
Approved by the stockholders on: __________________
Effective date of this Plan: _________________
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