1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
THORATEC LABORATORIES CORPORATION
---------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
---------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee was calculated and state how it was determined):
---------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
---------------------------------------------------------------------------
(5) Total fee paid:
---------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
---------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
---------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
---------------------------------------------------------------------------
(3) Filing Party:
---------------------------------------------------------------------------
(4) Date Filed:
---------------------------------------------------------------------------
2
THORATEC LABORATORIES CORPORATION
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 16, 1997
------------------------
TO THE SHAREHOLDERS OF THORATEC LABORATORIES CORPORATION
NOTICE IS HEREBY GIVEN, that an Annual Meeting of Shareholders of Thoratec
Laboratories Corporation, a California corporation ("Thoratec" or the
"Company"), will be held on Friday, May 16, 1997 at 9:30 a.m., Pacific time, at
the Pleasanton Hilton Hotel, 7050 Johnson Drive, Pleasanton, California 94588
for the following purposes:
1. To elect directors to serve for the ensuing year and until their
successors are elected.
2. To approve Thoratec's 1997 Stock Option Plan.
3. To approve amendments to Thoratec's 1996 Nonemployee Directors Stock
Option Plan.
4. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on April 8, 1997, are
entitled to notice of and to vote at the meeting and any adjournments thereof.
All shareholders are cordially invited to attend the meeting in person. Any
shareholder attending the meeting may vote in person even if such shareholder
previously signed and returned a Proxy.
FOR THE BOARD OF DIRECTORS
D. Keith Grossman
Chief Executive Officer and
President
Berkeley, California
April 18, 1997
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER
TO ASSURE REPRESENTATION OF YOUR SHARES.
3
THORATEC LABORATORIES CORPORATION
------------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
------------------------
The enclosed Proxy is solicited on behalf of the Board of Directors (the
"Board") of Thoratec Laboratories Corporation ("Thoratec" or the "Company") for
use at the Company's Annual Meeting of Shareholders (the "Annual Meeting") to be
held Friday, May 16, 1997 at 9:30 a.m., Pacific time, or at any adjournment or
postponement thereof, for the purposes set forth herein and in the accompanying
Notice of Annual Meeting of Shareholders. The Annual Meeting will be held at the
Pleasanton Hilton, 7050 Johnson Drive, Pleasanton, California 94588. The
Company's principal executive offices are located at 2023 Eighth Street,
Berkeley, California 94710. The telephone number at that address is (510)
841-1213.
These proxy solicitation materials were mailed on or about April 18, 1997
to all shareholders entitled to vote at the Annual Meeting.
INFORMATION CONCERNING SOLICITATION AND VOTING
RECORD DATE AND SHARES OUTSTANDING
Shareholders of record at the close of business on April 8, 1997 (the
"Record Date") are entitled to notice of, and to vote at, the Annual Meeting. At
the Record Date, 17,975,225 shares of the Company's common stock (the "Common
Stock") were issued, outstanding and entitled to vote at the meeting.
REVOCABILITY OF PROXIES
Any Proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company a written notice of revocation or a duly executed Proxy bearing a later
date or by attending the Annual Meeting and voting in person.
VOTING AND SOLICITATION
Every shareholder voting for the election of directors may exercise
cumulative voting rights and give one candidate a number of votes equal to the
number of directors to be elected multiplied by the number of votes to which the
shareholder's shares are entitled, or distribute such shareholder's votes on the
same principle among as many candidates as the shareholder may select, provided
that votes cannot be cast for more than six candidates. However, no shareholder
shall be entitled to cumulate votes unless the candidate's name has been placed
in nomination prior to the voting and the shareholder, or any other shareholder,
has given notice at the meeting prior to the voting of the intention to cumulate
votes. On all other matters each share is entitled to one vote on each proposal
or item that comes before the Annual Meeting.
The Company intends to include abstentions and broker non-votes as present
or represented for purposes of establishing a quorum for the transaction of
business. However, abstentions are counted as votes against a proposal for
purposes of determining whether or not a proposal has been approved, whereas
broker non-votes are not counted for purposes of determining whether a proposal
has been approved.
Solicitation of proxies may be made by directors, officers and other
employees of the Company by personal interview, telephone, facsimile or other
method. No additional compensation will be paid for any such services. Costs of
solicitation, including preparation, assembly, printing and mailing of this
proxy statement, the proxy and any other information furnished to the
shareholders, will be borne by the Company. The Company may reimburse the
reasonable charges and expenses of brokerage houses or other nominees or
fiduciaries for forwarding proxy materials to, and obtaining authority to
execute proxies from, beneficial owners for whose account they hold shares of
Common Stock.
4
PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
Six directors are to be elected at the Annual Meeting. Unless otherwise
instructed, the proxy holders will vote the proxies received by them for the six
nominees named below. All of the nominees named below are presently directors of
the Company. In the event that any nominee is unable or declines to serve as a
director at the time of the Annual Meeting, the proxies will be voted for any
nominee who shall be designated by the Board to fill the vacancy. In the event
that additional persons are nominated for election as directors, the proxy
holders intend to vote all proxies received by them in such a manner in
accordance with cumulative voting as will ensure the election of as many of the
nominees listed below as possible. In such event, the specific nominees for whom
such votes will be cumulated will be determined by the proxy holders. The term
of office for each person elected as a director will continue until the next
Annual Meeting of Shareholders or until his successor has been elected and
qualified. It is not expected that any nominee will be unable or will decline to
serve as a director.
The name of and certain other information regarding each nominee is set
forth in the table below.
DIRECTOR
NAME OF NOMINEE AGE POSITION WITH THE COMPANY SINCE
- ----------------------------------- --- ------------------------------------------------- --------
J. Donald Hill(1)(2)............... 60 Director and Chairman of the Board 1976
D. Keith Grossman.................. 37 Director, President and Chief Executive Officer 1996
Christy W. Bell (1)(2)............. 74 Director 1988
Howard E. Chase (2)................ 60 Director 1986
William M. Hitchcock............... 57 Director 1996
George W. Holbrook, Jr.(1)......... 65 Director 1995
- ---------------
(1) Member of Compensation and Option Committee
(2) Member of Audit Committee
There is no family relationship between any of the directors or executive
officers of the Company.
J. Donald Hill, M.D. has been a director of the Company since its inception
in March 1976 and is a significant shareholder of the Company. In January 1995,
Dr. Hill became Chairman of the Board of Directors. Dr. Hill is Chairman of the
Department of Cardiac Surgery at California Pacific Medical Center in San
Francisco where he is also a practicing cardiovascular surgeon.
D. Keith Grossman joined Thoratec Laboratories Corporation as President and
Chief Executive Officer in January 1996. He was elected to the Board of
Directors in February 1996. Prior to joining Thoratec, Mr. Grossman was a
Division President of Major Pharmaceuticals, Inc., from May 1992 to September
1995, at which time it was sold. From July 1988 to June 1992, Mr. Grossman
served as the Vice President of Sales and Marketing for Calcitek, Inc., a
manufacturer of implantable medical devices, and division of Sulzermedica
(formerly Intermedics, Inc.). Prior to 1988, Mr. Grossman held various other
sales and marketing management positions within the McGaw Laboratories Division
of American Hospital Supply Corporation.
Christy W. Bell became a director of the Company in April 1988 and is a
significant shareholder of the Company. Mr. Bell is President and CEO of
Electro-Petroleum Inc. ("EPI"), Electro-Pyrolysis Inc., and Arc Technologies
Inc. Prior to joining EPI, Mr. Bell had been Chairman and Chief Executive
Officer of Chem-Clear, located in Wayne, Pennsylvania, until February 1988, when
the Company was sold. Mr. Bell serves as a member of the Board of Clean Harbors,
Inc., a public company.
Howard E. Chase became a director of the Company in November 1986. Mr.
Chase is President and CEO of DeTomaso Industries, Inc. From 1984 to 1995 Mr.
Chase was a partner in the firm of Morrison
2
5
Cohen Singer & Weinstein of New York. He acted as an advisor and as special
counsel to the Company from 1979 to 1995.
William M. Hitchcock became a director of the Company in September 1996. In
December 1994 Mr. Hitchcock became president and director of Avalon Financial,
Inc. From May 1992 to December 1995, Mr. Hitchcock was president of Plains
Resources International Inc., a wholly owned subsidiary of Plains Resources Inc.
Since 1977 Mr. Hitchcock has been a member of the Board of Plains Resources Inc.
George W. Holbrook, Jr. became a director of the Company in July 1995.
Since 1984 Mr. Holbrook has been the Managing Partner of Bradley Resources
Company, a private investment partnership. Mr. Holbrook is also a director of
Merrill Lynch Institutional Intermediate Fund and other associated funds, and a
director of Canyon Resources Corporation.
BOARD MEETINGS AND COMMITTEES
The Board held a total of 13 meetings during the fiscal year ended December
28, 1996. One director, Mr. Chase, attended fewer than 75 percent of the
aggregate of all meetings of the Board and of the committees upon which such
director served.
During fiscal year 1996, the Audit Committee consisted of Messrs. Bell and
Chase. The Audit Committee currently consists of Messrs. Bell and Chase, and Dr.
Hill, with Mr. Chase serving as Chairman. The principal functions of the Audit
Committee are to recommend engagement of the Company's independent auditors, to
consult with the Company's auditors concerning the scope of the audit and to
review with them the results of their examination, to review and approve any
material accounting policy changes affecting the Company's operating results and
to review the Company's financial control procedures and personnel. The Audit
Committee held one meeting during fiscal year 1996.
The Compensation and Option Committee currently consists of Messrs. Bell
and Holbrook, and Dr. Hill, with Mr. Holbrook serving as Chairman. The
Compensation and Option Committee reviews and recommends to the Board
compensation and benefits for the Company's executive officers and management.
The Compensation and Option Committee held three meetings during fiscal year
1996.
The Board does not have a nominating committee.
BOARD COMPENSATION
Directors receive reimbursement for travel and other expenses directly
related to their activities as directors and until November of 1996 received no
other fee or retainer. Beginning with the November meeting, outside directors
are paid $2,500 per meeting held in person and $500 per quarter for committee
meetings. Beginning in 1996, outside directors are eligible to participate in
the Company's 1996 Nonemployee Directors Stock Option Plan. The terms of that
plan, as amended, are described below under "Proposal 3 -- Approval of
Amendments to the 1996 Nonemployee Directors Stock Option Plan."
3
6
MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 14, 1997 (i) by each of the
Company's directors, (ii) by each Named Executive Officer, (iii) by all
directors and executive officers as a group, and (iv) by each person who is
known by the Company to own beneficially more than 5% of the Company's Common
Stock.
NUMBER OF SHARES PERCENT OF SHARES
NAME AND ADDRESS(1) BENEFICIALLY OWNED(2) BENEFICIALLY OWNED(2)
- --------------------------------------------------- --------------------- ---------------------
COBE Laboratories, Inc............................. 3,708,077 20.6%
1185 Oak Street
Lakewood, CO 80215
Intermedics, Inc................................... 2,074,074 11.5
4000 Technology Drive
Angleton, TX 77515
State of Wisconsin Investment Board................ 1,404,000 7.8
P.O. Box 7842
Madison, WI 53702
J. Donald Hill(3).................................. 1,393,617 7.7
George W. Holbrook, Jr.(4)......................... 1,284,555 7.1
Bradley Resources Company (4)...................... 1,281,222 7.1
P.O. Box 1938
Palm City, Florida 34990-6938
James McGoogan(4).................................. 1,281,222 7.1
Bradley Resources Company
P.O. Box 1938
Palm City, Florida 34990-6938
Christy W. Bell(5)................................. 975,710 5.4
Paul F. Glenn...................................... 907,602 5.0
627 Lilac Drive
Montecito, CA 93108
William M. Hitchcock............................... 333,740 1.9
Robert J. Harvey(6)................................ 226,482 1.2
Cheryl D. Hess(7).................................. 137,359 *
D. Keith Grossman(8)............................... 86,334 *
Howard E. Chase(9)................................. 83,221 *
Dan E. Nielsen(10)................................. 70,527 *
David J. Farrar(11)................................ 58,481 *
Thomas E. Burnett, Jr. (12)........................ -- *
Directors and Executive Officers as a Group
(11 persons)(13)................................. 4,423,544 23.9%
- ---------------
* Less than one percent
(1) Except as set forth herein, the address of the persons set forth above is
the address of the Company appearing elsewhere in this proxy statement.
(2) Applicable percentage ownership for each shareholder is based on 17,974,591
shares of Common Stock outstanding as of March 14, 1997, together with
applicable options for such shareholder. Beneficial ownership is determined
in accordance with the rules of the Securities and Exchange Commission, and
includes voting and investment power with respect to the shares. Beneficial
ownership also includes shares of stock subject to options and warrants
exercisable or convertible within 60 days of March 14, 1997. Shares of
Common Stock subject to outstanding options are deemed outstanding for
computing the percentage of ownership of the person holding such options,
but are not deemed outstanding for
4
7
computing the percentage ownership of any other person. Except pursuant to
applicable community property laws or as indicated in the footnotes to this
table, to the Company's knowledge, each shareholder identified in the table
possesses sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by such shareholder.
(3) Includes 82,221 shares issuable upon exercise of options exercisable within
60 days of March 14, 1997.
(4) Bradley Resources Company is an investment partnership which owns 1,281,222
shares. George W. Holbrook, Jr., a director of the Company, is a general
partner of Bradley Resources Company and is deemed to share beneficial
ownership of such shares with Mr. James McGoogan, a general partner of
Bradley Resources Company. Includes, in Mr. Holbrook's number only, 3,333
shares issuable upon exercise of options within 60 days of March 14, 1997.
(5) Includes 70,222 shares issuable upon exercise of options exercisable within
60 days of March 14, 1997.
(6) Dr. Harvey resigned as Chief Executive Officer and President in January
1996, at which time Mr. Grossman was appointed Chief Executive Officer and
President. Dr. Harvey resigned as a director in October 1996. Includes
160,669 shares issuable upon exercise of options exercisable within 60 days
of March 14, 1997.
(7) Includes 95,758 shares issuable upon exercise of options exercisable within
60 days of March 14, 1997.
(8) Mr. Grossman joined the Company in January 1996 and was granted an option
to purchase 333,333 shares, which vest in four annual increments of 25%
each. Includes 83,334 shares issuable upon exercise of options exercisable
within 60 days of March 14, 1997.
(9) Includes 82,221 shares issuable upon exercise of options exercisable within
60 days of March 14, 1997.
(10) Includes 56,334 shares issuable upon exercise of options exercisable within
60 days of March 14, 1997.
(11) Includes 45,634 shares issuable upon exercise of options exercisable within
60 days of March 14, 1997.
(12) Mr. Burnett joined the Company in August 1996 and was granted an option to
purchase 60,000 shares, none of which are exercisable within 60 days of
March 14, 1997.
(13) Includes 519,057 shares issuable upon exercise of options exercisable
within 60 days of March 14, 1997.
5
8
EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning the
compensation received for services rendered to the Company during 1994, 1995 and
1996 fiscal years by the Chief Executive Officer of the Company and each of the
four additional most highly compensated executive officers (the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION(1) SECURITIES
--------------------------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER OPTIONS(#)
- ----------------------------------------- ---- -------- ------- -------- ------------
D. Keith Grossman(2)..................... 1996 $147,884 $69,375 $101,548 333,333
Chief Executive Officer, President
and Director
Robert J. Harvey(2)...................... 1996 30,475 -- -- --
Chief Executive Officer and President 1995 110,308 -- -- --
1994 108,675 5,267 -- --
Cheryl D. Hess........................... 1996 111,923 36,375 -- --
Chief Financial Officer, Vice President - 1995 90,904 -- -- --
Finance and Secretary 1994 89,860 4,967 -- --
Dan E. Nielsen........................... 1996 113,571 33,863 -- --
Vice President - Operations 1995 93,951 -- -- --
1994 92,856 5,067 -- 16,667
David J. Farrar(3)....................... 1996 109,924 24,571 -- --
Vice President - Research and Development 1995 86,404 -- -- --
1994 61,778 2,450 -- --
Thomas E. Burnett, Jr.(4)................ 1996 48,077 27,281 49,878 60,000
Vice President - Sales and Marketing
- ---------------
(1) In accordance with the rules of the Securities and Exchange Commission,
other annual compensation in the form of perquisites and other personal
benefits has been omitted where the aggregate amount of such perquisites and
other personal benefits constituted less than the lesser of $50,000 or 10%
of the total annual salary and bonus for the Named Executive Officer for the
fiscal year.
(2) Dr. Harvey resigned as Chief Executive Officer and President in January
1996, at which time D. Keith Grossman was appointed Chief Executive Officer
and President. Dr. Harvey resigned as Director in October 1996. Mr.
Grossman's annual salary is $175,000, plus a bonus of up to 50% of salary.
Other compensation of Mr. Grossman represents $101,548 for relocation
expenses.
(3) Dr. Farrar became an Executive Officer in March 1996. He has held various
positions at the Company since joining the Company in January 1980.
(4) Mr. Burnett joined the Company in August 1996. His annual base salary is
$125,000. Other compensation represents a $40,000 signing bonus and $9,878
for relocation expenses.
6
9
OPTION GRANTS
The following table provides information concerning grants of options to
purchase the Company's Common Stock made to each of the Named Executive Officers
during the year ended December 28, 1996. No stock appreciation rights were
granted to these individuals during such fiscal year.
OPTION GRANTS IN 1996
POTENTIAL REALIZED
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------ ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS EMPLOYEES PRICE EXPIRATION -------------------------
NAME(1) GRANTED IN 1996 ($/SH) DATE 5% 10%
- ---------------------------------------- ------------- -------- ---------- ----------- -----------
D. Keith Grossman............. 333,333 63.4% $15.00 1/02/06 $ 3,144,000 $ 7,969,000
Thomas E. Burnett, Jr......... 60,000 11.4% 10.50 7/12/06 396,000 1,004,000
- ---------------
(1) No other Named Executive Officer of the Company received option grants in
1996.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The assumed
5% and 10% rates of stock price appreciation are mandated by rules of the
Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future Common Stock price.
OPTION EXERCISES AND HOLDINGS
The following table sets forth the certain information regarding the value
of exercised options and unexercised stock options held by each of the Named
Executive Officers as of December 28, 1996.
1996 OPTION EXERCISES AND YEAR-END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR END(2) FISCAL YEAR END(3)
ACQUIRED ON VALUE -------------------------- --------------------------
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------- -------------- ----------- ------------- ----------- -------------
D. Keith Grossman....... -- -- -- 333,333 -- --
Robert J. Harvey........ 20,000 $276,000 160,669 20,667 $1,427,548 $ 157,960
Cheryl D. Hess.......... 33,118 445,036 119,091 22,667 1,058,961 174,332
Dan E. Nielsen.......... 23,666 369,748 54,734 43,378 424,837 300,296
David J. Farrar......... 2,500 34,500 44,300 16,756 361,896 111,147
Thomas E. Burnett,
Jr.................... -- -- -- 60,000 -- --
- ---------------
(1) Value realized is based on the fair market value of the Company's Common
Stock on the date of exercise (the closing sales price reported on the
Nasdaq National Market or other market on which the Company's Common Stock
traded on such date) minus the exercise price, and does not necessarily
indicate that the optionee sold such stock.
(2) Options vest over periods of four and five years from the date of the grant.
(3) Represents the difference between the option exercise price and the closing
price of the Company's Common Stock as reported on the Nasdaq National
Market at fiscal year end.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
During fiscal 1996, management compensation issues were reviewed by the
Compensation and Option Committee which consisted of Messrs. Bell and Holbrook,
and Dr. Hill. The function of the Compensation
7
10
and Option Committee is to review and recommend management compensation to the
Board. The Compensation and Option Committee met three times in 1996.
The Company believes that its ability to achieve the objectives of
obtaining regulatory approval for and commercializing its circulatory support
and graft products, and becoming profitable, is dependent largely upon the
ability to recruit and retain qualified executives with substantive experience
in the development, regulatory approval, manufacture, marketing and sale of new
medical devices. The Company is competing for experienced executives within the
San Francisco Bay Area, where an estimated 85 to 100
biotechnology/biomedical/pharmaceutical companies are located.
In 1994, the Board adopted a policy designed to control the base salaries
of its executives while providing sufficient incentives to attract and retain
qualified personnel. In accordance with this policy, the Company strives to set
executive base salaries by considering relative contribution of the position to
achievement of the Company's goals and objectives, "market value" as defined by
salaries of executives within the Bay Area with comparable experience in similar
positions, and job-related responsibilities with respect to size of budget,
number of subordinates and scope of activities. In general, the Company strives
to set base salaries of new executives at market, which is defined as the
average base salary of incumbents in comparable positions, and uses its 1993 and
1996 Stock Option Plans to facilitate recruiting and to retain qualified
executives by providing long-term incentives. Typically, new executives are
granted stock options as part of their initial employment package.
During 1993, the Internal Revenue Code of 1986 was amended to include a
provision that denies a deduction to publicly held corporations for compensation
paid to "covered employees" (defined as the chief executive officer and the next
four most highly compensated officers as of the end of the taxable year) to the
extent that compensation paid to any "covered employee" exceeds $1 million in
any taxable year of the corporation beginning after 1993. Certain
"performance-based" compensation qualified for an exemption from the limits on
deductions. It is the Company's policy to attempt to qualify compensation paid
to its top executives for deductibility in order to maximize the Company's
income tax deductions, to the extent that so qualifying the compensation is not
inconsistent with the Company's fundamental compensation policies. Based upon
the Internal Revenue Service's proposed regulations and compensation paid to the
Company's "covered employees" for the 1996 tax year, all compensation paid by
the Company in 1996 to such covered employees was deductible to the Company.
Stock Options. The Company has determined that stock options are an
important incentive for attracting and retaining qualified personnel, including
executive-level personnel.
Corporate Performance Criteria. Management presents to the Board a set of
corporate goals for a succeeding period, generally ranging from 12 to 18 months,
as part of the annual plan and budget process. These goals establish benchmarks
for assessing overall corporate performance. Given the dynamic nature of the new
medical device development process, progress toward the achievement of corporate
goals is reviewed with the Board periodically together with a description of any
change in circumstances that management believes may warrant an update to or
revisions of these goals. The principal corporate goals for 1996 were the U.S.
marketing launch of the newly approved Thoratec VAD System and the closing of a
significant round of public equity financing.
Periodic Salary Adjustments. Generally, executive salaries are reviewed
annually, and salary adjustments may be awarded on the basis of increased
responsibilities of individual executives over a period of time or the
outstanding performance of individual executives as exhibited by consistently
high standards in the execution of established duties, as described by the Chief
Executive Officer to the Board. Company performance as a whole is a major
consideration in the Board's decision to award any salary increases and, to a
lesser extent, the Board also considers general economic conditions and trends.
In July 1996, the base annual salaries of three Company executives were
increased by 28%, which increases brought the salaries more in line with current
market. These increases were considered and approved solely by members of the
Board of Directors who are not employees of the Company.
8
11
Chief Executive Officer. Generally, the nonemployee members of the Board
meet with the Chief Executive Officer to discuss the performance of the other
executive officers and of the Company as a whole. The nonemployee members of the
Board then meet in the absence of the Chief Executive Officer to discuss the
performance of the Chief Executive Officer. In accordance with the terms of Mr.
Grossman's employment agreement, the Board reviewed Mr. Grossman's performance
after his first six months of employment. Based on his strong leadership and
achievements of strategic and financial objectives for the year, including the
marketing launch of Thoratec's VAD System and the closing of a public equity
financing, Mr. Grossman was given a $25,000 increase (17%) in July of 1996 and
was awarded a bonus of $67,375 for the fiscal year.
Summary. The Board believes that it has established a program for
compensation of the Company's executives which is fair and which aligns the
financial incentives for executives with the interests of the Company's
shareholders.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1996, no executive officer of the Company served on the board of
directors or compensation committee of another company that had an executive
officer serve on the Company's Board of Directors or its Compensation and Option
Committee.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers, and
persons who own more than ten percent of a registered class of the Company's
equity securities, to file reports of ownership on Form 3 and changes in
ownership on Form 4 or 5 with the Securities and Exchange Commission and the
National Association of Securities Dealers. Such officers, directors and ten
percent shareholders are also required by Securities and Exchange Commission
rules to furnish the Company with copies of all Section 16(a) forms that they
file.
Based solely on its review of copies of such reports received or written
representations from certain reporting persons, the Company believes that,
during the fiscal year ended December 28, 1996, there has been no failure by any
of its officers, directors or ten percent shareholders to file on a timely basis
any reports required by Section 16(a).
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In September 1995 the Company sold an aggregate of 13,333 shares of Common
Stock to Bradley Resources Company for an aggregate purchase price of $52,000.
George W. Holbrook, Jr., a Director of the Company, is the Managing Partner of
Bradley Resources Company. In September 1994, the Company sold to Bradley
Resources Company a convertible Promissory Note and warrants for the purchase of
6,275 shares of Common Stock for an aggregate purchase price of $50,000. In
March 1996, Bradley Resources Company converted its Convertible Promissory Notes
into 10,225 shares of Common Stock and exercised its warrant to purchase 6,380
shares of Common Stock at an exercise price of $4.50 per share. The shares of
Common Stock acquired in these transactions are entitled to certain registration
rights.
In November 1992 the Company entered into a comprehensive agreement with
COBE pursuant to which COBE acquired approximately 26% of the Common Stock of
the Company and obtained the right to place two directors on the Board of
Directors. In addition, COBE obtained a license to use the Company's
biomaterials technology in certain of COBE's medical products and agreed to act
as the Company's distributor in certain European countries. For the fiscal years
ended December 1995 and 1996, sales to COBE represented approximately 26% and
2%, respectively, of the Company's net revenue. In 1995, the Company modified
its distributor agreement with COBE and appointed Arrow International as its
distributor in most of the former COBE countries. In March 1996, the Company and
COBE modified their agreement to eliminate COBE's right to two Board seats.
9
12
STOCK PRICE PERFORMANCE GRAPH
The following line graph illustrates a five-year comparison of the
cumulative total shareholder return on the Common Stock against the cumulative
total return of The Nasdaq Stock Market-U.S. Index and the Hambrecht & Quist
Health Care Index, assuming $100 invested in the Common Stock and the two
indexes on December 31, 1991.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG THORATEC LABORATORIES CORPORATION, THE NASDAQ STOCK MARKET-US INDEX AND
THE HAMBRECHT & QUIST HEALTH CARE INDEX
THORATEC
MEASUREMENT PERIOD LABORATORIES NASDAQ STOCK HAMBRECHT & QUIST
(FISCAL YEAR COVERED) CORPORATION MARKET-US HEALTH CARE
12/91 100 100 100
12/92 267 116 86
12/93 483 134 67
12/94 583 131 67
12/95 1333 185 113
12/96 844 227 117
*$100 INVESTED ON 12/31/91 IN STOCK OR INDEX --
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER.
10
13
PROPOSAL TWO
APPROVAL OF THE 1997 STOCK OPTION PLAN
At the Annual Meeting, the shareholders are being asked to approve
Thoratec's 1997 Stock Option Plan (the "1997 Option Plan").
DESCRIPTION OF THE 1997 OPTION PLAN
The purposes of the 1997 Option Plan are to: encourage selected employees,
directors and consultants to improve operations and increase profits of the
Company; encourage selected employees, directors and consultants to accept or
continue employment or association with the Company or its affiliates; and
increase the interest of selected employees, directors and consultants in the
Company's welfare through participation in the growth in value of the Common
Stock of the Company. The Company can grant either incentive stock options
("ISOs") or nonqualified stock options ("NQOs") under the 1997 Option Plan. Only
full-time employees of the Company, currently approximately 90 people, are
eligible to receive ISOs or NQOs. Consultants and directors are eligible to
receive only NQOs.
Options granted expire 10 years after the date of grant, or earlier, in the
event of termination of the optionee's employment, consulting or director
relationship with the Company. The per share exercise price of ISOs may not be
less than 100% of the fair market value of the Common Stock on the date of
grant. The per share exercise price of NQOs may not be less than 85% of the fair
market value of the Common Stock on the date of grant. A total of 1,000,000
shares of the Company's Common Stock have been reserved for issuance under the
1997 Option Plan, none of which have as yet been issued.
The consideration payable for, upon exercise of, or for tax payable in
connection with, an option grant may be paid in cash, by promissory note of the
participant, or by delivery of other property, including securities of the
Company, if authorized by the administrator of the 1997 Option Plan. The Company
will not receive any consideration upon the grant of any options. Options
generally may be exercised immediately, or may vest over four or five years,
depending upon the particular grant, and must generally be exercised within
three months after a participant's employment by, or consulting or director
relationship with, the Company terminates. If termination is due to the
participant's death, retirement or disability, the options may be exercised for
six months thereafter. Shares issued upon exercise of options may be subject to
a right of repurchase by the Company which generally lapses at the rate of 20%
per year.
The Board may amend, alter or discontinue the 1997 Option Plan or any
option at any time, except that the consent of a participant is required if the
participant's rights under an outstanding option would be impaired. In addition,
to the extent required for the 1997 Option Plan to satisfy the conditions of
Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or, with respect to provisions solely as they relate to ISOs, to the
extent required for the 1997 Option Plan to comply with Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), the shareholders of the
Company must approve any amendment, alteration or discontinuance of the 1997
Option Plan that would (i) increase the total number of shares reserved under
the 1997 Option Plan, (ii) change the minimum price terms for option exercise,
(iii) change the class of employees, consultants and directors eligible to
participate in the 1997 Option Plan, (iv) extend the maximum option exercise
period or (v) materially increase the benefits accruing to participants under
the 1997 Option Plan.
FEDERAL INCOME TAX CONSEQUENCES
See "Certain Federal Income Tax Consequences" below for a discussion of
federal income tax consequences relating to participation in the 1997 Option
Plan.
PROPOSAL; BOARD RECOMMENDATION
Shareholders are being asked to approve the 1997 Option Plan. The
affirmative vote of the holders of a majority of the outstanding shares of the
Company represented and voting at the Annual Meeting is required for approval of
the 1997 Option Plan. The Board recommends a vote "FOR APPROVAL" of the
proposal.
11
14
PROPOSAL THREE
APPROVAL OF AMENDMENTS TO THE 1996 NONEMPLOYEE DIRECTORS
STOCK OPTION PLAN
At the Annual Meeting, the shareholders are being asked to approve
amendments to Thoratec's 1996 Nonemployee Directors Stock Option Plan (the
"Directors Option Plan").
DESCRIPTION OF THE AMENDMENTS TO DIRECTORS OPTION PLAN
The Board has approved, subject to shareholder approval, amendments to the
Directors Option Plan. The Directors Option Plan provides for the automatic
granting of nonqualified stock options to directors of the Company who are not
employees of the Company or any parent or subsidiary of the Company and who have
not been an employee of the Company or any parent or subsidiary of the Company
in the previous 12 months ("Eligible Outside Directors"). Currently, each person
who is newly elected or appointed as an Eligible Outside Director on or after
the meeting of shareholders in 1996 will be granted an option to purchase 3,333
shares of Common Stock on the effective date of such initial election or
appointment (the "Initial Grant") and thereafter, each Eligible Outside Director
(including the existing outside directors) generally will be granted an option
to purchase 1,667 shares of Common Stock on the date of the first meeting of the
Board of Directors following the annual shareholders meeting (the "Annual
Grant"). The proposed amendments to the Directors Option Plan increase the
number of shares to be granted under the Initial Grant and Annual Grant to
10,000 and 5,000 shares, respectively, and provides that in any event, the
Annual Grant will be made no later than June 15 of any year.
DESCRIPTION OF THE DIRECTORS OPTION PLAN
A total of 150,000 shares of the Company's Common Stock have been reserved
for issuance under the Directors Option Plan. Options to purchase 16,665 shares
have been granted, none of which has as yet been exercised. The Company
currently has five nonemployee directors who are eligible to participate in the
Directors Option Plan, all of whom have been nominated for election at the
Annual Meeting. The exercise price of the options in all cases will be equal to
the fair market value of Common Stock on the grant date. Each option granted
pursuant to the Directors Option Plan expires ten years and two days after the
date of grant or earlier in the event of the termination of the director's
service on the Board. Each option granted under the Directors Option Plan is
exercisable in full six months after the date of grant. The Company has the
right to repurchase at the exercise price with respect to shares purchased upon
exercise of options which expires with respect to one-eighth of the number of
shares covered by such option six months after the date such option is granted
and one-sixteenth of the number of shares covered by such option at the end of
each three-month period thereafter. In the event of acquisition of the Company
by a merger, consolidation, sale of all or substantially all of the Company's
assets or acquisition of the Company's shares, such right of repurchase shall
lapse with respect to twice the number of shares still subject to the right of
repurchase. The Board may waive the directors fees in any given year and have
the exercise price of options granted under the Directors Option Plan reduced by
the amount of the fees so waived.
The consideration payable in connection with any option (including any
related taxes) may be paid by promissory note of the nonemployee director or by
delivery of shares of Common Stock of the Company if such method of payment is
approved by the administrator of the Directors Option Plan. Options generally
terminate three months after a nonemployee director ceases to be, for any
reason, a director of the Company, but if a nonemployee director ceases to be a
director due to death, disability or retirement, the option may be exercised for
twelve months after the termination.
The Board may amend, alter, or discontinue the Directors Option Plan or any
option at anytime, except that the consent of a participant is required if the
participant's existing rights under an outstanding option would be impaired. In
addition, to the extent required under applicable tax and securities laws and
regulations, the shareholders of the Company must approve any amendment,
alteration, or discontinuance of the Directors Option Plan that would increase
the total number of shares reserved under the Directors Option Plan and in
addition, the provisions of the plan governing who is granted options, the
number of shares covered by each
12
15
option, the exercise price, and the period of exercisability and the timing of
option grants may not be amended more than once every six months, other than for
changes to comport with the Code or the Employee Retirement Income Security Act
of 1974.
The following table shows, based on the current composition of the Board
and assuming approval of the amendments, the number of options which will be
granted in 1997 and each year thereafter to the listed groups under the
Directors Option Plan until there are no longer shares reserved for issuance or
until the Directors Option Plan is terminated.
NUMBER OF OPTIONS
GRANTED ANNUALLY(1)
---------------------
1997 THEREAFTER
------ ----------
All executive officers as a group....................................... 0 0
All directors who are not executive officers as a group................. 25,000 25,000
All employees (other than executive) as a group......................... 0 0
- ---------------
(1) All options granted at fair market value as of the date of grant.
The Company believes it important that directors have meaningful equity
ownership in Thoratec. The reason for creating a nondiscretionary option plan
for nonemployee directors is so that outside directors may have the opportunity
for such equity ownership and the Company believes the automatic granting of
options is an effective method of providing equity ownership.
FEDERAL INCOME TAX CONSEQUENCES
See "Certain Federal Income Tax Consequences" below for a discussion of
federal income tax consequences relating to participation in the Directors
Option Plan.
PROPOSAL; BOARD RECOMMENDATION
Shareholders are being asked to approve the amendments to the Directors
Option Plan. The affirmative vote of the holders of a majority of the
outstanding shares of the Company represented and voting at the Annual Meeting
is required for approval of the amendments to the Directors Option Plan. The
Board recommends a vote "FOR APPROVAL" of the proposal.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES IS BASED UPON
EXISTING STATUTES, REGULATIONS AND INTERPRETATIONS THEREOF. THE APPLICABLE RULES
ARE COMPLEX, AND INCOME TAX CONSEQUENCES MAY VARY DEPENDING UPON THE PARTICULAR
CIRCUMSTANCES OF EACH PLAN PARTICIPANT. THIS PROXY STATEMENT DESCRIBES FEDERAL
INCOME TAX CONSEQUENCES OF GENERAL APPLICABILITY BUT DOES NOT PURPORT TO
DESCRIBE PARTICULAR CONSEQUENCES TO EACH INDIVIDUAL PLAN PARTICIPANT OR FOREIGN,
STATE OR LOCAL INCOME TAX CONSEQUENCES, WHICH MAY DIFFER FROM UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES.
INCENTIVE STOCK OPTIONS
Award; Exercise. ISOs are intended to constitute "incentive stock options"
within the meaning of Section 422 of the Code. ISOs may be granted only to
employees of the Company (including directors who are also employees). An
optionee does not recognize taxable income upon either the grant or exercise of
an ISO. However, the excess of the fair market value of the shares purchased
upon exercise over the option exercise price (the "Option Spread") is includable
in the optionee's "alternative minimum taxable income" ("AMTI") for purposes of
the alternative minimum tax ("AMT"). The Option Spread is generally measured on
the date of exercise and is includable in the AMTI in the year of exercise.
Special rules regarding the time
13
16
of AMTI inclusion may apply for shares subject to a repurchase right or other
"substantial risk of forfeiture" (including, in the case of each person subject
to the reporting requirements of Section 16 of the Exchange Act, limitations on
resale of shares imposed under Section 16 (b) of the Exchange Act).
Sale of Option Shares. If an optionee holds the shares purchased under an
ISO for at least two years from the date the ISO was granted and for at least
one year from the date the ISO was exercised, any gain from a sale of the shares
other than the Company is taxable as long-term capital gain. Under these
circumstances, the Company would not be entitled to a tax deduction at the time
the ISO is exercised or at the time the stock is sold. If an optionee were to
dispose of stock acquired pursuant to an ISO before the end of the required
holding periods (a "Disqualifying Disposition"), the amount by which the market
value of the stock at the time the ISO is exercised exceeds the exercise price
(or, if less, the amount of gain realized on the sale) is taxable as ordinary
income, the Company is entitled to a corresponding tax deduction. Such income is
subject to information reporting requirements and may become subject to income
and employment tax withholding. Gain from a Disqualifying Disposition in excess
of the amount required to be recognized as ordinary income is capital gain.
Optionees are required to notify the Company immediately prior to making a
Disqualifying Disposition. If the stock is sold to the Company rather than to a
third party, the sale may not produce a capital gain or loss but may constitute
a redemption taxable as a dividend unless the redemption is "not essentially
equivalent to a dividend" within the meaning of the Code. The timing and amount
of income from a Disqualifying Disposition and the beginning of the optionee's
holding period for determining whether capital gain or loss is long- or
short-term may be affected if option stock is acquired subject to a repurchase
right or other "substantial risk of forfeiture" (including in the case of each
person subject to the reporting requirements of Section 16 of the Exchange Act,
limitations on resale of shares imposed under Section 16(b) of the Exchange
Act).
Exercise With Stock. If an optionee pays for ISO shares with shares of the
Company acquired under an ISO or a qualified employee stock purchase plan
("statutory option stock"), the tender of shares is a Disqualifying Disposition
of the statutory option stock if the above-described (or other applicable)
holding periods respecting those shares have not been satisfied. If the holding
periods with respect to the statutory option stock are satisfied, or the shares
were not acquired under a statutory stock option of the Company, then any
appreciation in value of the surrendered shares is not taxable upon surrender.
Special basis and holding period rules apply where previously owned
non-statutory option stock is used to exercise an ISO.
NONQUALIFIED STOCK OPTIONS
Award; Exercise. An optionee is not taxable upon the award of a NQO.
Federal income tax consequences upon exercise will depend upon whether the
shares thereby acquired are subject to a "substantial risk of forfeiture." If
the shares are not subject to a substantial risk of forfeiture, or if they are
so restricted and the optionee files an election under Section 83(b) of the Code
(a "Section 83(b) Election") with respect to the shares, the optionee will have
ordinary income at the time of exercise measured by the Option Spread on the
exercise date. The optionee's tax basis in the shares will be the fair market
value of the shares on the date of exercise, and the holding period for purposes
of determining whether capital gain or loss upon sale is long- or short-term
also will begin on or immediately after that date. If the shares are subject to
a substantial risk of forfeiture and no Section 83(b) Election is filed, the
optionee will not be taxable upon exercise, but instead will have ordinary
income on the date the restrictions lapse, in an amount equal to the difference
between the amount paid for the shares under the NQO and their fair market value
as of the date of lapse; in addition, the optionee's holding period will begin
on the date of the lapse.
Whether or not the shares are subject to a substantial risk of forfeiture,
the amount of ordinary income taxable to an optionee who is an employee at the
time of grant constitutes "supplemental wages" subject to withholding of income
and employment taxes by the Company, and the Company receives a corresponding
income tax deduction.
Sale of Option Shares. Upon sale, other than to the Company, of shares
acquired under a NQO, an optionee generally will recognize capital gain or loss
to the extent of the difference between the sale price and the optionee's tax
basis in the shares, which will be long-term gain or loss if the employee's
holding period in
14
17
the shares is more than one year. If stock is sold to the Company, rather than
to a third party, the sale may not produce capital gain or loss. A sale of
shares to the Company will constitute a redemption of such shares, which could
be taxable as a dividend unless the redemption is "not essentially equivalent to
a dividend" within the meaning of the Code.
Exercise with Stock. If an optionee tenders Common Stock to pay all or
part of the exercise price of a NQO, the optionee will not have a taxable gain
or deductible loss on the surrendered shares. Instead, shares acquired upon
exercise that are equal in value to the fair market value of the shares
surrendered in payment are treated as if they had been substituted for the
surrendered shares, taking as their basis and holding period the basis and
holding period that the optionee had in the surrendered shares. The additional
shares are treated as newly acquired with a zero basis.
If the surrendered shares are statutory option stock as described above
under "Incentive Stock Options", with respect to which the applicable holding
period requirements for favorable income tax treatment have not expired, then
the newly acquired shares substituted for the statutory option shares should
remain subject to the federal income tax rules governing the surrendered shares,
but the surrender should not constitute a Disqualifying Disposition of the
surrendered stock.
SPECIAL FEDERAL INCOME TAX CONSIDERATION DUE TO SHORT SWING PROFIT RULE
The potential liability of a person subject to Section 16 of the Exchange
Act to repay short-swing profits from the resale of shares acquired under a
Company plan constitutes a "substantial risk of forfeiture" within the meaning
of the above described rules, which is generally treated as lapsing at such time
as the potential liability under Section 16 lapses. Persons subject to Section
16 who would be required by Section 16 to repay profits from the immediate
resale of stock acquired under a Company plan should consider whether to file a
Section 83 (b) Election at the time they acquire stock under a Company plan in
order to avoid deferral of the date that they are deemed to acquire shares for
federal income tax purposes.
INDEPENDENT AUDITORS
The Board has selected Deloitte & Touche LLP as independent auditors to
audit the financial statements of the Company for the 1997 fiscal year. Deloitte
& Touche LLP has been engaged as the Company's auditors since the Company's
inception in 1976. 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 desire to do so. The representatives of Deloitte & Touche LLP also will
be available to respond to questions raised during the meeting.
SHAREHOLDER PROPOSAL
Proposals of shareholders of the Company which are intended to be presented
at the Company's 1998 meeting of shareholders must be received by the Secretary
of the Company no later than January 16, 1998, in order to be included in the
proxy soliciting material relating to that meeting.
OTHER MATTERS
The Company knows of no other matters to be submitted at the Annual
Meeting. If any other matters properly come before the Annual Meeting, it is the
intention of the persons named in the enclosed proxy to vote the shares they
represent as the Board may recommend.
THE BOARD OF DIRECTORS
Dated: April 18, 1997
15
18
ANNEX I
1996 NONEMPLOYEE DIRECTORS STOCK OPTION PLAN
OF
THORATEC LABORATORIES CORPORATION
1. PURPOSES OF THE PLAN
The purposes of the 1996 Nonemployee Directors Stock
Option Plan of Thoratec Laboratories Corporation, a California
corporation, are to:
(a) Encourage Nonemployee Directors to improve operations and
increase profits of the Company;
(b) Encourage Nonemployee Directors to accept or continue
their association with the Company; and
(c) Increase the interest of Nonemployee Directors in the
Company's welfare through participation in the growth in value of the Common
Stock of the Company.
Options granted hereunder shall be "Nonstatutory Options", and
shall not include "incentive stock options" intended to satisfy the requirements
of Section 422 of the Internal Revenue Code of 1986, as amended.
2. DEFINITIONS
As used herein, the following definitions shall apply:
(a) "Administrator" shall mean the entity, either the Board or
the Committee, responsible for administering this Plan, as provided in Section
3.
(b) "Board" shall mean the Board of Directors of the Company,
as constituted from time to time.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(d) "Committee" shall mean the committee, if any, appointed by
the Board in accordance with Section 5(a) to administer this Plan.
(e) "Common Stock" shall mean the Common Stock of the Company.
(f) "Company" shall mean Thoratec Laboratories Corporation, a
California corporation.
19
(g) "Director Fee" shall mean the cash amount, if any, a
Nonemployee Director shall be entitled to receive for serving as a director of
the Company in any fiscal year.
(h) "Fair Market Value" shall mean, as of the date in
question, the last transaction price quoted by the NASDAQ National Market System
on the date of grant; provided, however, that if the Common Stock is not traded
on such market system or the foregoing shall otherwise be inappropriate, then
the Fair Market Value shall be determined by the Administrator in good faith at
its sole discretion and on such basis as it shall deem appropriate. Such
determination shall be conclusive and binding on all persons.
(i) "Nonemployee Director" shall mean any person who is a
member of the Board but is not an employee of the Company or any Parent or
Subsidiary of the Company and has not been an employee of the Company or any
Parent or Subsidiary of the Company at any time during the preceding twelve (12)
months. Service as a director does not in itself constitute employment for
purposes of this definition.
(j) "Option" shall mean a stock option granted pursuant to
this Plan. Each Option shall be a nonstatutory option not intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code.
(k) "Option Agreement" shall mean the written agreement
described in Section 6 evidencing the grant of an Option to a Nonemployee
Director and containing the terms, conditions and restrictions pertaining to
such Option.
(l) "Option Shares" shall mean the Shares subject to an Option
granted under this Plan.
(m) "Optionee" shall mean a Nonemployee Director who holds an
Option.
(n) "Plan" shall mean this Thoratec Laboratories Corporation
Nonemployee Directors Stock Option Plan, as it may be amended from time to time.
(o) "Related Option" shall have the meaning set forth in
Section 8.7.
(p) "Rule 16b-3" shall have the meaning set forth in Section
5(a).
(q) "Section" unless the context clearly indicates otherwise,
shall refer to a Section of this Plan.
-2-
20
(r) "Share" shall mean a share of Common Stock, as adjusted in
accordance with Section 8.1.
(s) "Subsidiary" shall mean a "subsidiary corporation" of the
Company, whether now or hereafter existing, within the meaning of Section 424(f)
of the Code, but only for so long as it is a "subsidiary corporation".
3. ELIGIBLE PERSONS
Every person who at the date of grant of an Option is a
Nonemployee Director is eligible to receive Options under this Plan.
4. STOCK SUBJECT TO THIS PLAN
Subject to Section 8.1 of this Plan, the maximum aggregate
number of Shares which may be issued on exercise of Options granted pursuant to
this Plan is 150,000 Shares. The Shares covered by the portion of any grant
under the Plan which expires unexercised shall become available again for grants
under the Plan.
5. ADMINISTRATION
(a) This Plan shall be administered by the Board, or by a
committee (the "Committee") of at least two (2) Board members to which
administration of the Plan is delegated (in either case, the "Administrator"),
in accordance with the requirements of Rule 16b-3 promulgated by the Securities
and Exchange Commission ("Rule 16b-3"), or any successor rule thereto.
(b) Subject to the other provisions of this Plan, the
Administrator shall have the authority, in its sole discretion: (i) to determine
the Fair Market Value of the Shares subject to Option; (ii) to interpret this
Plan; (iii) to prescribe, amend and rescind rules and regulations relating to
this Plan; (iv) to defer (with the consent of the Optionee) or accelerate the
exercise date of any Option; (v) to authorize any person to execute on behalf of
the Company any instrument evidencing the grant of an Option; and (vi) to make
all other determinations deemed necessary or advisable for the administration of
this Plan. The Administrator may delegate nondiscretionary administrative duties
to such employees of the Company as it deems proper.
(c) All questions of interpretation, implementation and
application of this Plan shall be determined by the Administrator. Such
determination shall be final and binding on all persons.
-3-
21
6. GRANT OF OPTIONS
(a) Subject to the terms and conditions of this Plan, if any
person who is not an officer or employee of the Company is first elected or
appointed as a member of the Board on or after the Company's annual meeting of
shareholders held in 1996 but before the annual meeting of shareholders held in
1997, then on the effective date of such appointment or election of such person,
the Company shall grant to such Nonemployee Director an Option to purchase 3,333
Shares at an exercise price equal to the Fair Market Value of such Shares on the
date of such Option grant. If any person who is not an officer or employee of
the Company is first elected or appointed as a member of the Board on or after
the Company's annual meeting of shareholders held in 1997, then on the effective
date of such appointment or election of such person, the Company shall grant to
such Nonemployee Director an Option to purchase 10,000 Shares at an exercise
price equal to the Fair Market Value of such Shares on the date of such Option
grant.
(b) Subject to the terms and conditions of this Plan, on the
date of the first meeting of the Board immediately following each annual meeting
of shareholders of the Company (even if held on the same day as the meeting of
shareholders) which is held after the date this Plan is approved by the
shareholders of the Company and before the annual meeting of shareholders held
in 1997, the Company shall grant to each Nonemployee Director then in office an
Option to purchase 1,667 Shares at an exercise price equal to the Fair Market
Value of such Shares on the date of such Option grant. Subject to the terms and
conditions of this Plan, on the date of the first meeting of the Board
immediately following each annual meeting of shareholders of the Company (even
if held on the same day as the meeting of shareholders) which is held on or
after the annual meeting of shareholders held in 1997, the Company shall grant
to each Nonemployee Director then in office an Option to purchase 5,000 Shares
at an exercise price equal to the Fair Market Value of such Shares on the date
of such Option grant. Provided, however, that if in any year an annual meeting
of shareholders is not held by June 15, then on June 15 of any such year the
Company shall grant to each Nonemployee Director then in office an Option to
purchase 5,000 Shares at an exercise price equal to the Fair Market Value of
such Shares on June 15 and the Company shall not thereafter grant any Options
pursuant to this subsection (b) in any such year. Notwithstanding anything in
this subsection (b) to the contrary, a director shall not receive an Option
pursuant to this subsection (b) if such director has been first elected or
appointed as a member of the Board within six months before the date on which an
Option would be granted hereunder.
(c) No Options shall be granted under this Plan after ten (10)
years from the date of adoption of this Plan by the
-4-
22
Board. Each Option shall be evidenced by a written Option Agreement, in form
satisfactory to the Company, executed by the Company and the Nonemployee
Director to whom such Option is granted; provided, however, that the failure by
the Company, the Nonemployee Director or both to execute such an agreement shall
not invalidate the granting of an Option.
7. DIRECTOR FEE ELECTION
Upon election by the Board, all or any part of the Director
Fees can be waived in any given year, and the Director Fees waived may be
applied by the Board to reduce the exercise price of Options granted to the
Nonemployee Directors pursuant to Sections 6(a) and 6(b). The amount of Director
Fees waived may vary from year to year. By way of example, if the Board elects
pursuant to this Section to waive an aggregate of $6,000 of Director Fees which
would otherwise be payable to three Nonemployee Directors ($2,000 of fees for
each), an amount of $6,000 ($2,000 each) shall be applied by the Board to reduce
the exercise price of Options granted pursuant to Section 6(b), so that if each
of the three Nonemployee Directors in this example are granted Options for 1,000
shares exercisable at $5.00 each, the $2,000 could be applied to reduce the
exercise price of these options to $3.00 per share ($2,000 / 1,000 shares =
$2.00 per share reduction in exercise price).
8. TERMS AND CONDITIONS OF OPTIONS
Each Option granted under this Plan shall be subject to the
terms and conditions set forth in this Section 8.
8.1 Changes in Capital Structure. Subject to Section 8.2, if
the Common Stock is changed by reason of a stock split, reverse stock split,
stock dividend or re-capitalization, or converted into or exchanged for other
securities as a result of a merger, consolidation or reorganization, appropriate
adjustments shall be made in: (a) the number and class of shares of Common Stock
subject to this Plan and each Option outstanding under this Plan; and (b) the
exercise price of each outstanding Option; provided, however, that the Company
shall not be required to issue fractional shares as a result of any such
adjustments. Each such adjustment shall be subject to approval by the
Administrator in its sole discretion.
8.2 Time of Option Exercise. Subject to the other provisions
of this Plan, each Option granted pursuant to this Plan shall be for a term of
ten (10) years and two (2) days. Each Option granted under Section 6 of this
Plan shall be exercisable in full six months after the date of grant. The
Company shall have a right of repurchase at the option exercise price with
respect to shares purchased upon exercise of Options granted pursuant to Section
6 which shall expire with respect to
-5-
23
12 1/2% of the number of Shares covered by such Option six months after the date
such Option is granted and shall expire with respect to 6 1/4% of the number of
shares covered by such Option at the end of each three-month period thereafter.
8.3 Corporate Transactions. In connection with an acquisition
of the Company affected by a merger, consolidation, sale of all or substantially
all of the Company's assets, acquisition of shares, or any like occurrence in
which the Company is involved, the right of repurchase specified in Section 8.2
shall lapse with respect to twice the number of shares then subject to such
right of repurchase. The Administrator shall have the authority, in its sole
discretion, to determine the time prior to consummation of such transaction when
such right of repurchase shall so lapse.
8.4 Limitation on Other Grants. The Administrator shall have
no discretion to grant Options under this Plan other than as set forth in
Sections 6(a) and 6(b).
8.5 Nonassignability of Option Rights. No Option granted under
this Plan shall be assignable or otherwise transferable by the Optionee, except
by will or the laws of descent and distribution, or pursuant to a qualified
domestic relations order as defined by the Code. During the life of an Optionee,
an Option shall be exercisable only by the Optionee.
8.6 Payment. Except as provided below, payment in full, in
cash, shall be made for all Option Shares purchased at the time written notice
of exercise of an Option is given to the Company, and proceeds of any payment
shall constitute general funds of the Company. Payment may also be made pursuant
to a cashless exercise/sale procedure. At the time an Option is granted or
exercised, the Administrator, in the exercise of its absolute discretion, may
authorize any one or more of the following additional methods of payment: (a)
acceptance of the Optionee's full recourse promissory note for all or part of
the Option price, less any par value per share, which must be paid in cash,
payable on such terms and bearing such interest rate as determined by the
Administrator (but in no event less than the minimum interest rate specified
under the Code at which no additional interest on debt instruments of such type
would be imputed), which promissory note may be either secured or unsecured in
such manner as the Administrator shall approve (including, without limitation,
by a security interest in the Shares); (b) delivery by the Optionee of Common
Stock already owned by the Optionee for all or part of the Option price,
provided the Fair Market Value of such Common Stock is equal on the date of
exercise to the Option price, or such portion thereof as the Optionee is
authorized to pay by delivery of such stock; provided, however, that if an
Optionee has exercised any portion of any option granted by the Company by
delivery of Common Stock,
-6-
24
the Optionee may not, within six (6) months following such exercise, exercise
any Option granted under this Plan by delivery of Common Stock; and (c) any
other consideration and method of payment to the extent permitted under the
California Corporations Code.
8.7 Termination as Director. Unless determined otherwise by
the Administrator in its absolute discretion, to the extent not already expired
or exercised, an Option shall terminate at the earlier of: (a) the expiration of
the term of the Option; or (b) three (3) months after the last day served by the
Optionee as a director of the Company; provided, that an Option shall be
exercisable after the date of termination of service as a director only to the
extent exercisable on the date of termination; and provided further, that if
termination of service as a director is due to the Optionee's death or
"disability" (as determined in accordance with Section 22(e)(3) of the Code),
the Optionee, or the Optionee's personal representative (or any other person who
acquires the Option from the Optionee by will or the applicable laws of descent
and distribution), may at any time within twelve (12) months after the
termination of service as a director (or such lesser period as is specified in
the Option Agreement but in no event after the expiration of the term of the
Option), exercise the rights to the extent they were exercisable on the date of
the termination.
8.8 Withholding and Employment Taxes. At the time of exercise
of an Option (or at such later time(s) as the Company may prescribe), the
Optionee shall remit to the Company in cash all applicable federal and state
withholding and employment taxes. If authorized by the Administrator in its sole
discretion, an Optionee shall be permitted to elect, by means of a form of
election to be prescribed by the Administrator, to have shares of Common Stock
which are acquired upon exercise of the Option withheld by the Company or to
tender to the Company other shares of Common Stock or other securities of the
Company owned by the Optionee on the date of determination of the amount of tax
to be withheld as a result of the exercise of such Option (the "Tax Date") to
pay the amount of tax that is required by law to be withheld by the Company as a
result of the exercise of such Option. Any securities so withheld or tendered
shall be valued by the Company as of the Tax Date.
8.9 Option Term. Each Option granted hereunder shall expire
ten (10) years and two (2) days after the date of grant.
9. MANNER OF EXERCISE
(a) An Optionee wishing to exercise an Option shall give
written notice to the Company at its principal executive office, to the
attention of the officer of the Company designated by the Administrator,
accompanied by payment of the exercise
-7-
25
price as provided in Section 8.6 and, if required, by payment of any federal or
state withholding or employment taxes required to be withheld by virtue of
exercise of the Option. The date the Company receives written notice of an
exercise hereunder accompanied by payment of the exercise price and any required
federal or state withholding or employment taxes will be considered as the date
such Option was exercised. Unless otherwise provided by the Administrator,
options may be exercised only twice in any calendar year.
(b) Promptly after the date an Option is exercised, the
Company shall, without stock issue or transfer taxes to the optionee or other
person entitled to exercise the Option, deliver to the Optionee or such other
person a certificate or certificates for the requisite number of shares of
Common Stock. An Optionee or transferee of an Optionee shall not have any
privileges as a stockholder with respect to any Common Stock covered by the
Option until the date of issuance of a stock certificate.
10. NO RIGHT TO DIRECTORSHIP
Neither this Plan nor any Option granted hereunder shall
confer upon any Optionee any right with respect to continuation of the
Optionee's membership on the Board or shall interfere in any way with provisions
in the Company's Articles of Incorporation and By-Laws relating to the election,
appointment, terms of office, and removal of members of the Board.
11. FINANCIAL INFORMATION
The Company shall provide to each Optionee during the period
such optionee holds an outstanding Option a copy of the financial statements of
the Company as prepared either by the Company or independent certified public
accountants of the Company. Such financial statements shall be delivered as soon
as practicable following the end of the Company's fiscal year during the period
Options are outstanding.
12. LEGAL REQUIREMENTS
The Company shall not be obligated to offer or sell any Shares
upon exercise of any Option unless the Shares are at that time effectively
registered or exempt from registration under the federal securities laws and the
offer and sale of the Shares are otherwise in compliance with all applicable
securities laws and the regulations of any stock exchange on which the Company's
securities may then be listed. The Company shall have no obligation to register
the Shares covered by this Plan under the federal securities laws or take any
other steps as may be necessary to enable the Shares covered by this Plan to be
offered and sold under federal or other securities laws. Upon exercising
-8-
26
all or any portion of an Option, an Optionee may be required to furnish
representations or undertakings deemed appropriate by the Company to enable the
offer and sale of the Shares or subsequent transfers of any interest in the
Shares to comply with applicable securities laws. Certificates evidencing Shares
acquired upon exercise of Options shall bear any legend required by, or useful
for purposes of compliance with, applicable securities laws, this Plan or the
Option Agreements.
13. AMENDMENTS TO PLAN
The Board may amend this Plan at any time. Without the consent
of an optionee, no amendment may adversely affect outstanding Options. No
amendment shall require shareholder approval unless:
(a) shareholder approval is required to meet the exemptions
provided by Rule 16b-3, or any successor rule thereto; or
(b) the Board otherwise concludes that shareholder approval is
advisable.
14. SHAREHOLDER APPROVAL; TERM
This Plan shall become effective upon adoption by the Board of
Directors; provided, however, that no Option shall be exercisable unless and
until written consent of holders of a majority of the outstanding shares of
capital stock of the Company, or approval by holders of a majority of shares of
capital stock of the Company present, or represented, and entitled to vote at a
validly called shareholders' meeting (or such greater number as may be required
by law or applicable governmental regulations or orders) is obtained within
twelve (12) months after adoption by the Board. This Plan shall terminate ten
(10) years after adoption by the Board unless terminated earlier by the Board.
The Board may terminate this Plan at any time without shareholder approval. No
Options shall be granted after termination of this Plan, but termination shall
not affect rights and obligations under then outstanding Options.
-9-
27
ANNEX II
1997 STOCK OPTION PLAN
OF
THORATEC LABORATORIES CORPORATION
28
TABLE OF CONTENTS
PAGE
----
1. PURPOSES OF THE PLAN.................................................................................... 1
2. ELIGIBLE PERSONS........................................................................................ 1
3. STOCK SUBJECT TO THIS PLAN.............................................................................. 1
4. ADMINISTRATION.......................................................................................... 2
5. GRANTING OF OPTIONS; OPTION AGREEMENT................................................................... 3
6. TERMS AND CONDITIONS OF OPTIONS......................................................................... 3
6.1 Terms and Conditions to Which All Options Are Subject.............................................. 3
6.1.1 Changes in Capital Structure........................................................... 3
6.1.2 Corporate Transactions................................................................. 3
6.1.3 Time of Option Exercise................................................................ 4
6.1.4 Option Grant Date...................................................................... 4
6.1.5 Nonassignability of Option Rights...................................................... 4
6.1.6 Payment................................................................................ 4
6.1.7 Termination of Employment.............................................................. 5
6.1.8 Repurchase of Stock.................................................................... 5
6.1.9 Withholding and Employment Taxes....................................................... 5
6.1.10 Other Provisions....................................................................... 6
6.1.11 Determination of Value................................................................. 6
6.1.12 Option Term............................................................................ 7
6.1.13 Exercise Price......................................................................... 7
6.2 Terms and Conditions to Which Only NQOs Are Subject.............................................. 7
6.2.1 Exercise Price......................................................................... 7
6.3 Terms and Conditions to Which Only ISOs Are Subject.............................................. 7
6.3.1 Exercise Price......................................................................... 7
6.3.2 Disqualifying Dispositions............................................................. 7
6.3.3 Grant Date............................................................................. 7
6.3.4 Term................................................................................... 8
7. MANNER OF EXERCISE...................................................................................... 8
8. EMPLOYMENT OR CONSULTING RELATIONSHIP................................................................... 8
9. FINANCIAL INFORMATION................................................................................... 8
10. CONDITIONS UPON ISSUANCE OF SHARES...................................................................... 8
-i-
29
11. NONEXCLUSIVITY OF THE PLAN.............................................................................. 9
12. AMENDMENTS TO PLAN...................................................................................... 9
13. EFFECTIVE DATE OF PLAN.................................................................................. 9
-ii-
30
1997 STOCK OPTION PLAN
OF
THORATEC LABORATORIES CORPORATION
1. PURPOSES OF THE PLAN
The purposes of the 1997 Stock Option Plan (the "Plan") of
Thoratec Laboratories Corporation, a California corporation (the "Company"), are
to:
(a) Encourage selected directors, employees and consultants to
improve operations and increase profits of the Company;
(b) Encourage selected directors, employees and consultants to
accept or continue employment or association with the Company or its Affiliates;
and
(c) Increase the interest of selected directors, employees and
consultants in the Company's welfare through participation in the growth in
value of the common stock of the Company (the "Common Stock").
Options granted under this Plan ("Options") may be "incentive
stock options" ("ISOs") intended to satisfy the requirements of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), or "nonqualified
options" ("NQOs").
2. ELIGIBLE PERSONS
Every person who at the date of grant of an Option is a
full-time employee of the Company or of any Affiliate (as defined below) of the
Company is eligible to receive NQOs or ISOs under this Plan. Every person who at
the date of grant is a consultant or non-employee director to the Company or any
Affiliate (as defined below) of the Company is eligible to receive NQOs under
this Plan. The term "Affiliate" as used in the Plan means a parent or subsidiary
corporation as defined in the applicable provisions (currently Sections 424(e)
and (f), respectively) of the Code. The term "employee" includes an officer or
director who is an employee, of the Company. The term "consultant" includes
persons employed by, or otherwise affiliated with, a consultant.
3. STOCK SUBJECT TO THIS PLAN
Subject to the provisions of Section 6.1.1 of the Plan, the
total number of shares of stock which may be issued under options granted
pursuant to this Plan shall not exceed 1,000,000 shares of Common Stock. The
shares covered by the portion of any grant under the Plan which expires
unexercised shall become available again for grants under the Plan.
31
4. ADMINISTRATION
(a) This Plan shall be administered by the Board of Directors
of the Company (the "Board") or, either in its entirety or only insofar as
required pursuant to Section 4(b) hereof, by a committee (the "Committee") of at
least two Board members to which administration of the Plan, or of any portion
of the Plan, is delegated (in either case, the "Administrator").
(b) From and after such time as the Company registers a class
of equity securities under Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), it is intended that this Plan shall be
administered in accordance with the requirements of Rule 16b-3 promulgated by
the Securities and Exchange Commission ("Rule 16b-3"), or any successor rule
thereto.
(c) Subject to the other provisions of this Plan, the
Administrator shall have the authority, in its discretion: (i) to grant Options;
(ii) to determine the fair market value of the Common Stock subject to Options;
(iii) to determine the exercise price of Options granted; (iv) to determine the
persons to whom, and the time or times at which, Options shall be granted, and
the number of shares subject to each Option; (v) to interpret this Plan; (vi) to
prescribe, amend, and rescind rules and regulations relating to this Plan; (vii)
to determine the terms and provisions of each Option granted (which need not be
identical), including but not limited to, the time or times at which Options
shall be exercisable; (viii) with the consent of the optionee, to modify or
amend any Option; (ix) to defer (with the consent of the optionee) the exercise
date of any Option; (x) to authorize any person to execute on behalf of the
Company any instrument evidencing the grant of an Option; and (xi) to make all
other determinations deemed necessary or advisable for the administration of
this Plan. The Administrator may delegate nondiscretionary administrative duties
to such employees of the Company as it deems proper.
(d) All questions of interpretation, implementation, and
application of this Plan shall be determined by the Administrator. Such
determinations shall be final and binding on all persons.
(e) With respect to persons subject to Section 16 of the
Exchange Act, if any, transactions under this Plan are intended to comply with
the applicable conditions of Rule 16b-3, or any successor rule thereto. To the
extent any provision of this Plan or action by the Administrator fails to so
comply, it shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Administrator. Notwithstanding the above, it shall be
the responsibility of such persons, not of the Company or the Administrator, to
comply with the requirements of Section 16 of the Exchange Act; and neither the
Company nor the Administrator shall be liable if this Plan or any transaction
under this Plan fails to comply with the applicable conditions of Rule 16b-3 or
any successor rule thereto, or if any such person incurs any liability under
Section 16 of the Exchange Act.
-2-
32
5. GRANTING OF OPTIONS; OPTION AGREEMENT
(a) No Options shall be granted under this Plan after ten
years from the date of adoption of this Plan by the Board.
(b) Each Option shall be evidenced by a written stock option
agreement, in form satisfactory to the Company, executed by the Company and the
person to whom such Option is granted; provided, however, that the failure by
the Company, the optionee, or both to execute such an agreement shall not
invalidate the granting of an Option, although the exercise of each option shall
be subject to Section 6.1.3.
(c) The stock option agreement shall specify whether each
Option it evidences is a NQO or an ISO.
(d) Subject to Section 6.3.3 with respect to ISOs, the
Administrator may approve the grant of Options under this Plan to persons who
are expected to become directors, employees or consultants of the Company, but
are not directors, employees or consultants at the date of approval.
6. TERMS AND CONDITIONS OF OPTIONS
Each Option granted under this Plan shall be subject to the
terms and conditions set forth in Section 6.1. NQOs shall be also subject to the
terms and conditions set forth in Section 6.2, but not those set forth in
Section 6.3. ISOs shall also be subject to the terms and conditions set forth in
Section 6.3, but not those set forth in Section 6.2.
6.1 Terms and Conditions to Which All Options Are Subject. All
Options granted under this Plan shall be subject to the following terms and
conditions:
6.1.1 Changes in Capital Structure. Subject to Section
6.1.2, if the stock of the Company is changed by reason of a stock split,
reverse stock split, stock dividend, or recapitalization, combination or
reclassification, appropriate adjustments shall be made by the Board in (a) the
number and class of shares of stock subject to this Plan and each Option
outstanding under this Plan, and (b) the exercise price of each outstanding
Option; provided, however, that the Company shall not be required to issue
fractional shares as a result of any such adjustments. Each such adjustment
shall be subject to approval by the Board in its sole discretion.
6.1.2 Corporate Transactions. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
optionee at least 30 days prior to such proposed action. To the extent not
previously exercised, all Options will terminate immediately prior to the
consummation of such proposed action. In the event of a merger or consolidation
of the Company with or into another corporation or entity in which the Company
does not survive, or in the event of a sale of all or substantially all of the
assets of the Company in which the shareholders of the Company receive
securities of the acquiring entity or an affiliate thereof, all Options shall be
assumed or equivalent options shall be substituted by the successor corporation
(or other entity) or a parent or
-3-
33
subsidiary of such successor corporation (or other entity). In the event that
such successor does not agree to assume the Options or to substitute equivalent
options therefor, unless the Administrator shall determine otherwise, the
Options will expire upon such event.
6.1.3 Time of Option Exercise. Subject to Section 5,
Options granted under this Plan shall be exercisable (a) immediately as of the
effective date of the stock option agreement granting the Option, or (b) in
accordance with a schedule related to the date of the grant of the Option, the
date of first employment, or such other date as may be set by the Administrator
(in any case, the "Vesting Base Date") and specified in the written stock option
agreement relating to such Option; provided, however, that the right to exercise
an Option must vest at the rate of at least 20% per year over five years from
the date the option was granted. In any case, no Option shall be exercisable
until a written stock option agreement in form satisfactory to the Company is
executed by the Company and the optionee.
6.1.4 Option Grant Date. Except in the case of advance
approvals described in Section 5(d), the date of grant of an Option under this
Plan shall be the date as of which the Administrator approves the grant.
6.1.5 Nonassignability of Option Rights. No Option granted
under this Plan shall be assignable or otherwise transferable by the optionee
except by will or by the laws of descent and distribution. During the life of
the optionee, an Option shall be exercisable only by the optionee.
6.1.6 Payment. Except as provided below, payment in full,
in cash, shall be made for all stock purchased at the time written notice of
exercise of an Option is given to the Company, and proceeds of any payment shall
constitute general funds of the Company. At the time an Option is granted or
exercised, the Administrator, in the exercise of its absolute discretion after
considering any tax or accounting consequences, may authorize any one or more of
the following additional methods of payment:
(a) Acceptance of the optionee's full recourse
promissory note for all or part of the Option price, payable on such terms and
bearing such interest rate as determined by the Administrator (but in no event
less than the minimum interest rate specified under the Code at which no
additional interest would be imputed), which promissory note may be either
secured or unsecured in such manner as the Administrator shall approve
(including, without limitation, by a security interest in the shares of the
Company); and
(b) Delivery by the optionee of Common Stock already
owned by the optionee for all or part of the Option price, provided the value
(determined as set forth in Section 6.1.11) of such Common Stock is equal on the
date of exercise to the Option price, or such portion thereof as the optionee is
authorized to pay by delivery of such stock; provided, however, that if an
optionee has exercised any portion of any Option granted by the Company by
delivery of Common Stock, the optionee may not, within six months following such
exercise, exercise any Option granted under this Plan by delivery of Common
Stock without the consent of the Administrator.
-4-
34
6.1.7 Termination of Employment. Except as otherwise
approved by the Administrator in its absolute discretion, if for any reason
other than death or permanent and total disability, an optionee ceases to be
employed by the Company or any of its Affiliates (such event being called a
"Termination"), Options held at the date of Termination (to the extent then
exercisable) may be exercised in whole or in part at any time within three
months of the date of such Termination, (but in no event after the Expiration
Date); provided, that if such exercise of the Option would result in liability
for the optionee under Section 16(b) of the Exchange Act, such Option shall
terminate at such later date as is fixed by the Administrator (but in no event
after the Expiration Date). If an optionee dies or becomes permanently and
totally disabled (within the meaning of Section 22(e)(3) of the Code) while
employed by the Company or an Affiliate or within the period that the Option
remains exercisable after Termination, Options then held (to the extent then
exercisable) may be exercised, in whole or in part, by the optionee, by the
optionee's personal representative or by the person to whom the Option is
transferred by devise or the laws of descent and distribution, at any time
within six months after the death or six months after the permanent and total
disability of the optionee (but in no event after the Expiration Date). For
purposes of this Section 6.1.7, "employment" includes service as a director or
consultant. For purposes of this Section 6.1.7, an optionee's employment shall
not be deemed to terminate by reason of sick leave, military leave or other
leave of absence approved by the Administrator, if the period of any such leave
does not exceed 90 days or, if longer, if the optionee's right to reemployment
by the Company or any Affiliate is guaranteed either contractually or by
statute.
6.1.8 Repurchase of Stock. At the option of the
Administrator, the stock to be delivered pursuant to the exercise of any Option
granted to a director, employee or consultant under this Plan may be subject to
a right of repurchase in favor of the Company with respect to any director,
employee or consultant whose director, employment, or consulting relationship
with the Company is terminated. Such right of repurchase shall be at the Option
exercise price and (i) shall lapse at the rate of at least 20% per year over
five years from the date the Option is granted (without regard to the date it
becomes exercisable), and must be exercised for cash or cancellation of purchase
money indebtedness within 90 days of such termination and (ii) if the right is
assignable by the Company, the assignee must pay the Company upon assignment of
the right (unless the assignee is a 100% owned subsidiary of the Company or is
an Affiliate) cash equal to the difference between the Option exercise price and
the value (determined as set forth in Section 6.1.11) of the stock to be
purchased if the Option exercise price is less than such value. Shares
repurchased by the Company pursuant to the Company's right of repurchase are not
again available for grant under the Plan.
Determination of the number of shares subject to any such
right of repurchase shall be made as of the date the director's director
relationship with, employee's employment by, or consultant's consulting
relationship with, the Company terminates, not as of the date that any Option
granted to such director, employee or consultant is thereafter exercised.
6.1.9 Withholding and Employment Taxes. At the time of
exercise of an Option or at such other time as the amount of such obligations
becomes determinable (the "Tax Date"), the optionee shall remit to the Company
in cash all applicable
-5-
35
federal and state withholding and employment taxes. If authorized by the
Administrator in its sole discretion after considering any tax or accounting
consequences, an optionee may elect to (i) deliver a promissory note on such
terms as the Administrator deems appropriate, (ii) tender to the Company
previously owned shares of Stock or other securities of the Company, or (iii)
have shares of Common Stock which are acquired upon exercise of the Option
withheld by the Company to pay some or all of the amount of tax that is required
by law to be withheld by the Company as a result of the exercise of such Option.
Any limitations may be waived (or additional limitations may
be imposed) by the Administrator, in its sole discretion, if the Administrator
determines that limitations are not required (or that such additional
limitations are required) in order that the transaction shall be exempt from
Section 16(b) of the Exchange Act pursuant to Rule 16b-3, or any successor rule
thereto. In addition, any limitations may be waived by the Administrator, in its
sole discretion, if the Administrator determines that Rule 16b-3, or any
successor rule thereto, is not applicable to the exercise of the Option by the
optionee or for any other reason.
Any securities tendered or withheld in accordance with this
Section 6.1.9 shall be valued by the Company as of the Tax Date.
6.1.10 Other Provisions. Each Option granted under this
Plan may contain such other terms, provisions, and conditions not inconsistent
with this Plan as may be determined by the Administrator, and each ISO granted
under this Plan shall include such provisions and conditions as are necessary to
qualify the Option as an "incentive stock option" within the meaning of Section
422 of the Code.
6.1.11 Determination of Value. For purposes of the Plan,
the value of Common Stock or other securities of the Company shall be determined
as follows:
(a) If the stock of the Company is listed on any
established stock exchange or a national market system, including without
limitation the National Market System of the National Association of Securities
Dealers, Inc. Automated Quotation System, its fair market value shall be the
closing sales price for such stock or the closing bid if no sales were reported,
as quoted on such system or exchange (or the largest such exchange) for the date
the value is to be determined (or if there are no sales for such date, then for
the last preceding business day on which there were sales), as reported in The
Wall Street Journal or similar publication.
(b) If the stock of the Company is regularly quoted
by a recognized securities dealer but selling prices are not reported, its fair
market value shall be the mean between the high bid and low asked prices for the
stock on the date the value is to be determined (or if there are no quoted
prices for the date of grant, then for the last preceding business day on which
there were quoted prices).
(c) In the absence of an established market for the
stock, the fair market value thereof shall be determined in good faith by the
Administrator, with reference to the Company's net worth, prospective earning
power, dividend-paying capacity, and other relevant factors, including the
goodwill of the Company, the economic
-6-
36
outlook in the Company's industry, the Company's position in the industry and
its management, and the values of stock of other corporations in the same or a
similar line of business.
6.1.12 Option Term. Subject to Section 6.3.4, no Option
shall be exercisable more than ten years after the date of grant, or such lesser
period of time as is set forth in the stock option agreement (the end of the
maximum exercise period stated in the stock option agreement is referred to in
this Plan as the "Expiration Date").
6.1.13 Exercise Price. The exercise price of any Option
granted to any person who owns, directly or by attribution under the Code
currently Section 424(d), stock possessing more than ten percent of the total
combined voting power of all classes of stock of the Company or of any Affiliate
(a "Ten Percent Stockholder") shall in no event be less than 110% of the fair
market value (determined in accordance with Section 6.1.11) of the stock covered
by the Option at the time the Option is granted.
6.2 Terms and Conditions to Which Only NQOs Are Subject.
Options granted under this Plan which are designated as NQOs shall be subject to
the following terms and conditions:
6.2.1 Exercise Price. Except as set forth in Section
6.1.13, the exercise price of a NQO shall be not less than 85% of the fair
market value (determined in accordance with Section 6.1.11) of the stock subject
to the Option on the date of grant.
6.3 Terms and Conditions to Which Only ISOs Are Subject.
Options granted under this Plan which are designated as ISOs shall be subject to
the following terms and conditions:
6.3.1 Exercise Price. Except as set forth in Section
6.1.13, the exercise price of an ISO shall be determined in accordance with the
applicable provisions of the Code and shall in no event be less than the fair
market value (determined in accordance with Section 6.1.11) of the stock covered
by the Option at the time the Option is granted.
6.3.2 Disqualifying Dispositions. If stock acquired by
exercise of an ISO granted pursuant to this Plan is disposed of in a
"disqualifying disposition" within the meaning of Section 422 of the Code, the
holder of the stock immediately before the disposition shall promptly notify the
Company in writing of the date and terms of the disposition and shall provide
such other information regarding the Option as the Company may reasonably
require.
6.3.3 Grant Date. If an ISO is granted in anticipation of
employment as provided in Section 5(d), the Option shall be deemed granted,
without further approval, on the date the grantee assumes the director,
employment or consultancy relationship forming the basis for such grant, and, in
addition, satisfies all requirements of this Plan for Options granted on that
date.
-7-
37
6.3.4 Term. Notwithstanding Section 6.1.12, no ISO granted
to any Ten Percent Stockholder shall be exercisable more than five years after
the date of grant.
7. MANNER OF EXERCISE
(a) An optionee wishing to exercise an Option shall give
written notice to the Company at its principal executive office, to the
attention of the officer of the Company designated by the Administrator,
accompanied by payment of the exercise price as provided in Section 6.1.6. The
date the Company receives written notice of an exercise hereunder accompanied by
payment of the exercise price will be considered as the date such Option was
exercised.
(b) Promptly after receipt of written notice of exercise of an
Option, the Company shall, without stock issue or transfer taxes to the optionee
or other person entitled to exercise the Option, deliver to the optionee or such
other person a certificate or certificates for the requisite number of shares of
stock. An optionee or permitted transferee of an optionee shall not have any
privileges as a shareholder with respect to any shares of stock covered by the
Option until the date of issuance (as evidenced by the appropriate entry on the
books of the Company or a duly authorized transfer agent) of such shares.
8. RELATIONSHIP OF PARTICIPANT
Neither the adoption of this Plan nor the grant of any Option
hereunder shall (i) confer upon any employee any right to continued employment
nor shall it interfere in any way with the right of the Company or an Affiliate
to terminate the employment of any employee at any time; or (ii) confer upon any
consultant any right to a continued consultancy relationship nor shall it
interfere in any way with the right of the Company or an Affiliate to terminate
the consultancy relationship of any consultant at any time; or (ii) confer upon
any participant any right with respect to continuation of the participant's
membership on the Board or shall interfere in any way with provisions in the
Company's Articles of Incorporation and Bylaws relating to the election,
appointment, terms of office, and removal of members of the Board.
9. FINANCIAL INFORMATION
The Company shall provide to each optionee during the period
such optionee holds an outstanding Option, and to each holder of Common Stock
acquired upon exercise of Options granted under the Plan for so long as such
person is a holder of such Common Stock, a balance sheet and income statement of
the Company at least annually as prepared either by the Company or independent
certified public accountants of the Company. Such financial statements shall be
delivered as soon as practicable following the end of the Company's fiscal year.
10. CONDITIONS UPON ISSUANCE OF SHARES
Shares of Common Stock shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such shares
-8-
38
pursuant thereto shall comply with all relevant provisions of law, including,
without limitation, the Securities Act of 1933, as amended (the "Securities
Act").
11. NONEXCLUSIVITY OF THE PLAN
The adoption of the Plan shall not be construed as creating
any limitations on the power of the Company to adopt such other incentive
arrangements as it may deem desirable, including, without limitation, the
granting of stock options other than under the Plan.
12. AMENDMENTS TO PLAN
The Board may at any time amend, alter, suspend or discontinue
this Plan or any Option. Without the consent of an optionee, no amendment,
alteration, suspension or discontinuance may adversely affect outstanding
Options except to conform this Plan and ISOs granted under this Plan to the
requirements of federal or other tax laws relating to incentive stock options.
No amendment, alteration, suspension or discontinuance shall require shareholder
approval unless (a) shareholder approval is required to preserve incentive stock
option treatment for federal income tax purposes, (b) for so long as the Company
has a class of equity securities registered under Section 12 of the Exchange
Act, shareholder approval is required to meet the exceptions provided by Rule
16b-3, or any successor rule thereto, or (c) the Board otherwise concludes that
shareholder approval is advisable.
13. EFFECTIVE DATE OF PLAN
This Plan shall become effective upon adoption by the Board,
provided, however, that no Option shall be exercisable unless and until written
consent of the shareholders of the Company, or approval of shareholders of the
Company voting at a validly called shareholders' meeting, is obtained within 12
months after adoption by the Board. If such shareholder approval is not obtained
within such time, Options granted hereunder shall terminate and be of no force
and effect from and after expiration of such 12 month period. Options may be
granted and exercised under this Plan only after there has been compliance with
all applicable federal and state securities laws.
-9-
39
THORATEC LABORATORIES CORPORATION
THIS PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 16, 1997
The undersigned, revoking all prior proxies, hereby appoint(s) D. Keith
Grossman and Cheryl D. Hess, and each of them, each with the power of
substitution and revocation, to represent the undersigned, with all powers
which the undersigned would possess if personally present, and to vote as set
forth below all shares of stock of THORATEC LABORATORIES CORPORATION (the
"Company") which the undersigned would be entitled to vote if personally
present at the Annual Meeting of Shareholders of the Company to be held at the
Pleasanton Hilton Hotel, 7050 Johnson Drive, Pleasanton, California 94588, on
Friday, May 16, 1997 at 9:30 a.m., and at any postponements or adjournments of
that meeting, and in their discretion to vote upon any other business that may
properly come before the meeting.
SEE REVERSE
SIDE
40
[X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE
FOR
ALL NOMINEES WITHHOLD
LISTED AT RIGHT (EXCEPT AUTHORITY TO VOTE
AS INDICATED BELOW) (AS TO ALL NOMINEES)
1. ELECTION OF [ ] [ ] TO ELECT AS
DIRECTORS DIRECTORS:
Christy W. Bell,
Howard E. Chase,
D. Keith Grossman,
J. Donald Hill,
William M.
Hitchcock and
George W.
Holbrook, Jr.
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, WRITE THAT NOMINEE'S NAME ON THE LINE BELOW:
_____________________________________________________
FOR AGAINST
APPROVAL APPROVAL ABSTAIN
2. 1997 STOCK OPTION PLAN [ ] [ ] [ ]
With respect to the proposal to approve
Thoratec's 1997 Stock Option Plan:
3. AMENDMENTS TO THE 1996 NONEMPLOYEE [ ] [ ] [ ]
DIRECTORS STOCK OPTION PLAN
With respect to the proposal to approve the
amendments to Thoratec's 1996 Nonemployee
Directors Stock Option Plan:
THIS PROXY WILL BE VOTED AS SPECIFIED OR, IF NO CHOICE IS SPECIFIED, WILL BE
VOTED FOR EACH OF THE PROPOSALS SPECIFIED HEREIN.
THIS PROXY MAY BE REVOKED BY THE UNDERSIGNED BY ANY OF THE MEANS DESCRIBED IN
THE ACCOMPANYING PROXY STATEMENT AT ANY TIME PRIOR TO THE TIME IT IS VOTED.
_______________________________ Shares of Common Stock
SIGNATURE(S) ____________________________________________ DATED _______________
Printed name of Shareholder ___________________________________________________
Title (If Shareholder is not an individual) ___________________________________
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS ON THE STOCK RECORDS OF THE COMPANY.
IF ACTING AS AN ATTORNEY, EXECUTOR, TRUSTEE, OR IN OTHER REPRESENTATIVE
CAPACITY, SIGN NAME AND TITLE. IF SHARES ARE HELD JOINTLY, EACH HOLDER SHOULD
SIGN.