SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [X] Confidential, For Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CARDIMA, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials:
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement no.:
(3) Filing Party:
(4) Date Filed:
CARDIMA, INC.
----------------
Notice of Annual Meeting of Stockholders
To Be Held May 10, 2001
----------------
Notice is hereby given that the Annual Meeting of Stockholders (the "Annual
Meeting") of Cardima, Inc., a Delaware corporation (the "Company"), will be
held at the principal executive offices of the Company, located at 47266
Benicia Street, Fremont, California 94538 on Thursday May 10, 2001, at 9:00
a.m., local time, for the following purposes:
1. To elect a Board of four (4) directors of the Company to serve until
the next Annual Meeting of Stockholders or until their respective
successors are elected and qualified;
2. To consider and vote upon one proposal to approve six separate
amendments to the Amended and Restated Certificate of Incorporation of the
Company authorizing the Board, in its discretion, to effect one reverse
stock split, ranging from a one-for-five reverse stock split to a one-for-
ten reverse stock split of all of the issued and outstanding shares of the
Company's Common Stock;
3. To consider and vote upon a proposal to approve an amendment of the
Company's Amended and Restated Certificate of Incorporation authorizing the
Board, in its discretion, but only in the event the Board declines to
effect a reverse stock split, to increase the number of authorized shares
of Common Stock of the Company from 50,000,000 to 75,000,000;
4. To ratify and approve an amendment to the Company's 1993 Stock Option
Plan to increase the number of shares reserved for issuance thereunder by
2,000,000 pre-reverse split (or a maximum of 400,000 post-reverse split, if
approved);
5. To ratify and approve an amendment to the Company's 1997 Employee
Stock Purchase Plan to increase the number of shares reserved for issuance
thereunder by 1,500,000, pre-reverse split (or a maximum of 300,000 post-
reverse split, if approved);
6. To ratify the appointment of Ernst & Young LLP as the independent
auditors of the Company for the fiscal year ending December 31, 2001;
7. To transact such other business as may properly come before the
Annual Meeting and any adjournment or postponement thereof.
The foregoing items of business, including the nominees for directors, are
more fully described in the Proxy Statement which is attached and made a part
of this Notice.
The Board of Directors has fixed the close of business on March 15, 2001 as
the record date for determining the stockholders entitled to notice of and to
vote at the Annual Meeting and any adjournment or postponement thereof.
All stockholders are cordially invited to attend the Annual Meeting in
person. However, whether or not you expect to attend the Annual Meeting in
person, you are urged to mark, date, sign and return the enclosed proxy card as
promptly as possible in the postage-prepaid envelope provided to ensure your
representation and the presence of a quorum at the Annual Meeting. If you send
in your proxy card and then decide to attend the Annual Meeting to vote your
shares in person, you may still do so. Your proxy is revocable in accordance
with the procedures set forth in the Proxy Statement.
By Order of the Board of Directors,
Ronald E. Bourquin
Vice President and Secretary
Fremont, California
March 31, 2001
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND RETURN THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE-
PREPAID ENVELOPE. IF A QUORUM IS NOT REACHED, THE COMPANY WILL HAVE THE
ADDED EXPENSE OF RE-ISSUING THESE PROXY MATERIALS. IF YOU ATTEND THE
MEETING AND SO DESIRE, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON.
THANK YOU FOR ACTING PROMPTLY
CARDIMA, INC.
47266 Benicia Street, Fremont, California 94538
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PROXY STATEMENT
----------------
General
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors (the "Board") of Cardima, Inc., a Delaware corporation (the
"Company"), of proxies in the enclosed form for use in voting at the Annual
Meeting of Stockholders (the "Annual Meeting") to be held at the principal
executive offices of the Company, located at 47266 Benicia Street, Fremont,
California 94538 on Thursday May 10, 2001 at 9:00 a.m., local time, and any
adjournment or postponement thereof.
This Proxy Statement, the enclosed proxy card and the Company's Annual
Report to Stockholders for the year ended December 31, 2000, including
financial statements, will be mailed to stockholders entitled to vote at the
meeting on or about April 1, 2001.
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 Company (Attention:
Gabriel B. Vegh or Ronald E. Bourquin, Inspectors of Election) a written notice
of revocation or a duly executed proxy bearing a later date, or by attending
the Annual Meeting and voting in person.
Record Date; Voting Securities
The close of business on March 15, 2001 has been fixed as the record date
(the "Record Date") for determining the holders of shares of Common Stock of
the Company entitled to notice of and to vote at the Annual Meeting. At the
close of business on the Record Date, the Company had approximately 21,640,184
shares of Common Stock outstanding, held by approximately 6,000 stockholders.
Voting and Solicitation
Each outstanding share of Common Stock on the Record Date is entitled to one
vote on all matters. Shares of Common Stock may not be voted cumulatively.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the Inspectors of Elections (the "Inspectors") with the assistance of the
Company's transfer agent. The Inspectors will also determine whether or not a
quorum is present. Under the Company's Bylaws, the holders of fifty percent
(50%) of the voting power of the outstanding shares of capital stock of the
Company entitled to vote at the meeting shall constitute a quorum with respect
to the annual meeting. Stockholders holding shares of capital stock of the
Company who are present in person or represented by proxy (including
stockholders who abstain from voting their shares or who do not vote with
respect to one or more of the matters presented for stockholder approval) will
be counted for purposes of determining whether a quorum is present.
The nominees for election as directors at the Annual Meeting will be elected
by a plurality of the votes of the shares of Common Stock present in person or
represented by proxy at the meeting. Proposals 2 and 3, to approve amendments
of the Company's Amended and Restated Certificate of Incorporation to allow the
Board, in its discretion, to effect a reverse stock split or, if the Board
declines to effect a reverse stock split, to increase the number of authorized
shares of common stock, require the affirmative vote of a majority of the
outstanding capital stock entitled to vote on each of the amendments to be
approved. All other matters submitted to the stockholders will require the
affirmative vote of a majority of shares of capital stock having voting power
1
present in person or represented by proxy at a duly held meeting, at which a
quorum is present. Stockholders who abstain from voting as to a particular
matter will not be counted as votes in favor of the matter. Accordingly,
abstentions will have the effect of a vote "No" on any matter submitted to the
stockholders.
Any proxy that is returned unmarked as to a particular item will be voted
FOR the election of directors, FOR the reverse stock split amendments, FOR the
amendments to increase the authorized number of shares of Common Stock, FOR the
amendment to the Company's 1993 Stock Option Plan, FOR the amendment to the
company's 1997 Employee Stock Purchase Plan, and FOR ratification of the
appointment of the designated independent auditors and as the proxy holders
deem advisable on other matters that may come before the meeting. If a broker
indicates on the enclosed proxy or its substitute that it does not have
discretionary authority as to certain shares to vote on a particular matter
("broker non-votes"), those shares will not be considered as present with
respect to that matter and will have the same effect as negative votes with
respect to Proposals 2 and 3.
The solicitation of proxies will be conducted by mail and the Company will
bear all attendant costs. These costs will include the expense of preparing and
mailing proxy solicitation materials for the Annual Meeting and reimbursements
paid to brokerage firms and others for their expenses incurred in forwarding
solicitation materials regarding the Annual Meeting to beneficial owners of the
Company's Common Stock. The Company may conduct further solicitation
personally, telephonically, by facsimile or via electronic mail through its
officers, directors and employees, none of whom will receive additional
compensation for assisting with the solicitation. We have retained InvestorCom,
Inc. to assist in the solicitation of proxies and have agreed to pay $5,000 for
this assistance, plus expenses.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Directors and Nominees for Director
At the Annual Meeting, the stockholders will elect a Board of four (4)
directors to serve until the next Annual Meeting of Stockholders or until their
respective successors are elected and qualified. In the event any nominee is
unable or unwilling to serve as a director at the time of the Annual Meeting,
the proxies may be voted for the balance of those nominees named and for any
substitute nominee designated by the present Board or the proxy holders to fill
such vacancy, or for the balance of the nominees named without nomination of a
substitute, or the size of the Board may be reduced in accordance with the
Bylaws of the Company. The Board has no reason to believe that any of the
nominees named below will be unable or unwilling to serve as a director if
elected.
Assuming a quorum is present, the four nominees receiving the highest number
of affirmative votes of shares entitled to be voted for them will be elected as
directors of the Company for the ensuing year. Unless marked otherwise, proxies
received will be voted FOR the election of each of the four nominees named
below. In the event that additional persons are nominated for election as
directors, the proxy holders intend to vote all proxies received by them in
such a manner as will ensure the election of as many of the nominees listed
below as possible, and, in such event, the specific nominees to be voted for
will be determined by the proxy holders.
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The names of the nominees, their ages as of March 30, 2001 and certain other
information about them are set forth below:
Name of Nominee Age Principal Occupation Director Since
--------------- --- -------------------- --------------
Phillip C. Radlick, Ph.D. .. 63 President and Chief 1994
Executive Officer of Lipid
Sciences, Inc.
Gabriel B. Vegh............. 61 President and Chief 1992
Executive Officer of the
Company
Neville J. Jeharajah........ 48 Vice President of Financial 1998
Planning and Investor
Relations of Baxter
International, Inc.
Rodolfo C. Quijano, Ph.D. .. 66 President and Chief 1999
Technical Officer of 3F
Medical Systems, Inc. and
President and Chief
Technical Officer of
VenPro, Inc.
There are no family relationships among any of the directors or executive
officers of the Company
Dr. Radlick has been the Chairman of the Board of Directors of Cardima since
June 2000. Dr. Radlick is currently President and Chief Executive Officer of
Lipid Sciences, Inc., a privately-held medical company. Dr. Radlick was the
President, Chief Executive Officer and a Director of Cardima from November 1994
to June 2000. Prior to joining the Company, from November 1992 until October
1994, Dr. Radlick was the President and Chief Executive Officer of Hepatix,
Inc., a start-up medical device company. From November 1986 until November
1992, Dr. Radlick was the President of Edward's Cardiovascular Surgery
Division, a division of Baxter Healthcare responsible for the development,
manufacture and sale of cardiovascular products. Dr. Radlick received a B.S. in
Chemistry and a Ph.D. in Organic Chemistry from the University of California,
Los Angeles.
Mr. Vegh, the founder of the Company, has been a Director of Cardima since
November 1992. Mr. Vegh has been the President and Chief Executive Officer of
Cardima since June 2000. Mr. Vegh was the Chief Operating Officer of Cardima
from November 1994, and its Executive Vice President from January 1995 until
June 2000. From May 1993 until November 1994, Mr. Vegh was the Company's
President, and from May 1993 until July 1996, he served as the Company's Chief
Financial Officer. Prior to joining the Company, from August 1985 until May
1993, Mr. Vegh was the Vice President, Operations of Target Therapeutics, Inc.
("Target," now a division of Boston Scientific Corporation ("Boston
Scientific")), and from February 1983 until August 1985, Mr. Vegh was General
Manager, Pilot Operations of Advanced Cardiovascular Systems, Inc., (now a
division of Guidant Corporation). Mr. Vegh received a B.S. in Mechanical
Engineering from the New Jersey Institute of Technology.
Mr. Jeharajah has served as a Director of Cardima since May 1998. Mr.
Jeharajah has served as the Vice President of Financial Planning and Investor
Relations of Baxter International, Inc., a global healthcare company, since
1994. Mr. Jeharajah has been with Baxter since 1982. Mr. Jeharajah received a
B.S. in Philosophy from Jnana Deepa Vidyapeeth Pune, India and a B.S. in
Accounting from Institute of Cost and Management, United Kingdom. Mr. Jeharajah
also received an M.B.A. from Claremont University in California.
Dr. Quijano has served as a Director of Cardima since November 1999. Dr.
Quijano is a founder of VenPro, Inc. and has served as its Chief Technical
Officer since 1997 and President and Chief Technical Officer of 3F
Therapeutics, Inc. since 1998. Dr. Quijano serves on the Board of Directors of
Fore Flow, Inc., of which he is also the founder. Prior to Dr. Quijano's
current positions, he was the General Manager of Hepatix, AG, from 1993 to 1994
and from 1987 to 1993 was the Vice President of Research and Development,
Regulatory Affairs and Clinical Research for the Edwards Cardiovascular Surgery
Division of Baxter Healthcare. Dr. Quijano received a B.S. in Chemistry from
the University of Alabama and a Ph.D. from the University of Central America.
Recommendation of the Board:
THE BOARD RECOMMENDS A VOTE "FOR" THE ELECTION
OF ALL NOMINEES NAMED ABOVE.
3
Meetings and Committees of the Board of Directors
During the period from January 1, 2000 through December 31, 2000 (the "last
fiscal year"), the Board met ten times and no director attended fewer than 75%
of the aggregate number of meetings of the Board and meetings of the committees
of the Board on which he serves. The Board has an Audit Committee and a
Compensation Committee. The Board does not have a nominating committee or a
committee performing the functions of a nominating committee. Although there
are no formal procedures for stockholders to nominate persons to serve as
directors, the Board will consider nominations from stockholders, which should
be addressed to Ronald E. Bourquin at the Company's address, set forth above.
In 2000, the Audit Committee consisted of directors Neville J. Jeharajah and
Rodolfo C. Quijano, Ph.D. and held one meeting during 2000. The Audit Committee
recommends the engagement of the firm of certified public accountants to audit
the financial statements of the Company and monitors the effectiveness of the
audit effort, the Company's financial and accounting organization and its
system of internal accounting controls.
In 2000, the Compensation Committee consisted of directors Neville J.
Jeharajah and Rodolfo C. Quijano, Ph.D. and held one meeting during the last
fiscal year. Its functions are to establish and administer the Company's
policies regarding annual executive salaries and cash incentives and long-term
equity incentives. The Compensation Committee administers the Company's 1993
Stock Option Plan, 1997 Directors' Stock Option Plan and 1997 Employee Stock
Purchase Plan.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Board of Directors currently consists of
Neville J. Jeharajah and Rodolfo C. Quijano, Ph.D. The Compensation Committee
met once in the fiscal year 2000. No member of the Compensation Committee or
executive officer of the Company has a relationship that would constitute an
interlocking relationship with executive officers or directors of any other
entity.
Directors' Compensation
Directors currently receive no cash fees for services provided in that
capacity but are reimbursed for reasonable expenses incurred in connection with
attendance at meetings of the Board. The Company's 1997 Directors' Stock Option
Plan (the "Directors' Plan") provides that each person who becomes a non-
employee director of the Company will be granted a nonstatutory stock option to
purchase 20,000 shares of Common Stock on the date on which a person first
becomes a non-employee director of the Company. This initial grant is fully
exercisable on the initial date of the grant. In addition, on the date of each
annual meeting of the Company's stockholders at which a director is reelected,
the non-employee director will be granted an additional option to purchase
2,000 shares of Common Stock if, on such date, the director has served on the
Company's Board of Directors for at least three months during the current
fiscal year, the option will be exercisable in full on the date of grant. Each
of the nominees for director will have served for more than three months at the
time of the Annual Meeting, and so each will receive options to purchase 2,000
shares of the Company's Common Stock under the Directors' Plan if they are re-
elected to the Board at the Annual Meeting. As of March 27, 2001, 90,000 shares
had been issued under this plan.
PROPOSAL NO. 2
APPROVAL OF AMENDMENTS TO THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
AUTHORIZING THE BOARD, IN ITS DISCRETION, TO EFFECT A REVERSE STOCK SPLIT OF
THE COMPANY'S OUTSTANDING COMMON STOCK
The persons named in the enclosed proxy will vote to approve each of the
separate six charter amendments to the Amended and Restated Certificate of
Incorporation of the Company effecting a reverse split of the Company's Common
Stock (collectively, the "Reverse Split Amendments"), unless the proxy is
marked otherwise. If a stockholder returns a proxy without contrary
instructions, the persons named as proxies will vote to approve each of the
Reverse Split Amendments.
4
The Board of the Company has unanimously adopted and declared advisable,
each of the attached amendments to Article IV of the Company's Amended and
Restated Certificate of Incorporation. Each of the separate amendments to the
Amended and Restated Certificate of Incorporation of the Company approved by
the Board of Directors and for which the Company is seeking your approval is
set forth on Exhibit A. As reflected on the enclosed proxy card relating to the
Annual Meeting, stockholders may approve all or none of the Reverse Split
Amendments.
The Board is asking that you approve the proposed amendments to the
Company's Amended and Restated Certificate of Incorporation effectuating each
of the reverse stock splits of all of the issued and outstanding Common Stock
of the Company. Notwithstanding the authorization of each of the amendments by
the stockholders of the Company, the Board may abandon any one or more of the
amendments without further action by the Company's stockholders in accordance
with Delaware law. A vote in favor of the amendments to the Amended and
Restated Certificate of Incorporation will be a vote for approval of each of
the reverse stock splits, one of which may be implemented and effectuated, at
any time prior to the next annual meeting of stockholders following this Annual
Meeting. When the Board effects one of the reverse stock splits, all the other
reverse stock splits will be deemed abandoned by the Board and cannot
thereafter be effected.
Effect of Reverse Stock Split
A reverse stock split is a reduction in the number of outstanding shares of
a class of a corporation's capital stock, which is accomplished by the
corporation, in this case, reclassifying all the outstanding shares of Common
Stock into a proportionately fewer number of shares of Common Stock. The
Company is currently authorized to issue 50,000,000 shares of Common Stock, of
which 21,640,184 shares were issued and outstanding as of the Record Date. The
Company also is authorized to issue 5,000,000 shares of Preferred Stock, of
which no shares were issued and outstanding as of the Record Date. After each
of the reverse stock splits authorized by the Reverse Split Amendments, if
effected, the number of authorized shares of Common Stock and Preferred Stock
will remain the same, whereas the number of shares of Common Stock outstanding
would be reduced to a number obtained by dividing the number of shares
outstanding immediately prior to the reverse stock split by integral factors
ranging from 5 to 10, depending on the Reverse Split Amendment that the Board
elects to implement, if any. Correspondingly, at the effective time of the
reverse stock split, the number of shares of Common Stock owned by each
stockholder will be reduced by the same proportion. Accordingly, except for the
payment of cash in lieu of a fractional share, a reverse stock split will not
affect any stockholder's proportionate equity interest in the Company, nor will
it change any of the rights of a holder of a share of Common Stock.
The primary purpose of the proposed reverse stock split of Common Stock is
to combine the issued and outstanding shares of Common Stock into a smaller
number of shares so that the shares of the Common Stock will trade at a higher
price per share than their recent trading prices. In addition to increasing the
market price of the Common Stock, a reverse stock split will also affect the
presentation of stockholders' equity in the Company's balance sheet. Because
the par value of the shares of Common Stock is not changing as a result of the
implementation of the reverse stock split, the Company's stated capital, which
consists of the par value per share of the Common Stock multiplied by the
aggregate number of shares of the Common Stock issued and outstanding, will be
reduced proportionately on the effective date of the reverse stock split.
Correspondingly, the Company's additional paid-in capital, which consists of
the difference between its stated capital and the aggregate amount paid to the
Company upon the issuance of all currently outstanding shares of the Common
Stock, will be increased by a number equal to the decrease in stated capital.
5
The following table illustrates the effects of a 1-for-5 and a 1-for-10
reverse stock split, without giving effect to any adjustments for fractional
shares, on our authorized and outstanding shares and on certain per share data:
Number of Shares as of March 15, 2001
-----------------------------------------
Prior to Reverse
Stock Split After Reverse Split
---------------- ------------------------
1-for-5 1-for-10
----------- -----------
Authorized
Preferred Stock.................. 5,000,000 5,000,000 5,000,000
Common Stock..................... 50,000,000 50,000,000 50,000,000
Preferred
Outstanding...................... -0- -0- -0-
Common Stock
Outstanding...................... 21,640,184 4,328,036 2,164,018
Issuable upon exercise of Options
and Warrants.................... 6,801,249 1,360,249 680,012
Diluted.......................... 28,441,433 5,688,285 2,844,140
Stockholder equity at December 31,
2000.............................. $ 2,894,000 $ 2,894,000 $ 2,894,000
Stockholder equity per share at
December 31, 2000................. $ 0.13 $ 0.67 $ 1.34
Net loss for year ended December
31, 2000.......................... $(7,849,000) $(7,849,000) $(7,849,000)
Net loss per share for year ended
December 31, 2000................. $ (0.38) $ (1.88) $ (3.77)
Advantages
The Nasdaq Stock Market, Inc. ("Nasdaq") has indicated that shares of Common
Stock of the Company will be delisted from the Nasdaq SmallCap Market unless a
minimum bid price, which this proposal is designed to effect, is achieved. See
"Threat of Nasdaq Delisting" below. The Board believes that such a delisting
could adversely affect the ability of the Company to attract new investors.
The Board also believes that the low share price of the Common Stock, when
compared with the market prices of the common stock of publicly held companies
in the same or comparable industries, impairs the marketability of the Common
Stock and creates a negative impression of the Company. These factors adversely
affect not only the liquidity of the Common Stock, but also the Company's
ability to raise capital through further sales of equity securities and to use
Common Stock for acquisitions and similar purposes. The Board believes that the
higher market price that should result from a reverse stock split would enhance
the marketability of the stock to the financial community and the investing
public at large. Additionally, the policies and practices of many brokerage
houses tend to discourage brokers within those firms from dealing in lower-
priced stocks. Some of these policies and practices pertain to the payment of
brokers' commissions and to time-consuming procedures that make handling of
lower-priced stocks economically unattractive to brokers. The structure of
trading commissions also tends to have an adverse impact upon holders of lower-
priced stock because the brokerage commission payable on its sale generally
represents a higher percentage of the sales price than on higher-priced stock.
As the number of authorized shares would remain at 50,000,000 shares after
the reverse stock split, the difference between the number authorized and the
number outstanding post-split could be used for any proper corporate purpose
approved by the Board. The increased number of available shares will provide
the Company with additional flexibility to issue additional shares in
connection with future financings. Additional shares could also be used for
employee benefit plans or in connection with acquisitions by the Company.
Disadvantages
Because the Reverse Split Amendments will result in an increased number of
available shares, it may be construed as having an anti-takeover effect,
although neither the Board nor the management of the Company
6
views this proposal in that perspective. However, the Company could use the
increased number of available shares to frustrate persons seeking to effect a
takeover or otherwise gain control of the Company by, for example, privately
placing shares with purchasers who might side with the Board in opposing a
hostile takeover bid. Shares of Common Stock could also be issued to a holder
that would thereafter have sufficient voting power to assure that any proposal
to amend or repeal the By-Laws or certain provisions of the Amended and
Restated Certificate of Incorporation would not receive the requisite vote.
Such uses of the Common Stock could render more difficult, or discourage, an
attempt to acquire control of the Company, if such transaction were opposed by
the Board. Further, the increased number of available shares not otherwise
required to meet the Company's obligations under its Amended and Restated
Certificate of Incorporation could be issued by the Company without further
stockholder approval, which could result in further dilution to the holders of
Common Stock.
Threat of Nasdaq Delisting
Since November 16, 2000, the Company's Common Stock has been trading at less
than $1.00 per share. In a letter dated December 29, 2000, Nasdaq advised the
Company that the Common Stock will be delisted from the Nasdaq SmallCap Market,
unless before March 29, 2001, the bid price of the Common Stock is at least
$1.00 per share for a minimum period of ten consecutive days. On March 29,
2001, Nasdaq notified the Company that it has not met the requirements for
continued listing on the Nasdaq SmallCap Market; the Company intends to appeal
this decision. Pending the resolution of the appeal, the shares will continue
to trade on the SmallCap Market. If the appeal is unsuccessful, the Company
expects that its shares will trade on the OTC Bulletin Board.
The Company believes that, if it is able through a reverse stock split to
raise the bid price of the Common Stock to a level above $1.00 and can
demonstrate that the new price level is sustainable, the Nasdaq appeal panel
may agree to allow the Common Stock to continue to trade on the SmallCap
Market. However, this decision is a matter that is solely within the discretion
of the Nasdaq panel that will hear the appeal.
Even if the Reverse Split Amendments are approved and a reverse stock split
is effected, there can be no assurance that the Company will be able to
maintain its listing on the Nasdaq SmallCap Market. In this regard, there is no
assurance that approval of a reverse stock split will succeed in raising the
bid price of the Company's Common Stock above $1.00 per share, that if
achieved, this price level would be maintained, or that even if Nasdaq's
minimum bid price requirement were satisfied, the Company's Common Stock would
not be delisted from the Nasdaq SmallCap Market for other reasons.
Exchange of Stock Certificates
If the Reverse Split Amendments are approved by the Company's stockholders
and the Board, in its sole discretion, elects to proceed with the split, the
Company will instruct its transfer agent to act as its exchange agent (the
"Exchange Agent") and to act for holders of Common Stock in implementing the
exchange of their certificates.
Commencing on the effective date of the Reverse Split Amendment (the
"Effective Date"), stockholders will be notified and requested to surrender
their certificates representing shares of Common Stock to the Exchange Agent in
exchange for certificates representing post-reverse split Common Stock. One
share of new Common Stock will be issued in exchange for the number of
presently issued and outstanding shares of Common Stock pre-split shares
determined by the Board between the range of five and ten approved by the
stockholders. Beginning on the Effective Date, each certificate representing
shares of the Company's Common Stock will be deemed for all corporate purposes
to evidence ownership of shares of post-reverse split Common Stock.
7
Payment for Fractional Shares
No fractional shares of Common Stock will be issued in connection with a
reverse stock split. If as a result of a reverse stock split, a stockholder of
record would hold a fractional share, the stockholder, in lieu of the issuance
of a fractional share, will be entitled to receive a payment in cash from the
Company in an amount equal to the fraction multiplied by the market price of
the Common Stock at the close of business on the first trading day immediately
following the Effective Date. The ownership of a fractional interest will not
give the holder thereof any voting, dividend or other right except to receive
the cash payment therefor.
Federal Income Tax Consequences
This discussion is for general information only and does not address all the
tax consequences that may be relevant to a particular stockholder (such as non-
resident aliens, broker-dealers or insurance companies). Furthermore, no
foreign, state or local tax consequences are addressed. Stockholders are urged
to consult their own tax advisors to determine the specific tax consequences of
a reverse stock split to them.
The exchange of shares of stock for shares of post-split stock should not
result in the recognition of gain or loss (except with respect to any cash
received in lieu of a fractional share as described below). The holding period
of the post-split shares of Common Stock will include the stockholder's
respective holding periods for the shares of pre-split Common Stock exchanged
therefore, provided that the shares of Common Stock were held as a capital
asset. The adjusted basis of the shares of post-split Common Stock will be the
same as the adjusted basis of the Common Stock exchanged therefor, reduced by
the tax basis allocable to the post-split fractional share in lieu of which
cash is received.
A stockholder who receives cash in lieu of a fractional share will be
treated as if the Company has issued a fractional share to the stockholder and
then immediately redeemed the fractional share for cash. Such stockholder
should generally recognize gain or loss, as the case may be, measured by the
difference between the amount of cash received and the basis of such
stockholder's pre-split shares corresponding to the fractional share, had such
fractional share actually been issued. Such gain or loss will be capital gain
or loss (if such stock was held as a capital asset), and any such capital gain
or loss will generally be long-term capital gain or loss to the extent such
stockholder's holding period exceeds 12 months.
No Dissenter's Rights
Under Delaware law, stockholders are not entitled to dissenter's rights of
appraisal with respect to the reverse stock split.
Required Vote
In order to be adopted, the Reverse Split Amendments contained in this
proposal must receive the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock.
Recommendation of the Board:
THE COMPANY'S BOARD UNANIMOUSLY RECOMMENDS VOTING "FOR" THE AMENDMENTS TO THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AUTHORIZING THE BOARD, IN ITS
DISCRETION, TO EFFECT A REVERSE STOCK SPLIT OF THE COMPANY'S OUTSTANDING COMMON
STOCK
8
PROPOSAL NO. 3
APPROVAL OF AN AMENDMENT TO THE AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION
AUTHORIZING THE BOARD, IN ITS DISCRETION, TO INCREASE THE
NUMBER OF SHARES OF AUTHORIZED
COMMON STOCK FROM 50,000,000 TO 75,000,000
The Board is seeking stockholder approval of an amendment to the Company's
Amended and Restated Certificate of Incorporation to increase in the number of
authorized Common Stock from 50,000,000 to 75,000,000. If this proposal is
approved by the stockholders, the Board will have the authority, in its sole
discretion and without further action on the part of the stockholders, to
increase the outstanding Common Stock from 50,000,000 to 75,000,000. The Board
will only effect the increase in the outstanding Common Stock either if
Proposal No. 2 is not approved by the stockholders, or if Proposal No. 2 is
approved by the stockholders and the Board determines, in its sole discretion,
not to proceed with any of the reverse stock splits. If the Board effects one
of the reverse stock splits, the Board will abandon the increase in the
authorized common stock from 50,000,000 to 75,000,000 and it cannot thereafter
be effected.
The Company is pursuing its financing alternatives and may sell additional
shares of Common Stock in private placement(s) in 2001 to raise the necessary
funds to continue operations of the Company. Due to the current low valuation
of the Company's Common Stock, the Company may not have sufficient shares
available for additional financings or other corporate purposes.
At the Annual Meeting, the stockholders are being requested to consider and
approve the proposed amendment to increase the number of authorized shares of
Common Stock hereunder from 50,000,000 to 75,000,000. The Board believes that
the increase is required to enable the Company to, among other things, continue
to have the ability to sell additional shares as necessary to finance the
Company and have shares available for any other corporate purposes. The
authorized shares of common stock in excess of those issued will be available
for issuance at such times and for such corporate purposes as the Board may
deem advisable without further action by our stockholders, except as may be
required by applicable laws or the rules of any stock exchange or national
securities association trading system on which the securities may be listed or
traded. Upon issuance, shares will have the same rights as the outstanding
shares of common stock. Holders of common stock do not have preemptive rights.
The Board does not intend to issue any common stock except on terms which the
Board deems to be in the Company's best interests and the best interests of the
Company's then-existing stockholders.
The Board does not recommend this proposed amendment with the intent to use
the ability to issue additional common stock to discourage tender offers or
takeover attempts. However, the availability of authorized common stock for
issuance could render more difficult or discourage a merger, tender offer,
proxy contest or other attempt to obtain control of us. The proposed amendment
is not in response to any effort on the part of any party to accumulate
material amounts of common stock or to acquire control of us by means of
merger, tender offer, proxy contest or otherwise, or to change our management.
In addition, the proposal is not part of any plan by management to recommend a
series of similar amendments to our Board and our stockholders.
Recommendation of the Board:
THE COMPANY'S BOARD UNANIMOUSLY RECOMMENDS VOTING "FOR"THE
PROPOSAL TO AUTHORIZE THE BOARD, IN ITS DISCRETION, TO AMEND THE AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF COMMON SHARES FROM 50,000,000 TO 75,000,000.
9
PROPOSAL NO. 4
INCREASE IN NUMBER OF SHARES AUTHORIZED
UNDER THE COMPANY'S 1993 INCENTIVE STOCK PLAN
The Board and stockholders have previously adopted and approved the 1993
Incentive Stock Plan (the "Stock Plan") and the most recent amendment and
restatement approved by the Company's stockholders was effective as of June 2,
2000. A total of 4,150,690 pre-split shares of Common Stock have been reserved
for issuance under the Stock Plan, and only 1,837,042 pre-split shares were
available for future grant as of the Record Date. The number of shares reserved
for issuance under the Stock Plan is automatically increased, on the first day
of trading for the five years from 1998 through 2002, by an amount equal to
three percent of the outstanding shares of Common Stock on such date, but in no
event shall such increase exceed 300,000 pre-split shares of Common Stock.
At the Annual Meeting, the stockholders are being requested to consider and
approve the proposed amendment of the Stock Plan to increase the number of
shares of Common Stock reserved for issuance thereunder by 2,000,000 shares
pre-split, or a maximum of 400,000 shares post-split, if approved. The Board
believes that the amendment is necessary to enable the Company to, among other
things, continue its policy of employee stock ownership as a means to motivate
high levels of performance and to recognize key employee accomplishments.
Summary of the Stock Plan
The following description of the Stock Plan is a summary only. It is subject
to, and qualified in its entirety by the full text of the Stock Plan,
substantially in the form in which it will take effect if Proposal 4 is
approved by the stockholders. Any stockholder who wishes to review the text of
the Stock Plan can obtain a copy by writing to the Company, Attention: Investor
Relations.
General. The Stock Plan was originally adopted by the Board in June 1993 and
approved by the stockholders in September 1993. The Stock Plan was subsequently
amended by the Board in June 1996 and March 2000, with such amendments being
approved by the stockholders in March 1997 and June 2000, respectively. The
Stock Plan authorizes the Board, or one or more committees which the Board may
appoint from among its members, to grant options to purchase Common Stock.
Options granted under the Stock Plan may be either incentive stock options, as
defined in Section 422 of the Internal Revenue Code of 1986, as amended, or
nonstatutory stock options, as determined by the Board or the Committee.
Purpose. The general purpose of the Stock Plan is to attract and retain the
best available personnel for positions of substantial responsibility, to
provide additional incentive to employees and consultants and to promote the
success of the Company's business.
Administration. The Stock Plan may be administered by the Board or a
Committee (the "Administrator"). Subject to the other provisions of the Stock
Plan, the Administrator has the authority: (i) to determine the fair market
value; (ii) to select the employees or consultants to whom options may be
granted under the Stock Plan; (iii) to determine the number of shares of Common
Stock to be covered by each option granted under the Stock Plan; (iv) to
approve forms of agreement for use under the Stock Plan; (v) to determine the
terms and conditions of the option, not inconsistent with the terms of the
Stock Plan, granted under the Stock Plan, including the exercise price, the
time or times when options may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any option or the shares of Common
Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine; (vi) to reduce the
exercise price of any option to the then current fair market value if the fair
market value of the Common Stock covered by such option shall have declined
since the date the option was granted; (vii) to construe and interpret the
terms of the Stock Plan and awards granted pursuant to the Stock Plan; (viii)
to prescribe, amend and rescind rules and
10
regulations relating to the Stock Plan; (ix) to modify or amend each option,
including the discretionary authority to extend the post-termination
exercisability period of options longer than is otherwise provided for in the
Stock Plan; (x) to allow optionees to satisfy withholding tax obligations by
electing to have the Company withhold from the shares to be issued upon
exercise of an option that number of shares having a fair market value equal to
the amount required to be withheld; (xi) to authorize any person to execute on
behalf of the Company any instrument required to effect the grant of an option
previously granted by the Administrator; and (xii) to make all other
determinations deemed necessary or advisable for administering the Stock Plan.
Eligibility. The Stock Plan provides that options may be granted to the
Company's employees and independent contractors, including members of the Board
who are not employees of the Company. Incentive stock options may be granted
only to employees. Any optionee who owns more than 10% of the combined voting
power of all classes of outstanding stock of the Company is not eligible for
the grant of an incentive stock option unless the exercise price of the option
is at least 110% of the fair market value of the Common Stock on the date of
grant.
Terms and Conditions of Options. Each option granted under the Stock Plan is
evidenced by a written stock option agreement between the optionee and the
Company and is subject to the following terms and conditions:
(a) Exercise Price. The Board or the Committee determines the exercise price
of options to purchase shares of Common Stock at the time the options are
granted. However, excluding options issued to 10% stockholders, the exercise
price under an incentive stock option must not be less than 100% of the fair
market value of the Common Stock on the date the option is granted. If the
Common Stock is listed on any established stock exchange or a national market
system, the fair market value shall be the closing sale price for such stock
(or sale price for the last preceding date for which quotations exist if no
sales were reported) on the date the option is granted. If the Common Stock is
traded on the over-the-counter market, the fair market value shall be the
closing sale price for such stock (or sale price for the last preceding date
for which quotations exist if no sales were reported) on the date the option is
granted.
(b) Form of Consideration. The means of payment for shares issued upon
exercise of an option is specified in each option agreement and generally may
be made by cash, check, promissory note, other shares of Common Stock of the
Company owned by the optionee, consideration received by the Company under a
formal cashless exercise program adopted by the Company, or by a combination
thereof.
(c) Exercise of the option and Term. Each stock option agreement specifies
the term of the option and the date when the option is to become exercisable.
However, in no event shall an option granted under the Stock Plan be exercised
more than 10 years after the date of grant. Moreover, in the case of an
incentive stock option granted to a 10% stockholder, the term of the option
shall be for no more than five years from the date of grant.
(d) Termination of Employment. If an optionee's employment terminates for
any reason (other than death or permanent disability), then all options held by
such optionee under the Stock Plan expire upon the earlier of (i) such period
of time as is set forth in his or her option agreement (but not to exceed
ninety days after the termination of his or her employment in the event of an
incentive stock option) or (ii) the expiration date of the option. The optionee
may exercise all or part of his or her option at any time before such
expiration to the extent that such option was exercisable at the time of
termination of employment.
(e) Disability. If an employee is unable to continue employment with the
Company as a result of disability (as defined in the Stock Plan), then all
options held by such optionee under the Stock Plan shall expire upon the
earlier of (i) six months after the date of termination of the optionee's
employment or (ii) the expiration date of the option. The optionee may exercise
all or part of his or her option at any time before such expiration to the
extent that such option was exercisable at the time of termination of
employment.
11
(f) Permanent Disability. If an employee is unable to continue employment
with the Company as a result of permanent and total disability (as defined in
the Stock Plan), then all options held by such optionee under the Stock Plan
shall expire upon the earlier of (i) 12 months after the date of termination of
the optionee's employment or (ii) the expiration date of the option. The
optionee may exercise all or part of the optionee's option at any time before
such expiration to the extent that the option was exercisable at the time of
termination of employment.
(g) Death. If an optionee dies while employed by the Company, the optionee's
option shall expire upon the earlier of (i) 12 months after the optionee's
death or (ii) the expiration date of the option. The executors or other legal
representative or the optionee may exercise all or part of the optionee's
option at any time before such expiration to the extent that the option was
exercisable at the time of death.
(h) Nontransferability of options. Unless determined otherwise by the
Administrator, during an optionee's lifetime, his or her option(s) shall be
exercisable only by the optionee and shall not be transferable other than by
will or laws of descent and distribution.
(i) Value Limitation. If the aggregate fair market value of all shares of
Common Stock subject to an optionee's incentive stock option which are
exercisable for the first time during any calendar year exceeds $100,000, the
excess options shall be treated as nonstatutory options.
(j) Other Provisions. The stock option agreement may contain such terms,
provisions and conditions not inconsistent with the Stock Plan as may be
determined by the Board or Committee.
Adjustment upon Changes in Capitalization, Corporate Transactions. In the
event that the stock of the Company is changed by reason of any stock split,
reverse stock split, stock dividend, recapitalization or other change in the
capital structure of the Company, appropriate proportional adjustments shall be
made in the number and class of shares of stock subject to the Stock Plan, the
number and class of shares of stock subject to any option outstanding under the
Stock Plan, and the exercise price of any such outstanding option. Any such
adjustment shall be made upon approval of the Board and, if required, the
stockholders of the Company, whose determination shall be conclusive.
Notwithstanding the above, in connection with any merger, consolidation,
acquisition of assets or like occurrence involving the Company, the
exercisability of all outstanding options shall be accelerated. To the extent
they have not been previously exercised, options shall terminate upon
consummation of the proposed action.
Amendment, Suspensions and Termination of the Stock Plan. The Board may
amend, suspend or terminate the Stock Plan at any time; provided, however, that
the Company shall obtain stockholder approval of any amendment to the extent
necessary and desirable to comply with Section 422 of the Code or any other
applicable rule or statute. In any event, the Stock Plan will terminate
automatically in 2006.
Federal Tax Information.
An optionee who is granted an incentive stock option will not recognize
taxable income either at the time the option is granted or upon its exercise,
although the exercise may subject the optionee to the alternative minimum tax.
Upon the sale or exchange of the shares more than two years after grant of the
option and one year after exercising the option, any gain or loss will be
treated as long-term capital gain or loss. If these holding periods are not
satisfied, the optionee will recognize ordinary income at the time of sale or
exchange equal to the difference between the exercise price and the lower of
(i) the fair market value of the shares at the date of the option exercise or
(ii) the sale price of the shares. A different rule for measuring ordinary
income upon such a premature disposition may apply if the optionee is also an
officer, director, or 10% stockholder of the Company. The Company generally
will be entitled to a deduction in the same amount as the ordinary income
recognized by the optionee. Any gain or loss recognized on such a premature
disposition of the shares in excess of the amount treated as ordinary income
will be characterized as long-term or short-term capital gain or loss,
depending on the holding period.
12
All other options which do not quality as incentive stock options are
referred to as nonstatutory options. An optionee will not recognize any taxable
income at the time he is granted a nonstatutory option. However, upon its
exercise, the optionee will recognize taxable income, measured as the excess of
the then fair market value of the shares purchased over the purchase price. Any
taxable income recognized in connection with an option exercise by an optionee
may be subject to tax withholding by the Company. Upon resale of such shares by
the optionee, any difference between the sales price and the optionee's
purchase price, to the extent not recognized as taxable income as described
above, will be treated as long-term or short-term capital gain or loss,
depending on the holding period. Subject to Section 162(m) of the Code, the
Company will be entitled to a tax deduction in the same amount as the ordinary
income recognized by the optionee with respect to shares acquired upon exercise
of a nonstatutory option.
The foregoing is only a summary of the effect of federal income taxation
upon the optionee and the Company with respect to the grant and exercise of
options under the Stock Plan, does not purport to be complete, and does not
discuss the tax consequences of the optionee's death or the income tax laws of
any municipality, state or foreign country in which an optionee may reside.
Vote Required
The approval of the amendment of the Stock Plan requires the affirmative
vote of the holders of a majority of the shares of the Company's Common Stock
present at the Annual Meeting.
Recommendation of the Board:
THE COMPANY'S BOARD UNANIMOUSLY RECOMMENDS VOTING
"FOR" THE AMENDMENT OF THE INCENTIVE STOCK PLAN SET FORTH HEREIN
PROPOSAL NO. 5
INCREASE IN THE NUMBER OF SHARES AVAILABLE FOR THE 1997 EMPLOYEE STOCK PURCHASE
PLAN
In order to provide employees of the Company with an opportunity to purchase
Common Stock through payroll deductions, the Board originally adopted the
Cardima, Inc. 1997 Employee Stock Purchase Plan in 1997, under which 250,000
shares of Common Stock were reserved for issuance. On February 16, 2001, the
Board amended and restated the plan (as amended and restated, the "ESPP") to
reserve an additional 1,500,000 pre-split shares, or a maximum of 300,000 post-
split shares, for issuance under the ESPP, subject to the approval of the
Company's stockholders at the Annual Meeting. As of February 1, 2001, the most
recent purchase date, the Company had essentially no shares remaining for
issuance under the ESPP. Since there were insufficient shares available under
the ESPP, each employee's purchase was reduced pro rata in accordance with the
ESPP. At that time, the remaining shares were distributed pro rata to the
employees enrolled in the ESPP. In anticipation that the Company's stockholders
will approve this Proposal, the Company continues to make payroll deductions
for the ESPP, even though there are no shares available for issuance. If this
Proposal is approved, the Company will issue sufficient shares to be purchased
with the funds accumulated through payroll deductions.
Under the ESPP, an aggregate of 1,750,000 pre-split shares, or a maximum of
350,000 post-split shares, of Common Stock (which number includes the 1,500,000
pre-split share increase, or maximum of 300,000 post-split increase, if
approved, that stockholders are being asked to approve) have been reserved for
issuance, subject to anti-dilution adjustments. Any employee, employed at least
twenty hours per week and more than five months per calendar year is eligible
to participate in the ESPP. Eligible employees may elect to contribute up to
10% of their total compensation during each twelve-month offering period,
composed of two six-month purchase periods, subject to certain statutory
limits. At the end of each six-month purchase period, the
13
Company applies the amount contributed by the participant during the purchase
period to purchase whole shares of Common Stock, but the number of shares
offered in each twelve month offering period shall not exceed that number of
shares determined by dividing $25,000 by the fair market value of a share of
the Company's Common Stock on the first business day of such offering period.
Shares of Common Stock are purchased for 85% of the lower of (i) the market
price of the Common Stock immediately before the beginning of the purchase
period or (ii) the market price of such Common Stock on the last business day
of the purchase period. All expenses incurred in connection with the
implementation and administration of the ESPP will be paid by the Company.
Federal Income Tax Consequences
The ESPP is intended to qualify as an "employee stock purchase plan" under
section 423 of the Code. No income is recognized by a participant at the time a
right to purchase Company Common Stock is granted. Likewise, no taxable income
is recognized at the time of the purchase, even though the purchase price
reflects a discount from the market value of the shares at that time.
A participant must recognize taxable income upon a disposition of shares
acquired under the ESPP. The tax treatment may be more favorable if the
disposition occurs after the holding-period requirements of section 423 have
been satisfied. To satisfy the holding-period requirements of section 423,
shares acquired under the ESPP cannot be disposed of within two years after the
first day of the offering period during which the shares are purchased. They
also cannot be disposed of within one year after they are purchased.
If the holding period is met, the participant recognizes ordinary income
equal to the lower of (a) the excess of the fair market value of the shares on
the date of the disposition over the actual purchase price or (b) 15% of the
fair market value of the shares immediately before the applicable offering
period. The Company will not be entitled to any deduction under these
circumstances.
The excess, if any, of the fair market value of the shares on the date of
the disposition over the sum of the purchase price plus the amount of ordinary
income recognized (as described above) will be taxed as a long-term capital
gain. If a taxable disposition produces a loss (i.e., the fair market value of
the shares on the date of the disposition is less than the purchase price) and
the disposition involves certain unrelated parties, then the loss will be a
long-term capital loss.
If the holding period is not met, the entire difference between the purchase
price and the market value of the shares on the date of purchase will be taxed
to the participant as ordinary income in the year of disposition. The Company
will generally be entitled to a deduction for the same amount.
The excess, if any, of the market value of the shares on the date of
disposition over their market value on the date of purchase will be taxed as a
capital gain (long term or short-term, depending on how long the shares have
been held). If the value of the shares on the date of disposition is less than
their value on the date of purchase, then the difference will result in a
capital loss (long-term or short-term, depending upon the holding period),
provided the disposition involves certain unrelated parties. Any such loss will
not affect the ordinary income recognized upon the disposition.
Vote Required
The approval of the amendment of the ESPP requires the affirmative vote of
the holders of a majority of the shares of the Company's Common Stock present
at the Annual Meeting.
Recommendation of the Board:
THE COMPANY'S BOARD UNANIMOUSLY RECOMMENDS VOTING
"FOR" THE AMENDMENT OF THE EMPLOYEE STOCK PURCHASE PLAN SET FORTH HEREIN.
14
PROPOSAL NO. 6
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Ernst & Young LLP has served as the Company's independent auditors since
1993 and, upon the recommendation of the Audit Committee, has been appointed by
the Board to continue as the Company's independent auditors for the fiscal year
ending December 31, 2001. In the event that ratification of this selection of
auditors is not approved by a majority of the shares of Common Stock voting at
the Annual Meeting in person or by proxy, the Board will reconsider its
selection of auditors.
A representative of Ernst & Young LLP is expected to be present at the
Annual Meeting with the opportunity to make a statement if they desire to do
so, and are expected to be available to respond to appropriate questions. This
representative will have an opportunity to make a statement and will be
available to respond to appropriate questions.
Principal Accounting Firm Fees
The following table sets forth the aggregate fees billed to Cardima, Inc.
for the fiscal year ended December 31, 2000 by our principal accounting firm,
Ernst & Young LLP:
Audit Fees.................................................. $67,750
All Other Fees.............................................. $45,975(a)(b)
- --------
(a) Includes fees for assistance in private financings and related filings and
consulting on strategic alternatives of the Company, but does not include
any financial information systems design and implementation services.
(b) The Audit Committee has considered whether the provision of these services
is compatible with maintaining the principal accountants' independence.
Recommendation of the Board:
THE BOARD RECOMMENDS A VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT
AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2001.
15
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
STOCK OWNERSHIP OF MANAGEMENT AND
CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information known to the Company with
respect to the beneficial ownership of the Common Stock as of March 15, 2001
by: (i) each person known by the Company to be a beneficial owner of five
percent or more of the Company's Common Stock, (ii) each of the Company's
directors, (iii) each of the Company's officers and a former executive officer
named in the Summary Compensation Table set forth herein and (iv) all current
directors and executive officers as a group.
PRINCIPAL STOCKHOLDERS
Number of Percent of Total
Name and Address Shares Shares Outstanding(1)(2)
---------------- --------- ------------------------
Paul Economus............................... 2,370,000 10.95%
c/o Charles Schwab & Co., Inc.
P.O. Box 556
Buellton, CA 93427
St. Jude Medical, Inc....................... 1,600,000 7.39%
One Lillehei Plaza
St. Paul, MN 55117(3)
Goldman Sachs Group, L.P.................... 1,132,226 5.23%
85 Broad Street
New York, NY 10004(4)
Phillip C. Radlick, Ph.D. (5)............... 355,239 1.64%
Gabriel B. Vegh (5)(6)...................... 423,204 1.96%
Victor J. Barajas (5)....................... 83,481 *
Ronald
E.
Bourquin
(5)... 139,359 *
Neville J. Jeharajah (5).................... 24,000 *
Rodolfo C. Quijano, Ph.D.(5)................ 22,000 *
William Wheeler (5)......................... 62,803 *
Allan L. Abati (5).......................... 105,696 *
All current directors and executive officers
as a group (9 persons) (7)................. 1,288,116 5.95%
- --------
* Less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In determining the number of shares
beneficially owned by a person, options or warrants to purchase Common
Stock held by that person that are currently exercisable, or become
exercisable within 60 days following March 15, 2001, are deemed
outstanding; however, such shares are not deemed outstanding for purposes
of computing the percentage ownership of any other person. The Company
believes that all of the persons named in this table have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property laws where
applicable and except as indicated in the other footnotes to this table.
(2) As of March 15, 2001, 21,640,184 shares of Common Stock were issued and
outstanding.
(3) Per the Schedule 13G filed by St. Jude Medical, Inc. on June 9, 2000,
includes 1,600,000 shares beneficially owned by St. Jude Medical, Inc. as
to which St. Jude Medical, Inc. has sole voting and dispositive power.
16
(4) Represents 1,132,226 shares owned by certain investment partnerships, of
which affiliates of The Goldman Sachs Group, L.P. ("GS Group") are the
general partner, managing general partner or investment manager. Includes
710,248 shares held by GS Capital Partners II, L.P., 282,333 shares held by
GS Capital Partners II Offshore, L.P., 26,151 shares held by GS Capital
Partners II (Germany), 76,280 shares held by Stone Street Fund 1997, L.P.,
37,038 shares held by Bridge Street Fund 1997, L.P. Each of such investment
partnership shares voting and investment power with certain of its
respective affiliates.
(5) The amounts shown include shares which may be acquired currently or within
60 days of March 15, 2001 through the exercise of options, as follows: Dr.
Radlick, 354,239 shares; Mr. Vegh, 294,863 shares; Mr. Barajas, 75,948
shares; Mr. Bourquin, 128,363 shares; Mr. Jeharajah, 24,000 shares; Mr.
Quijano, 22,000 shares; Mr. Wheeler, 45,833 shares; and Dr. Abati, 105,696
shares (Dr. Abati's employment with the Company terminated on January 14,
2001).
(6) Includes 128,341 shares held by Gabriel B. Vegh and Kathleen G. Vegh,
tenants in common.
(7) Includes 1,131,920 shares subject to stock options exercisable currently or
within 60 days of March 15, 2001.
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows the compensation received by (a) the individual
who served as the Company's Chief Executive Officer during the fiscal year
ended December 31, 2000; (b) the four other most highly compensated individuals
who served as an executive officer of the Company during the fiscal year ended
December 31, 2000; and (c) the compensation received by each such individual
for the Company's preceding fiscal year.
SUMMARY COMPENSATION TABLE
Annual Long-Term
Compensation Compensation Awards
--------------- --------------------- All Other
Name & Principal Fiscal Salary Bonus Securities Underlying Compensation
Position Year ($) (1) ($) (2) Options/SARs (#) (3) ($)
- ---------------- ------ ------- ------- --------------------- ------------
Phillip C. Radlick, 2000 195,738 130,000 242,295 0
Ph.D................... 1999 224,263 50,000 125,000 0
Chairman of the Board 1998 225,456 50,000 0 0
of Directors and former
President and Chief
Executive Officer of
the Company
Gabriel B. Vegh......... 2000 204,906 110,000 292,295 0
President, Chief 1999 188,509 35,000 125,000 0
Executive Officer and 1998 187,875 35,000 0 0
Director
Allan L. Abati, Ph.D.... 2000 180,223 0 35,000 0
Former Vice President, 1999 162,843 0 10,000 0
Regulatory 1998 146,679 0 15,000 0
Affairs, Clinical
Programs and Quality
Assurance
Victor J. Barajas....... 2000 141,177 3,000 55,000 0
Vice President, 1999 124,830 20,000 20,000 0
Operations 1998 106,939 20,000 0 0
Ronald E. Bourquin...... 2000 179,928 45,000 100,000 0
Vice President, Chief 1999 125,515 30,000 40,000 0
Financial Officer 1998 125,549 25,000 0 0
and Secretary
William K. Wheeler(4)... 2000 104,799 50,000 200,000 36,652
Sr. Vice President,
Worldwide Sales and
Marketing
- --------
(1) Includes amounts deferred under the Company's 401(k) plan.
(2) Includes bonuses earned in the indicated year and paid in the subsequent
year.
17
(3) Includes repriced options that were surrendered in February 2000 as
follows: Dr. Radlick 142,295; Mr. Vegh 142,295; Dr. Abati 15,000; Mr.
Barajas 25,000 and Mr. Bourquin 15,000.
(4) Mr. Wheeler began his employment with the Company on May 15, 2000, with an
annual base salary of $175,000, a guaranteed first year bonus of $50,000
payable in January 2001 and relocation and housing assistance to facilitate
the purchase of a principal residence in the Bay Area.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The Company granted stock options representing 1,237,001 shares of the
Company's Common Stock to employees in the last fiscal year.
Potential
Realizable
Value at
Assumed Annual
Rates of Stock
Price
Percent of Total Appreciation
Number of Shares Options Granted Exercise or for Option Term
Underlying Options to Employees in Base Price Expiration ---------------
Name Granted(1) Fiscal 2000 per Share Date 5% 10%
- ---- ------------------ ---------------- ----------- ---------- ------- -------
Phillip C. Radlick, 142,295(1) 11.5% $1.16 6/2/2010 103,804 263,067
Ph.D. ................. 100,000 8.1% $1.22 10/4/2010 76,725 194,437
Gabriel B. Vegh......... 142,295(1) 11.5% $1.16 6/2/2010 103,807 263,067
150,000 12.1% $1.22 10/4/2010 115,088 291,655
Allan L. Abati, Ph.D.... 15,000(1) 1.2% $1.16 6/2/2010 10,943 27,731
20,000 1.6% $1.22 10/4/2010 15,345 38,887
Victor J. Barajas....... 25,000(1) 2.0% $1.22 6/2/2010 18,238 46,219
30,000 2.4% $1.16 10/4/2010 23,018 58,331
Ronald E. Bourquin...... 50,000 4.0% $1.65 1/6/2010 51,884 131,484
15,000(1) 1.2% $1.16 6/2/2010 10,943 27,731
35,000 2.8% $1.22 10/4/2010 26,854 68,053
William K. Wheeler ..... 200,000 16.2% $1.16 6/2/2010 145,904 369,748
- --------
(1) On June 2, 2000, certain options, excluding Mr. Wheeler's which were part
of his employment offer, were amended by the Board to reduce the exercise
price to $1.16, the current market value on that date. See the description
below under "Ten Year Option Repricing."
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information with respect to stock
options exercised by the Named Executive Officers during the fiscal year ended
December 31, 2000. In addition, the table sets forth the number of shares
covered by stock options as of the fiscal year ended December 31, 2000 and the
value of "in-the-money" stock options, which represents the positive spread
between the exercise price of a stock option and the market price of the shares
subject to such option at the end of the fiscal year ended December 31, 2000.
Number of Unexercised Value of Unexercised
Options/SARs at Fiscal In-the-Money Options/SARs
Year End (#) atFiscal Year End($)
Shares Acquired Value ------------------------- ----------------------------
Name on Exercise(#) Realized($) Exercisable/Unexercisable Exercisable/Unexercisable(1)
- ---- --------------- ----------- ------------------------- ----------------------------
Phillip C. Radlick,
Ph.D................... 0 0 276,063 / 218,163 $0 / $0
Gabriel B. Vegh......... 0 0 209,396 / 268,163 $0 / $0
Allan L. Abati, Ph.D.... 0 0 95,113 / 10,583 $0 / $0
Victor J. Barajas....... 0 0 71,156 / 40,417 $0 / $0
Ronald E. Bourquin...... 0 0 119,076 / 64,625 $0 / $0
William K. Wheeler...... 0 0 25,000 / 175,000 $0 / $0
- --------
(1) Based on the $0.25 per share closing price of the Company's Common Stock on
the Nasdaq National Market on December 31, 2000, less the exercise price of
the options.
18
TEN YEAR OPTION REPRICING
On June 2, 2000, the Company completed a direct repricing of certain
employee stock option grants. As a part of the repricing, the Company reduced
the exercise price of certain outstanding options, at the employee's option,
with exercise prices of greater than $1.16 per share. The new exercise price of
these repriced options was reset to $1.16 per share, which was equal to the
market value of the Company's common stock on June 2, 2000. The number of
options repriced totaled 462,576. The following chart presents information
about the consequences of the repricing for the Company's executive officers:
Length of
Original
Option
No. of Term
Securities Remaining
Underlying Market Price Exercise at Date
Options/ of Stock at Price at New of
Grant SARs time of time of Exercise Repricing
Name Date Repriced(#) Repricing($) Repricing($) Price($) in years
- ---- ------- ----------- ------------ ------------ -------- ---------
Phillip C. Radlick, 8/5/97 75,000 1.16 5.00 1.16 9.4
Ph.D. ................. 4/28/99 62,500 1.16 2.56 1.16 9.2
7/6/99 4,795 1.16 1.91 1.16 7.5
Gabriel B. Vegh......... 8/5/97 75,000 1.16 5.00 1.16 5.0
4/28/99 62,500 1.16 2.56 1.16 2.6
7/6/99 4,795 1.16 1.91 1.16 1.9
Allan L. Abati, Ph.D.... 8/5/97 15,000 1.16 5.00 1.16 7.5
Victor J. Barajas....... 8/5/97 25,000 1.16 5.00 1.16 7.5
Ronald E. Bourquin ..... 8/5/97 15,000 1.16 5.00 1.16 7.5
Board Report on Option Repricing
On March 20, 2000, the Company's Board approved a reduction, effective June
2, 2000, in the exercise price of certain outstanding stock options held by
executive officers and employees of the Company to the fair market value of the
Company's common stock on June 2, 2000, which was $1.16 per share. These
options were granted between July 29, 1997 and July 6, 1999 at exercise prices
ranging from $1.91 to $5.88 per share.
As set forth in the Company's 1993 Incentive Stock Plan, stock options are
intended to provide incentives to the Company's executive officers and
employees. The Board believed that such equity incentives are a significant
factor in the Company's ability to attract, retain and motivate key employees
who are critical to the Company's long-term success. The Board believed that,
at their original exercise prices, the disparity between the exercise price of
these options and recent market prices for the Company's common stock did not
provide meaningful incentive to the executive officers and employees holding
these options to perform to their maximum potential and to work towards the
success of the Company. The Board approved the repricing of these options as a
means of ensuring that the optionees will continue to have meaningful equity
incentives to work toward the Company's success. The adjustment was deemed in
the best interest of the Company and its stockholders.
19
This report shall not be deemed incorporated by reference by any general
statement incorporating by reference this proxy statement into any filing under
the Securities Act of 1933 or under the Securities Exchange Act of 1934, except
to the extent the Company specifically incorporates this report by reference,
and shall not otherwise be deemed filed under such Acts.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The following is a report of the Compensation Committee of the Board (the
"Committee") describing the compensation policies applicable to the Company's
executive officers during the fiscal year ended December 31, 2000. The
Committee is responsible for establishing and monitoring the general
compensation policies and compensation plans of the Company, as well as the
specific compensation levels for executive officers. Executive officers who are
also directors have not participated in deliberations or decisions involving
their own compensation.
General Compensation Policy
Under the supervision of the Board, the Company's compensation policy is
designed to attract and retain qualified key executives critical to the
Company's growth and long-term success. It is the objective of the Board to
have a portion of each executive's compensation contingent upon the Company's
performance as well as upon the individual's personal performance. Accordingly,
each executive officer's compensation package is comprised of two elements: (i)
base salary which reflects individual performance and expertise, and (ii) long-
term stock-based incentive awards which are designed to strengthen the
mutuality of interests between the executive officers and the Company's
stockholders. Additionally, some executives are eligible for variable bonus
awards payable in cash which are tied to the achievement of certain performance
goals that the Board establishes from time to time for the Company.
The summary below describes in more detail the factors which the Board
considers in establishing each of the three primary components of the
compensation package provided to the executive officers.
Base Salary
The level of base salary is established primarily on the basis of the
individual's qualifications and relevant experience, the strategic goals for
which he or she has responsibility, the compensation levels at companies which
compete with the Company for business and executive talent, and the incentives
necessary to attract and retain qualified management. Base salary is adjusted
each year to take into account the individual's performance and to maintain a
competitive salary structure. Company performance does not play a significant
role in the determination of base salary.
Cash-Based Incentive Compensation
Cash bonuses are awarded on a discretionary basis to executive officers on
the basis of their success in achieving designated individual goals and the
Company's success in achieving specific Company-wide goals, such as customer
satisfaction, revenue growth and earnings growth.
Long-Term Incentive Compensation
The Company has utilized its stock option plans to provide executives and
other key employees with incentives to maximize long-term stockholder values.
Awards under this plan by the Board take the form of stock options designed to
give the recipient a significant equity stake in the Company and thereby
closely align his or her interests with those of the Company's stockholders.
Factors considered in making such awards include the individual's position in
the Company, his or her performance and responsibilities, and internal
comparability considerations.
20
Each option grant allows the executive officer to acquire shares of the
Company's Common Stock at a fixed price per share (the fair market value on the
date of grant) over a specified period of time (up to 10 years). The options
typically vest in periodic installments over a four-year period, contingent
upon the executive officer's continued employment with the Company.
Accordingly, the option will provide a return to the executive officer only if
he or she remains in the Company's service, and then only if the market price
of the Common Stock appreciates over the option term.
Compensation of the Chief Executive Officer
Gabriel B. Vegh has served as the Company's President and Chief Executive
Officer since June 2000. His base salary for fiscal 2000 was increased to
$220,000 effective June 2000. Until Mr. Vegh's appointment as President and
Chief Executive Officer in June 2000, he was the Company's Executive Vice
President and Chief Operating Officer with an annual base salary of $185,000.
Other compensation paid to Mr. Vegh included a bonus based on his performance
to objectives as set by the Board.
Phillip C. Radlick served as the Company's President and Chief Executive
Officer from November 1994 until June 2000. While Dr. Radlick was the Company's
President and Chief Executive Officer, he had an annual base salary of
$220,000. His base salary for fiscal 2000 was decreased to $160,000, with his
appointment as Chairman in June 2000. In February 2001, Dr. Radlick agreed to
remain as Chairman of the Board without further cash compensation. Other
compensation paid to Dr. Radlick included a bonus based on his performance to
objectives as set by the Board and relocation benefits as set forth in Dr.
Radlick's employment agreement.
The factors discussed above in "Base Salary," "Cash-Based Incentive
Compensation," and "Long-Term Incentive Compensation" were applied by the
Compensation Committee in establishing the amount of Dr. Radlick's and Mr.
Vegh's salary and stock option grant. Neither Dr. Radlick nor Mr. Vegh
participated in any decisions related to his respective compensation.
Significant factors the Compensation Committee considered in establishing Dr.
Radlick's and Mr. Vegh's compensation included his individual performance, the
achievement of specific objectives including clinical milestones achieved and
performance to plan for the year. The Committee felt Dr. Radlick's and Mr.
Vegh's performance in these areas contributed to achieving a majority of these
objectives and, accordingly, exercised its judgment in awarding the salary
increase and bonus shown in the Summary Compensation Table.
Deductibility of Executive Compensation
The Compensation Committee has considered the impact of Section 162(m) of
the Internal Revenue Code adopted under the Omnibus Budget Reconciliation Act
of 1993, which section disallows a deduction for any publicly held corporation
for individual compensation exceeding $1 million in any taxable year for the
CEO and four other most highly compensated executive officers, respectively,
unless such compensation meets the requirements for the "performance-based"
exception to Section 162(m). As the cash compensation paid by the Company to
each of its executive officers is expected to be below $1 million and the
Committee believes that options granted under the Company's 1993 Stock Option
Plan to such officers will meet the requirements for qualifying as performance-
based, the Committee believes that Section 162(m) will not affect the tax
deductions available to the Company with respect to the compensation of its
executive officers. It is the Committee's policy to qualify, to the extent
reasonable, its executive officers' compensation for deductibility under
applicable tax law. However, the Company may from time to time pay compensation
to its executive officers that may not be deductible.
Compensation Committee:
Neville J. Jeharajah
Rodolfo C. Quijano, Ph.D.
21
This report shall not be deemed incorporated by reference by any general
statement incorporating by reference this proxy statement into any filing under
the Securities Act of 1933 or under the Securities Exchange Act of 1934, except
to the extent the Company specifically incorporates this report by reference,
and shall not otherwise be deemed filed under such Acts.
AUDIT COMMITTEE REPORT TO STOCKHOLDERS
The Audit Committee of the Board of Directors of Cardima, Inc. operates
under a written charter adopted by the Board of Directors, which is attached to
this Proxy as Exhibit B. The members of the Audit Committee are Mr. Neville J.
Jeharajah and Dr. Rodolfo C. Quijano. All members of the Audit Committee meet
the independence standards of Rule 4200(a)(15) of the National Association of
Securities Dealers listing requirements. In accordance with its written
charter, the Audit Committee assists the Board of Directors in fulfilling its
responsibility for oversight of the quality and integrity of the accounting,
auditing and financial reporting practices of Cardima, Inc.
In discharging its oversight responsibility as to the audit process, the
Audit Committee obtained from the independent accountants a formal written
statement describing all relationships between the accountants and Cardima,
Inc. that might bear on the accountants' independence consistent with
Independence Standards Board Standard No. 1, "Independence Discussions with
Audit Committees." The Audit Committee discussed with the independent
accountants any relationships that may impact their objectivity and
independence and satisfied itself as to that firm's independence.
The Audit Committee discussed and reviewed with the independent accountants
all communications required by generally accepted accounting standards,
including those described in Statement on Auditing Standards No. 61, as
amended, "Communication with Audit Committees." In addition, the Audit
Committee, with and without management present, discussed and reviewed the
results of the independent accountants' examination of the financial
statements.
Based upon Audit Committee's discussion with management and the independent
accountants and the Audit Committee's review of the representation of
management and the report of the independent accountants to the Audit
Committee, the Audit Committee recommended to the Board of Directors that
Cardima, Inc. include the audited consolidated financial statements in its
Annual Report on Form 10-K for the year ended December 31, 2000 for filing with
the Securities and Exchange Commission. The Audit Committee also recommended
the reappointment, subject to stockholder approval, of the independent
accountants and the Board of Directors concurred in such recommendation.
Neville J. Jeharajah
Rodolfo C. Quijano, Ph.D.
TRANSACTIONS WITH MANAGEMENT
In December 1997, the Company loaned $300,000 to Phillip C. Radlick, Ph.D.,
its President and Chief Executive Officer, to facilitate the purchase of a
principal residence in the Bay Area. The note bears interest at the minimum
applicable federal rate and matures in December 2001. As security interest, Dr.
Radlick granted the Company a security interest in his vested stock options. As
of December 31, 2000, there is approximately $336,585 outstanding on the note.
In June 2000, the Company loaned $142,500 to William K. Wheeler, its Senior
Vice President of Worldwide Sales and Marketing, to facilitate the purchase of
a principal residence in the Bay Area. The loan is increased monthly by $5,000
until the maximum amount of $300,000 is reached. The note bears interest at the
minimum applicable federal rate and will become immediately due and payable
when employment with Cardima terminates for any reason, or the principal
residence is sold, transferred or otherwise disposed of. As security interest,
Mr. Wheeler granted the Company a security interest in his vested stock
options. As of December 31, 2000, there is approximately $173,238 outstanding
on the note.
22
The Company has entered into indemnification agreements with its officers
and directors containing provisions which may require the Company, among other
things, to indemnify its officers and directors (other than liabilities arising
from willful misconduct of a culpable nature) and to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified.
EMPLOYMENT AND CHANGE IN CONTROL AGREEMENTS
Dr. Radlick is party to an employment agreement dated August 30, 2000. The
agreement provides for an initial salary of $160,000 for Dr. Radlick's services
as the Chairman of the Board and accelerated vesting of all of Dr. Radlick's
options in the event of a change in control of the Company (as such term is
defined in the agreement). In addition, Dr. Radlick is entitled to an annual
bonus to be determined by the Board. In the event Dr. Radlick is terminated due
to a "change in control" of the Company or, for other than for "good cause"
(both terms as defined in the agreement), Dr. Radlick will receive his salary
for six months, one half the prior year's bonus and standard Company fringe
benefits for six months.
Mr. Vegh is party to an employment agreement dated August 30, 2000. The
agreement provides for an initial salary of $220,000 for Mr. Vegh's services as
the President and Chief Executive Officer and accelerated vesting of all of Mr.
Vegh's options in the event of a change in control of the Company (as such term
is defined in the agreement). In addition, Mr. Vegh is entitled to an annual
bonus to be determined by the Board. In the event Mr. Vegh is terminated due to
a "change in control" of the Company or, for other than for "good cause" (both
terms as defined in the agreement), Mr. Vegh will receive his salary for six
months, one half the prior year's bonus and standard Company fringe benefits
for six months.
Dr. Abati is party to an employment agreement dated August 30, 2000. The
agreement provides for an initial salary of $182,658 and accelerated vesting of
all of Dr. Abati's options in the event of a "change in control" of the Company
(as such term is defined in the agreement). In addition, Dr. Abati is entitled
to an annual bonus to be determined by the Board. In the event Dr. Abati is
terminated due to a "change in control" of the Company or, for other than for
"good cause" (both terms as defined in the agreement), Dr. Abati will receive
his salary for six months, one half the prior year's bonus and standard Company
fringe benefits for six months. Dr. Abati left the Company's employ on January
14, 2001, subject to this agreement.
Mr. Barajas is party to an employment agreement dated August 30, 2000. The
agreement provides for an initial salary of $150,000 and accelerated vesting of
all of Mr. Barajas' options in the event of a "change in control" of the
Company (as such term is defined in the agreement). In addition, Mr. Barajas is
entitled to an annual bonus to be determined by the Board. In the event Mr.
Barajas is terminated due to a "change in control" of the Company or, for other
than for "good cause" (both as defined in the agreement), Mr. Barajas will
receive his salary for six months, one half the prior year's bonus and standard
Company fringe benefits for six months.
Mr. Bourquin is party to an employment agreement dated August 30, 2000. The
agreement provides for an initial salary of $175,000 and accelerated vesting of
all of Mr. Bourquin's options in the event of a "change in control" of the
Company (as such term is defined in the agreement). In addition, Mr. Bourquin
is entitled to an annual bonus to be determined by the Board. In the event Mr.
Bourquin is terminated due to a "change in control" of the Company or, for
other than "good cause" (both as defined in the agreement), Mr. Bourquin will
receive his salary for six months, one half the prior year's bonus and standard
Company fringe benefits for six months.
Mr. Wheeler is party to an employment agreement dated August 30, 2000. The
agreement provides for an initial salary of $175,000 and accelerated vesting of
all of Mr. Wheeler's options in the event of a "change in control" of the
Company (as such term is defined in the agreement). In addition, Mr. Wheeler is
entitled to an annual bonus to be determined by the Board. In the event Mr.
Wheeler is terminated due to a "change in control" of the Company or, for other
than for "good cause" (both as defined in the agreement), Mr. Wheeler will
receive his salary for six months, one-half the prior year's bonus and standard
Company fringe benefits for six months.
23
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return data
for the Company's stock since June 6, 1997 (the date on which the Company's
stock was first registered under Section 12 of the Securities Exchange Act of
1934, as amended) to the cumulative return over such period of (i) Cardima,
Inc., (ii) the S&P Midcap Medical Products and Supplies Index and (iii) the
Nasdaq National Market U.S. Composite Index. The graph assumes that $100 was
invested on June 6, 1997, the date on which the Company completed the initial
public offering of its Common Stock, in the Common Stock of the Company and in
each of the comparative indices. The graph further assumes that such amount was
initially invested in the Common Stock of the Company at a per share price of
$7.00, the price to which such stock was first offered to the public by the
Company on the date of its initial public offering, and reinvestment of any
dividends. The stock price performance on the following graph is not
necessarily indicative of future stock price performance.
COMPARISON OF FISCAL YEAR CUMULATIVE TOTAL RETURN
AMONG CARDIMA, INC., S&P MIDCAP MEDICAL PRODUCTS AND SUPPLIES INDEX
AND NASDAQ NATIONAL MARKET U.S. COMPOSITE INDEX
Comparison of Cumulative Total Return
[Performance graph appears here]
The information contained in the Stock Performance Graph shall not be deemed
to be "soliciting material" or to be filed with the SEC, nor shall such
information be incorporated by reference into any future filing under the
Securities Act or the Exchange Act, except to the extent the Company
specifically incorporates it by reference into such filing.
* Assumes $100 invested on June 6, 1997, the effective date of the Company's
Initial Public Offering, in stock or index, including reinvestment of
dividends. Fiscal year ending December 31, 2000.
6/6/97 12/31/97 12/31/98 12/31/99 12/31/00
------ -------- -------- -------- --------
Cardima, Inc.................... $100 $ 63 $ 38 $ 26 $ 4
S & P Midcap Medical Products
and Supplies Index............. $100 $116 $163 $155 $176
Nasdaq National Market Total.... $100 $112 $161 $290 $176
24
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS FOR 2002 ANNUAL MEETING
Proposals of stockholders intended to be presented at the Company's 2002
Annual Meeting of Stockholders must be received by the Company no later than
December 26, 2001 in order to be considered for inclusion in the Company's
proxy materials for that meeting. The Company's bylaws also establish an
advance notice procedure with respect to certain stockholder proposals and
director nominations. If a stockholder wishes to have a stockholder proposal
considered at the Company's next annual meeting, the stockholder must give
timely notice of the proposal in writing to the Secretary of the Company. To be
timely, a stockholder's notice of the proposal must be delivered to, or mailed
and received at the executive offices of the Company not less than 50 days nor
more than 75 days prior to the proposed date of the annual meeting; provided,
however, that if less than 65 days notice or prior public disclosure of the
date of the annual meeting is given or made to stockholders, notice of the
proposal to be timely must be received no later than the 15th day following the
day on which such notice of the date of the annual meeting is mailed or public
disclosure of the meeting date is given.
OTHER MATTERS
The Board of Directors knows of no other business that will be presented to
the Annual Meeting. If any other business is properly brought before the Annual
Meeting, proxies in the enclosed form will be voted in respect thereof as the
proxy holders deem advisable.
It is important that the proxies be returned promptly and that your shares
be represented. Stockholders are urged to mark, date, execute and promptly
return the accompanying proxy card in the enclosed envelope.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and persons who own more than 10% of the Company's Common
Stock (collectively, "Reporting Persons") to file with the Securities and
Exchange Commission ("SEC") initial reports of ownership and changes in
ownership of the Company's Common Stock. Reporting Persons are required by SEC
regulations to furnish the Company with copies of all Section 16(a) reports
they file. To the Company's knowledge, based solely on its review of the copies
of such reports received or written representations from certain Reporting
Persons that no other reports were required, the Company believes that during
its fiscal year ended December 31, 2000, all Reporting Persons complied with
all applicable filing requirements.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2000 IS BEING FURNISHED TO EACH SHAREHOLDER WITH THIS PROXY
STATEMENT. IF NECESSARY, THE COMPANY WILL MAIL AN ADDITIONAL COPY, WITHOUT
CHARGE, TO ANY STOCKHOLDER UPON WRITTEN REQUEST OF THE COMPANY'S ANNUAL REPORT
ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS, SCHEDULES AND A LIST OF
EXHIBITS. REQUESTS SHOULD BE SENT TO INVESTOR RELATIONS, 47266 BENICIA STREET,
FREMONT, CALIFORNIA, 94538-7330.
By Order of the Board of Directors,
Ronald E. Bourquin
Vice President and Secretary
Fremont, California
March 31, 2001
25
EXHIBIT A
Proposal 2
In the event that the stockholders of the Company approve Proposal 2 to
approve the Reverse Stock Split Amendments, the Company may file at the Board's
discretion, one of the following amendments to the Amended and Restated
Certificate of Incorporation.
(a) Upon this Amended and Restated Certificate of Amendment to the Amended
and Restated Certificate of Incorporation of the Corporation becoming effective
pursuant to the General Corporation Law of the State of Delaware (the
"Effective Time"), each share of the Corporation's common stock, par value
$0.001 per share (the "Old Common Stock"), issued and outstanding immediately
prior to the Effective Time, will be automatically reclassified into one fifth
(1/5) of a share of common stock, par value $0.001 per share, of the
Corporation (the "New Common Stock"). Any stock certificate that, immediately
prior to the Effective Time, represented shares of the Old Common Stock will,
from and after the Effective Time, automatically and without the necessity of
surrendering the same for exchange, represent the number of whole shares of the
New Common Stock as equals the product obtained by multiplying the number of
shares of Old Common Stock represented by such certificate immediately prior to
the Effective Time by one fifth (1/5), and the right to receive cash in lieu of
a fraction of a share of New Common Stock; or
(b) Upon this Certificate of Amendment to the Amended and Restated
Certificate of Incorporation of the Corporation becoming effective pursuant to
the General Corporation Law of the State of Delaware (the "Effective Time"),
each share of the Corporation's common stock, par value $0.001 per share (the
"Old Common Stock"), issued and outstanding immediately prior to the Effective
Time, will be automatically reclassified into one sixth (1/6) of a share of
common stock, par value $0.001 per share, of the Corporation (the "New Common
Stock"). Any stock certificate that, immediately prior to the Effective Time,
represented shares of the Old Common Stock will, from and after the Effective
Time, automatically and without the necessity of surrendering the same for
exchange, represent the number of whole shares of the New Common Stock as
equals the product obtained by multiplying the number of shares of Old Common
Stock represented by such certificate immediately prior to the Effective Time
by one sixth (1/6), and the right to receive cash in lieu of a fraction of a
share of New Common Stock; or
(c) Upon this Amended and Restated Certificate of Amendment to the
Certificate of Incorporation of the Corporation becoming effective pursuant to
the General Corporation Law of the State of Delaware (the "Effective Time"),
each share of the Corporation's common stock, par value $0.001 per share (the
"Old Common Stock"), issued and outstanding immediately prior to the Effective
Time, will be automatically reclassified into one seventh (1/7) of a share of
common stock, par value $0.001 per share, of the Corporation (the "New Common
Stock"). Any stock certificate that, immediately prior to the Effective Time,
represented shares of the Old Common Stock will, from and after the Effective
Time, automatically and without the necessity of surrendering the same for
exchange, represent the number of whole shares of the New Common Stock as
equals the product obtained by multiplying the number of shares of Old Common
Stock represented by such certificate immediately prior to the Effective Time
by one seventh (1/7), and the right to receive cash in lieu of a fraction of a
share of New Common Stock; or
(d) Upon this Certificate of Amendment to the Amended and Restated
Certificate of Incorporation of the Corporation becoming effective pursuant to
the General Corporation Law of the State of Delaware (the "Effective Time"),
each share of the Corporation's common stock, par value $0.001 per share (the
"Old Common Stock"), issued and outstanding immediately prior to the Effective
Time, and will be automatically reclassified into one eighth (1/8) of a share
of common stock, par value $0.001 per share, of the Corporation (the "New
Common Stock"). Any stock certificate that, immediately prior to the Effective
Time, represented shares of the Old Common Stock will, from and after the
Effective Time, automatically and without the necessity of surrendering the
same for exchange, represent the number of whole shares of the New Common
A-1
Stock as equals the product obtained by multiplying the number of shares of Old
Common Stock represented by such certificate immediately prior to the Effective
Time by one eighth (1/8), and the right to receive cash in lieu of a fraction
of a share of New Common Stock; or
(e) Upon this Certificate of Amendment to the Amended and Restated
Certificate of Incorporation of the Corporation becoming effective pursuant to
the General Corporation Law of the State of Delaware (the "Effective Time"),
each share of the Corporation's common stock, par value $0.001 per share (the
"Old Common Stock"), issued and outstanding immediately prior to the Effective
Time, will be automatically reclassified into one ninth (1/9) of a share of
common stock, par value $0.001 per share, of the Corporation (the "New Common
Stock"). Any stock certificate that, immediately prior to the Effective Time,
represented shares of the Old Common Stock will, from and after the Effective
Time, automatically and without the necessity of surrendering the same for
exchange, represent the number of whole shares of the New Common Stock as
equals the product obtained by multiplying the number of shares of Old Common
Stock represented by such certificate immediately prior to the Effective Time
by one ninth (1/9), and the right to receive cash in lieu of a fraction of a
share of New Common Stock; or
(f) Upon this Certificate of Amendment to the Amended and Restated
Certificate of Incorporation of the Corporation becoming effective pursuant to
the General Corporation Law of the State of Delaware (the "Effective Time"),
each share of the Corporation's common stock, par value $0.001 per share (the
"Old Common Stock"), issued and outstanding immediately prior to the Effective
Time, will be automatically reclassified into one tenth (1/10) of a share of
common stock, par value $0.001 per share, of the Corporation (the "New Common
Stock"). Any stock certificate that, immediately prior to the Effective Time,
represented shares of the Old Common Stock will, from and after the Effective
Time, automatically and without the necessity of surrendering the same for
exchange, represent the number of whole shares of the New Common Stock as
equals the product obtained by multiplying the number of shares of Old Common
Stock represented by such certificate immediately prior to the Effective Time
by one tenth (1/10), and the right to receive cash in lieu of a fraction of a
share of New Common Stock.
A-2
EXHIBIT B
Audit Committee Charter
Organization
This charter governs the operations of the audit committee. The committee
shall review and reassess the charter at least annually and obtain the approval
of the board of directors. The committee shall be appointed by the board of
directors and shall comprise at least three directors, each of whom are
independent of management and the Company. Members of the committee shall be
considered independent if they have no relationship that may interfere with the
exercise of their independence from management and the Company. All committee
members shall be financially literate, or shall become financially literate
within a reasonable period of time after appointment to the committee, and at
least one member shall have accounting or related financial management
expertise.
Statement of Policy
The audit committee shall provide assistance to the board of directors in
fulfilling their oversight responsibility to the shareholders, potential
shareholders, the investment community, and others relating to the Company's
financial statements and the financial reporting process, the systems of
internal accounting and financial controls, the internal audit function, the
annual independent audit of the Company's financial statements, and the legal
compliance and ethics programs as established by management and the board. In
so doing, it is the responsibility of the committee to maintain free and open
communication between the committee, independent auditors, the internal
auditors and management of the Company. In discharging its oversight role, the
committee is empowered to investigate any matter brought to its attention with
full access to all books, records, facilities, and personnel of the Company and
the power to retain outside counsel, or other experts for this purpose.
Responsibilities and Processes
The primary responsibility of the audit committee is to oversee the
Company's financial reporting process on behalf of the board and report the
results of their activities to the board. Management is responsible for
preparing the Company's financial statements, and the independent auditors are
responsible for auditing those financial statements. The committee in carrying
out its responsibilities believes its policies and procedures should remain
flexible, in order to best react to changing conditions and circumstances. The
committee should take the appropriate actions to set the overall corporate
"tone" for quality financial reporting, sound business risk practices, and
ethical behavior.
The following shall be the principal recurring processes of the audit
committee in carrying out its oversight responsibilities. The processes are set
forth as a guide with the understanding that the committee may supplement them
as appropriate.
The committee shall have a clear understanding with management and the
independent auditors that the independent auditors are ultimately accountable
to the board and the audit committee, as representatives of the Company's
shareholders. The committee shall have the ultimate authority and
responsibility to evaluate and, where appropriate, recommend the replacement of
the independent auditors. The committee shall discuss with the auditors their
independence from management and the Company including the matters in the
written disclosures required by the Independence Standards Board and shall
consider the compatibility of nonaudit services with the auditors'
independence. Annually, the committee shall review and recommend to the board
the selection of the Company's independent auditors, subject to shareholders'
approval.
The committee shall discuss with the internal auditors and the independent
auditors the overall scope and plans for their respective audits including the
adequacy of staffing and compensation. Also, the committee shall discuss with
management, the internal auditors, and the independent auditors the adequacy
and effectiveness of
B-1
the accounting and financial controls, including the Company's system to
monitor and manage business risk, and legal and ethical compliance programs.
Further, the committee shall meet separately with the internal auditors and the
independent auditors, with and without management present, to discuss the
results of their examinations.
The committee shall review the interim financial statements with management
and the independent auditors prior to the filing of the Company's Quarterly
Report on Form 10-Q. Also, the committee shall discuss the results of the
quarterly review and any other matters required to be communicated to the
committee by the independent auditors under generally accepted auditing
standards. The chair of the committee may represent the entire committee for
the purposes of this review.
The committee shall review with management and the independent auditors the
financial statements to be included in the Company's Annual Report on Form 10-K
(or the annual report to shareholders if distributed prior to the filing of
Form 10-K), including their judgment about the quality, not just acceptability,
of accounting principles, the reasonableness of significant judgments, and the
clarity of the disclosures in the financial statements. Also, the committee
shall discuss the results of the annual audit and any other matters required to
be communicated to the committee by the independent auditors under generally
accepted auditing standards.
B-2
CARDIMA, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR ANNUAL MEETING ON MAY 10, 2001
The undersigned stockholder of Cardima, Inc. (the "Company")
acknowledges receipt of Notice of the Annual Meeting of Stockholders and Proxy
Statement, each dated March 31, 2001, and the undersigned revokes all prior
proxies and appoints Gabriel B. Vegh and Ronald E. Bourquin, or each of them,
proxies for the undersigned to vote all shares of Common Stock of the Company
which the undersigned would be entitled to vote at the Annual Meeting of
Stockholders to be held at the at the principal executive offices of the
Company, located at 47266 Benicia Street, Fremont, California 94538, at 9:00
a.m. local time on May 10, 2001, and any postponement or adjournment thereof,
and instructs said proxies to vote as follows:
1. ELECTION OF DIRECTORS:
[_] FOR each of the nominees listed below (except as marked to the contrary
below)
[_] WITHHOLD AUTHORITY to vote for the nominees for the director listed
below
Phillip C. Radlick, Ph.D., Gabriel B. Vegh, Neville J. Jeharajah, and
Rodolfo C. Quijano.
(Instruction: To withhold authority to vote for any individual nominee,
write that nominee's name in the space provided below.)
2. TO APPROVE THE AMENDMENTS TO THE AMENDED AND RESTATED CERTIFICATE
OF INCORPORATION AUTHORIZING THE BOARD, IN ITS DISCRETION, TO EFFECT A
REVERSE STOCK SPLIT OF THE COMPANY'S OUTSTANDING COMMON STOCK:
[_] FOR [_] AGAINST [_] ABSTAIN
3. TO APPROVE THE AMENDMENT TO THE AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION AUTHORIZING THE BOARD, IN ITS DISCRETION, TO INCREASE THE
NUMBER OF SHARES OF AUTHORIZED COMMON STOCK FROM 50,000,000 TO
75,000,000:
[_] FOR [_] AGAINST [_] ABSTAIN
4. TO APPROVE THE AMENDMENT OF THE COMPANY'S STOCK INCENTIVE PLAN:
[_] FOR [_] AGAINST [_] ABSTAIN
5. TO APPROVE THE AMENDMENT OF THE COMPANY'S EMPLOYEE STOCK PURCHASE PLAN:
[_] FOR [_] AGAINST [_] ABSTAIN
6. TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS THE INDEPENDENT
AUDITORS OF THE COMPANY:
[_] FOR [_] AGAINST [_] ABSTAIN
7. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
-27-
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATIONS MADE. IF NO
SPECIFICATIONS ARE MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE FOUR
NOMINEES FOR DIRECTOR AND FOR PROPOSALS 4, 5 AND 6.
CARDIMA, INC.
BOARD OF DIRECTORS PROXY
Annual Meeting of Stockholders May 10, 2001
Dated this ________ day of ________, 2001
_________________________________________________
(Signature of Stockholder)
_________________________________________________
(Signature of Stockholder)
Please sign exactly as your name or names appear
hereon. When signing as attorney, executor,
administrator, trustee or guardian, please give
full title as such. If shares are held jointly,
each holder must sign.
Please Mark, Sign, Date and Mail This Proxy Card Promptly, Using the Enclosed
Envelope.