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:
[_]Confidential, for Use of the
[_] Preliminary Proxy Statement Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-12
SYMPHONIX DEVICES, INC.
(Name of Registrant as Specified in its Charter)
N/A
(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)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it is 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:
SYMPHONIX DEVICES, INC.
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 27, 2001
----------------
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Symphonix
Devices, Inc., a Delaware corporation (the "Company"), will be held on Friday,
April 27, 2001 at 8:30 a.m. local time, at 2331 Zanker Road, San Jose,
California, 95131 for the following purposes:
1. To elect two (2) Class III directors to serve for a three-year term.
2. To approve an amendment of the Company's 1994 Stock Option Plan (the
"Option Plan") to increase the number of shares reserved for issuance
thereunder by 1,000,000 shares to a new total of 5,499,273 shares.
3. To ratify the appointment of PricewaterhouseCoopers LLP as independent
accountants of the Company for the fiscal year ending December 31,
2001.
4. To transact such other business as may properly come before the Annual
Meeting including any motion to adjourn to a later date to permit
further solicitation of proxies if necessary, or before any adjournment
thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. Only stockholders of record at the close
of business on March 16, 2001 are entitled to notice of and to vote at the
meeting.
All stockholders are cordially invited to attend the meeting in person.
However, to ensure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed Proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the meeting may vote in person even if he or she has returned a Proxy.
Sincerely,
/s/ Kirk B. Davis
Kirk B. Davis
President and Chief Executive
Officer
San Jose, California
April 2, 2001
YOUR VOTE IS IMPORTANT
IN ORDER TO ENSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE REQUESTED TO
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE AND RETURN
IT IN THE ENCLOSED ENVELOPE.
SYMPHONIX DEVICES, INC.
----------------
PROXY STATEMENT FOR 2001
ANNUAL MEETING OF STOCKHOLDERS
----------------
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed Proxy is solicited on behalf of the Board of Directors of
Symphonix Devices, Inc., a Delaware corporation (the "Company"), for use at
the Annual Meeting of Stockholders (the "Annual Meeting") to be held Friday,
April 27, 2001 at 8:30 a.m. local time, or at any adjournment thereof, for the
purposes set forth herein and in the accompanying Notice of Annual Meeting of
Stockholders. The Annual Meeting will be held at the Company's principal
executive offices which are located at 2331 Zanker Road, San Jose, California,
95131. The Company's telephone number at that location is (408) 232-0710.
These proxy solicitation materials and the Annual Report to Stockholders for
the year ended December 31, 2000, including financial statements, were first
mailed on or about April 2, 2001 to all stockholders entitled to vote at the
meeting.
Record Date and Principal Share Ownership
Stockholders of record at the close of business on March 16, 2001 (the
"Record Date") are entitled to notice of and to vote at the meeting. The
Company has one series of common shares outstanding, designated Common Stock,
$.001 par value. At the Record Date, 21,026,836 shares of the Company's Common
Stock were issued and outstanding and held of record by approximately 4,700
stockholders. No shares of the Company's Preferred Stock were outstanding as
of the Record Date.
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a
later date or by attending the meeting and voting in person.
Voting
Each stockholder is entitled to one vote for each share held as of the
Record Date.
Solicitation of Proxies
This solicitation of proxies is made by the Company, and all related costs
will be borne by the Company. The Company may reimburse brokerage firms and
other persons representing beneficial owners of shares for their expenses in
forwarding solicitation material to such beneficial owners. Proxies may also
be solicited by certain of the Company's directors, officers and regular
employees, without additional compensation, personally or by telephone or
telegram.
Quorum; Abstentions; Broker Non-votes
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the Inspector of Elections (the "Inspector") with the assistance of the
Company's transfer agent. The Inspector will also determine whether or not a
quorum is present. Except in certain specific circumstances, the affirmative
vote of a majority of shares
1
present in person or represented by proxy at a duly held meeting at which a
quorum is present is required under Delaware law for approval of proposals
presented to stockholders. In general, Delaware law also provides that a
quorum consists of a majority of shares entitled to vote and present or
represented by proxy at the meeting.
The Inspector will treat shares that are voted "WITHHELD" or "ABSTAIN" as
being present and entitled to vote for purposes of determining the presence of
a quorum but will not be treated as votes in favor of approving any matter
submitted to the stockholders for a vote. When proxies are properly dated,
executed and returned, the shares represented by such proxies will be voted at
the Annual Meeting in accordance with the instructions of the stockholder. If
no specific instructions are given, the shares will be voted for the election
of the nominees for the Class III Directors set forth herein; for approval of
the amendment of the Company's 1994 Stock Option Plan; for the ratification of
PricewaterhouseCoopers LLP as independent accountants of the Company for the
fiscal year ending December 31, 2001; and at the discretion of the
proxyholders, upon such other business as may properly come before the Annual
Meeting or any adjournment thereof.
If a broker indicates on the enclosed proxy or its substitute that such
broker 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. The Company believes that the tabulation
procedures to be followed by the Inspector are consistent with the general
statutory requirements in Delaware concerning voting of shares and
determination of a quorum.
Deadline for Receipt of Stockholder Proposals
Stockholders are entitled to present proposals for action at a forthcoming
meeting if they comply with the requirements of the proxy rules established by
the Securities and Exchange Commission. Proposals of stockholders of the
Company that are intended to be presented by such stockholders at the
Company's 2002 Annual Meeting of Stockholders must be received by the Company
no later than December 3, 2001 in order that they may be considered for
inclusion in the proxy statement and form of proxy relating to that meeting.
If such a stockholder fails to comply with the foregoing notice provision the
proxy holders will be allowed to use their discretionary authority when and if
the proposal is raised at the Company's Annual Meeting in 2002.
For any proposal that is not submitted by a stockholder for inclusion in
next year's proxy statement (as described in the preceding paragraph) but is
instead sought to be presented directly at next year's annual meeting,
Securities and Exchange Commission rules permit management to vote proxies in
its discretion if (a) the Company receives notice of the proposal before the
close of business on February 18, 2002 and advises stockholders in next year's
proxy statement about the nature of the matter and how management intends to
vote on such matter, or (b) the Company does not receive notice of the
proposal prior to the close of business on February 18, 2002.
2
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock of the Company as of March 1, 2001 as to (i) each
person or entity who is known by the Company to own beneficially more than 5%
of the outstanding shares of Common Stock, (ii) each director of the Company,
(iii) each of the Named Executive Officers (as defined on page 14 under
"Executive Compensation and Other Matters--Executive Compensation--Summary
Compensation Table") and (iv) all directors and executive officers of the
Company as a group. Except as otherwise noted, the stockholders named in the
table have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them, subject to applicable
community property laws.
Approximate
Common Stock Percentage
Beneficial Owner Beneficially Owned Owned(1)
---------------- ------------------ -----------
Entities Affiliated with J.P. Morgan
Capital(2)(15)............................... 2,460,630 11.70%
60 Wall Street
New York, NY 10260-0060
Entities Affiliated with Patricof & Co.
Ventures(3)(15).............................. 2,460,630 11.70%
2100 Geng Road
Suite 150
Palo Alto, CA 94303
Siemens Audiologische Technik GmbH............ 2,026,062 9.64%
c/o Siemens Corporation
1301 Avenue of the Americas
New York, NY 10014
Entities Affiliated with Mayfield(4).......... 1,432,649 6.81%
2800 Sand Hill Road, 2nd Floor
Menlo Park, CA 94025
Adele C. Oliva(5)(15)......................... 2,460,630 11.70%
Martin Friedman(6)(15)........................ 2,460,630 11.70%
Rodger Radke(7)............................... 2,026,062 9.64%
Kirk B. Davis(8).............................. 791,047 3.64%
Geoffrey R. Ball(9)........................... 681,239 3.23%
B.J. Cassin(10)(15)........................... 671,757 3.19%
Patrick J. Rimroth(11)........................ 266,601 1.26%
Deborah Arthur(12)............................ 165,000 *
Bob H. Katz(13)............................... 187,792 *
George G. Montgomery(14)...................... 60,000 *
R. Michael Crompton........................... 14,501 *
All directors and executive officers as a
group (13 persons)(16)....................... 10,105,259 45.0%
- --------
* Less than 1%
(1) Applicable percentage ownership is based on 21,026,836 shares of Common
Stock outstanding as of March 1, 2001 together with applicable options
or warrants for such stockholder. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission,
based on factors including voting and investment power with respect to
shares subject to the applicable community property laws. Shares of
Common Stock subject to options or warrants currently exercisable or
exercisable within 60 days after March 1, 2001 are deemed outstanding
for computing the percentage ownership of the person holding such
options, but are not deemed outstanding for computing the percentage of
any other person.
3
(2) Consists of 1,845,540 shares held by J.P. Morgan Capital and 615,090
shares held by Sixty Wall Street Fund LP.
(3) Consists of 2,390,010 shares held by APAX Excelsior VI, LP and 70,620
shares held by Patricof Private Investments Club III, LP.
(4) Consists of 1,329,946 shares held by Mayfield VII, 69,999 shares held by
Mayfield Associates Fund II and 32,704 shares held by Mayfield VII
Management Partners.
(5) Consists of 2,460,630 shares held by entities affiliated with Patricof &
Co, Ventures. Ms. Oliva, a director of the company, is a Partner of
Patricof & Co. Ventures, Inc. and disclaims beneficial ownership over
these shares.
(6) Consists of 2,460,630 shares held by entities affiliated with J.P.
Morgan Capital. Mr. Friedman, a director of the company, is Vice
President, North American Team of J.P. Morgan Capital and disclaims
beneficial ownership over these shares.
(7) Consists of 2,026,062 shares held by Siemens Audiologische Technik GmbH.
Mr. Radke, a director of the company, is co-managing director of Siemens
Audiologische Technik GmbH and disclaims beneficial ownership over these
shares.
(8) Includes options to purchase up to 690,000 shares exercisable within 60
days after March 1, 2001.
(9) Includes options to purchase up to 70,000 shares exercisable within 60
days after March 1, 2001.
(10) Consists of 493,666 shares held in the name of the Cassin Family Trust,
over which Mr. Cassin holds voting and dispositive power, (ii) 95,388
shares held by Cassin Family Partners, a California Limited Partnership,
over which Mr. Cassin holds voting and dispositive power and (iii)
includes options to purchase up to 82,703 shares exercisable within 60
days after March 1, 2001.
(11) Includes 111,381 shares held in the name of the Rimroth Family Trust
over which Mr. Rimroth holds voting and dispositive power and (ii)
options to purchase up to 155,000 shares exercisable within 60 days
after March 1, 2001.
(12) Consists of options to purchase up to 165,000 shares exercisable within
60 days after March 1, 2001.
(13) Consists of 162,792 shares held in the name of the Bob Katz Trust, over
which Mr. Katz holds voting and dispositive power and (ii) an option to
purchase up to 25,000 shares exercisable within 60 days of March 1,
2001.
(14) Consists of options to purchase up to 60,000 shares exercisable within
60 days after March 1, 2001.
(15) Does not include shares issuable pursuant to the purchase price
adjustment available to investors in the Private Placement. The Private
Placement is described more fully in the section entitled "Certain
Transactions," beginning on page 16.
(16) Includes options to purchase up to 1,485,000 shares exercisable within
60 days after March 1, 2001.
4
PROPOSAL ONE
ELECTION OF DIRECTORS
Pursuant to the Company's Restated Certificate of Incorporation and Bylaws,
the Company's Board of Directors consists of seven persons, divided into three
classes serving staggered terms of three years. Currently, there are three
directors in Class I, two directors in Class II and two directors in Class
III. Two Class III directors are to be elected at the Annual Meeting. The
Class I and Class II directors will be elected at the Company's 2002 and 2003
Annual Meetings of Stockholders, respectively. Each of the Class III directors
will hold office until the 2004 Annual Meeting of Stockholders or until his
successor has been duly elected and qualified.
Unless otherwise instructed, the proxy holders will vote the proxies
received by them for the Company's two nominees named below. In the event that
any nominee of the Company is unable or declines to serve as a director at the
time of the Annual Meeting, the proxies will be voted for any nominee who
shall be designated by the present Board of Directors to fill the vacancy. The
Company is not aware of any nominee who will be unable or will decline to
serve as a director. In the event that additional persons are nominated for
election as directors, the proxy holders intend to vote all proxies received
by them in such a manner as will assure the election of as many of the
nominees listed below as possible, and, in such event, the specific nominees
to be voted for will be determined by the proxy holders.
Vote Required
If a quorum is present and voting, the two nominees receiving the highest
number of votes will be elected to the Board of Directors. Abstentions and
"broker non-votes" are not counted in the election of directors.
Information Concerning the Nominees and Incumbent Directors
The following table sets forth the name and age of each nominee and each
director of the Company whose term of office continues after the Annual
Meeting, the principal occupation of each during the past five years, and the
period during which each has served as a director of the Company.
Principal Occupation During Director
Name the Last Five Years Age Since
---- --------------------------- --- --------
Nominees for Class III Directors:
Kirk B. Davis.................... Kirk B. Davis has been 43 1999
President and Chief
Executive Officer and a
director of Symphonix
Devices, Inc. since August
1999 and Chairman since May
2000. Mr. Davis was with
Abbott Laboratories, Inc.
from 1987 and most
recently, from March 1998,
served as Vice President
and General Manager,
Critical Care Products.
From 1996 to 1998, he
served as General Manager
of Abbott's UK operation
and from 1994 to 1998 he
served as divisional Vice
President and Regional
Director, Europe for
Abbott. Mr. Davis has a BS
degree from Stanford
University and an MBA
degree from the J.L.
Kellogg Graduate School of
Management at Northwestern
University.
B.J. Cassin...................... B.J. Cassin has served as a 67 1994
director of the Company
since July 1994. Mr. Cassin
has been a private venture
capital investor since
1979. Previously, he co-
founded Xidex Corporation,
a manufacturer of data
storage media, and served
as Vice President of
Marketing. Mr. Cassin is a
director of Cerus
Corporation, a medical
device company (of which he
is Chairman). Mr. Cassin
holds an A.B. degree from
Holy Cross College.
5
Principal Occupation During the Director
Name Last Five Years Age Since
---- ------------------------------- --- --------
Continuing Class II Directors:
Adele C. Oliva................ Adele C. Oliva has served as a 35 2000
director of the Company since
November 2000. Ms. Oliva has
been a venture capitalist with
Patricof & Co. Ventures, Inc.
since 1997, focusing on
investments in the health care
industry. Prior to joining
Patricof & Co., Ms. Oliva
worked at Baxter Healthcare,
where she held positions in
marketing and business
development in the
CardioVascular and I.V. Systems
Divisions. Ms. Oliva is a
graduate of Saint Joseph's
University and has an M.B.A.
from Cornell University.
George G. Montgomery.......... George G. Montgomery has served 39 2000
as a director of the Company
since May 2000. Mr. Montgomery
is currently a Managing
Director, Healthcare Investment
Banking at JP Morgan H & Q.
From 1999 to 2000, he was Chief
Financial Officer for Pinpoint
Therapeutics, Inc. a medical
device company. Prior to
Pinpoint, Mr. Montgomery was a
Managing Director at SG Cowen,
a firm he was with from 1995 to
1999. Prior to SG Cowen, he was
a Vice President at CS First
Boston. Mr. Montgomery holds a
B.A. from Yale College and an
M.B.A. from the Wharton School
at the University of
Pennsylvania.
Continuing Class I Directors:
Martin Friedman............... Martin Friedman has served as a 37 2000
director of the Company since
November 2000. Mr. Friedman
joined J.P. Morgan Capital
Partners in 2000 and is based
in New York, where he focuses
exclusively on investment
opportunities in the healthcare
sector. Prior to joining J.P.
Morgan Capital Partners, Mr.
Friedman spent eight years in
J.P. Morgan's Healthcare
Investment Banking group
working with medical device,
pharmaceutical and healthcare
services clients. Prior to
joining J.P. Morgan, Mr.
Friedman worked at Morgan
Stanley in both New York and
Tokyo. Mr. Friedman earned a
B.A. from Columbia College and
an M.B.A. from Columbia
Business School.
Geoffrey R. Ball.............. Geoffrey R. Ball co-founded the 37 1994
Company and has served as Vice
President and Chief Technical
Officer and a director since
May 1994. From 1987 to March
1994, Mr. Ball was a biomedical
engineer in the hearing
research laboratory at the
Veterans Hospital in Palo Alto,
California, affiliated with
Stanford University. Mr. Ball
holds an M.S. degree from the
University of Southern
California and a B.S. degree
from the University of Oregon.
Rodger Radke.................. Roger Radke, PhD, has served as 38 2000
a director of the Company since
August 2000. He is currently
the Managing Director and
Chairman of Siemens
Audiologische Technik GmBH, the
leading company in the hearing
instruments market. Mr. Radke
has ten years experience in the
medical industry in Europe and
the United States with Siemens
Medical Engineering Group. He
holds a PhD degree from the
University of Munster, Germany.
6
Board Meetings and Committees
The Board of Directors of the Company held a total of six meetings during
fiscal 2000. No director attended fewer than 75% of the meetings of the Board
of Directors held during the period he or she was a director. The Board of
Directors has an Audit Committee and a Compensation Committee. The Board of
Directors has no nominating committee or any committee performing such
function.
The Audit Committee is responsible for overseeing actions taken by the
Company's independent accountants and reviewing the Company's internal
financial controls. The Audit Committee consists of directors Montgomery, who
serves as chairman, Cassin and Oliva. The Board of Directors has adopted an
Audit Committee Charter which is included as Appendix A. The Audit Committee
held five meetings during fiscal 2000, and no director attended fewer than 75%
of the meetings of the Audit Committee held during the period he or she sat on
such committee.
The board of directors has determined that as of the proxy date, each of
directors Montgomery, Cassin and Oliva is an "independent director," as that
term is defined in Rule 4200(a)(15) of the National Association of Securities
Dealers, Inc.
The Compensation Committee, which consists of directors Cassin and Oliva, is
responsible for determining salaries, incentives and other forms of
compensation for directors, officers and other employees of the Company and
administering various incentive compensation and benefit plans. The
Compensation Committee held three meetings during fiscal 2000, and no director
attended fewer than 75% of the meetings of the Compensation Committee held
during the period he or she sat on such committee.
Compensation of Directors
Members of the Company's Board of Directors do not receive cash compensation
for their services as directors but outside members are eligible to receive
grants of stock options under the Company's 1994 Stock Option Plan. Directors
who are employees of the Company do not receive any compensation for their
service on the Board. During fiscal 2000 the Company made the following grants
of stock options to outside directors:
Number of Securities
Underlying Options Exercise Price Expiration
Name Granted(1) Per Share Date
---- -------------------- -------------- ----------
B.J. Cassin................... 50,000 $3.844 05/18/10
George G. Montgomery.......... 50,000 $3.844 05/18/10
George G. Montgomery.......... 10,000 $3.844 05/18/10
- --------
(1) The options are immediately exercisable, conditioned upon the optionee
entering into a restricted stock purchase agreement with the Company with
respect to any unvested shares. The options vest or are released from the
repurchase option of the Company at the rate of one forty-eighth ( 1/48)
of the total number of shares subject to each option at the end of each
full month beginning on the grant date for each option.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consists of directors Cassin and Oliva. There
were no reportable transactions with any members of the Compensation Committee
in fiscal 2000.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
NOMINEES SET FORTH HEREIN.
7
PROPOSAL TWO
AMENDMENT OF THE 1994 STOCK OPTION PLAN
At the Annual Meeting, the stockholders are being asked to approve an
amendment of the Company's 1994 Stock Option Plan (the "Option Plan") to
increase the number of shares of Common Stock reserved for issuance thereunder
by 1,000,000 shares.
As of March 1, 2001, a total of 4,499,273 shares of Common Stock have been
reserved for issuance under the Option Plan. As of March 1, 2001, 1,573,499
shares had been issued upon the exercise of stock options granted under the
Option Plan, 2,568,761 options were outstanding and 563,371 shares remained
available for future grant. Under the amendment, an additional 1,000,000
shares will be authorized and available for future grants under the Option
Plan for a new total of 5,499,273 shares.
The Option Plan is structured to allow the Board of Directors broad
discretion in creating equity incentives in order to assist the Company in
attracting, retaining and motivating the best available personnel for the
successful conduct of the Company's business. The Company has had a
longstanding practice of linking key employee compensation to corporate
performance because it believes that this increases employee motivation to
improve stockholder value. The Company has, therefore, consistently included
equity incentives as a significant component of compensation for a broad range
of the Company's employees.
The Board of Directors believes that the remaining shares available for
grant under the Option Plan are insufficient to accomplish the purposes of the
Option Plan described above. The Company anticipates there will be a need to
hire additional technical, sales and marketing, and management employees
during fiscal 2001 and it will be necessary to offer equity incentives to
attract and motivate these individuals, particularly in the extremely
competitive job market in Silicon Valley. In addition, in order to retain the
services of valuable employees as the Company matures and its employee base
grows larger, it will be necessary to grant additional options to current
employees as older options become fully vested.
The essential terms of the Option Plan are summarized as follows:
Purpose
The purposes of the Option Plan are to attract and retain the best available
personnel for positions of substantial responsibility, to provide additional
incentive to employees and consultants of the Company and to promote the
success of the Company's business.
Administration
The Option Plan provides for administration by the Board of Directors of the
Company or one of its committees. The Option Plan is currently being
administered by the Board of Directors. The Board of Directors is referred to
in this description as the "Administrator." The Administrator determines the
terms of options granted including, but not limited to, the exercise price,
number of shares subject to the option and the exercisability thereof. All
questions of interpretation are determined by the Administrator and its
decisions are final and binding upon all participants. Members of the Board of
Directors receive no additional compensation for their services in connection
with the administration of the Option Plan.
Eligibility
The Option Plan provides that either incentive or nonqualified stock options
may be granted to employees (including officers and employee directors) of the
Company or any of its designated subsidiaries. In addition, the Option Plan
provides that nonqualified stock options may be granted to non-employee
directors and consultants of the Company or any of its designated
subsidiaries. The Administrator selects the optionees and determines the
number of shares to be subject to each option. In making such determination,
the Administrator considers the
8
duties and responsibilities of the optionee, the value of the optionee's
services, the optionee's present and potential contribution to the success of
the Company and other relevant factors. The Option Plan provides a limit of
$100,000 on the aggregate fair market value of shares subject to all incentive
options which become exercisable by a single optionee for the first time in
any one calendar year.
Terms of Options
Each option is evidenced by a stock option agreement between the Company and
the optionee to whom such option is granted and is subject to the following
additional terms and conditions:
(1) Exercise of the Option: The Administrator determines when options
granted under the Option Plan may be exercised. An option is exercised when
the optionee gives written notice of exercise to the Company, specifying
the number of shares of Common Stock to be purchased and tenders payment to
the Company of the purchase price. Payment for shares issued upon exercise
of an option may consist of cash, check, promissory note, delivery of
already-owned shares of the Company's Common Stock (subject to certain
conditions), a reduction in the amount of any liability the Company may
have to the optionee or any combination of the foregoing methods. Payment
may also be made by a cashless exercise procedure under which the optionee
provides irrevocable instructions to a brokerage firm to sell the purchased
shares and to remit to the Company, out of the sale proceeds, an amount
equal to the exercise price plus all applicable withholding taxes or such
other consideration as determined by the Administrator and as permitted by
the Delaware General Corporation Law.
Options may be exercised at any time on or following the date the options
are first exercisable. An Option may not be exercised for a fraction of a
share.
(2) Option Price: The option price of all incentive stock options and
nonqualified stock options under the Option Plan is determined by the
Administrator but, in the case of incentive stock options, in no event will
it be less than the fair market value of the Company's Common Stock on the
date the option is granted. For purposes of the Option Plan, fair market
value is defined as the closing price per share of the Company's Common
Stock on the date of grant as reported on The NASDAQ National Market. In
the case of an option granted to an optionee who at the time of grant owns
stock representing more than 10% of the voting power of all classes of
stock of the Company, the option price must be not less than 110% of the
fair market value on the date of grant.
(3) Termination of Employment: The Option Plan provides that if the
optionee's employment by the Company is terminated for any reason, other
than death or disability, options may be exercised within three months (or
such other period of time not exceeding three months as determined by the
Administrator) after such termination and may be exercised only to the
extent the options were exercisable on the date of termination.
(4) Death: If an optionee should die while an employee or a consultant of
the Company, options may be exercised at any time within twelve months
after the date of death but only to the extent that the options were
exercisable on the date of death and in no event later than the expiration
of the term of such option.
(5) Disability: If an optionee's employment is terminated due to a
disability, options may be exercised at any time within twelve months from
the date of such termination, but only to the extent that the options were
exercisable on the date of termination of employment and in no event later
than the expiration of the term of such option.
(6) Termination of Options: Options granted under the Option Plan have a
term as is determined by the Administrator, with incentive stock options
expiring no later than ten years from the date of grant. However, incentive
stock options granted to an optionee who immediately before the grant of
such option owns more than 10% of the voting power of all classes of stock
of the Company or a parent or subsidiary corporation may not have a term of
more than five years. No option may be exercised by any person after such
expiration.
9
(7) Nontransferability of Options: An option is nontransferable by the
optionee, other than by will or the laws of descent and distribution or a
qualified domestic relations order and is exercisable only by the optionee
(or in the event of death by a person who acquires the right to exercise
the option by bequest or inheritance or by reason of the death of the
optionee).
Adjustment Upon Changes in Capitalization
In the event any change such as a stock split or dividend is made in the
Company's capitalization which results in an increase or decrease in the
number of outstanding shares of Common Stock without receipt of consideration
by the Company, an appropriate adjustment will be made in the option price and
in the number of shares subject to each option. In the event of the proposed
dissolution or liquidation of the Company, the Administrator may in its
discretion provide for an optionee to have the right to exercise his or her
option until 10 days prior to such transaction, including shares as to which
the option would not otherwise be exercisable. To the extent it has not been
previously exercised, an option will terminate immediately prior to the
consummation of such proposed action. In the event of a merger of the Company
with or into another corporation or sale of substantially all of the assets of
the Company, all outstanding options will be assumed or an equivalent option
substituted by the successor corporation. In the event that the successor
refuses to assume or substitute for an option, the optionee shall fully vest
in and have the right to exercise such option in full, including shares as to
which such option would not otherwise be exercisable for a period of 15 days
from the date the Administrator gives notice to the optionee.
Performance-Based Compensation Limitations
No employee will be granted, in any fiscal year of the Company, options to
purchase more than 500,000 shares of Common Stock. The foregoing limitation,
which will be adjusted proportionately in connection with any change in the
Company's capitalization, is intended to satisfy the requirements applicable
to options intended to qualify as "performance-based compensation" within the
meaning of Section 162(m) of the Code. In the event that the Administrator
determines that such limitation is not required to qualify options as
performance-based compensation, the Administrator may modify or eliminate such
limitation.
Amendment and Termination
The Board of Directors may amend the Option Plan at any time or from time to
time or may terminate it without approval of the stockholders; provided,
however, that stockholder approval is required for any amendment which
increases the number of shares which may be issued under the Option Plan or as
necessary to remain in compliance with Rule 16b-3 of the Securities Exchange
Act of 1934, as amended, or Section 422 of the Code. However, no action by the
Board of Directors or stockholders may alter or impair any option previously
granted under the Option Plan without the consent of the optionee. In any
event, the Option Plan will terminate in June 2004.
Tax Information
Options granted under the Option Plan may be either incentive stock options
(as defined in Section 422 of the Code) or nonqualified options. 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. Generally, the Company 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
10
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. All other options which do not qualify as incentive stock
options are referred to as nonqualified options. An optionee will not
recognize any taxable income at the time he or she is granted a nonqualified
option. However, upon its exercise, the optionee will recognize ordinary
income generally 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 who is also an employee of
the Company will be subject to tax withholding by the Company. Upon sale 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.
Generally, 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 nonqualified 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 Option
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.
Participation in the Option Plan
The grant of options under the Option Plan to executive officers, including
the officers named in the Summary Compensation Table below, is subject to the
discretion of the Administrator. As of the date of this proxy statement, there
has been no determination by the Administrator with respect to future awards
under the Option Plan. Accordingly, future awards are not determinable. The
table of option grants under "Executive Compensation and Other Matters--Option
Grants in Last Fiscal Year" provides information with respect to the grant of
options to the Named Executive Officers during fiscal 2000. Information
regarding options granted to Outside Directors pursuant to the Option Plan
during fiscal 2000 is set forth under the heading "Proposal One--Election of
Directors--Compensation of Directors." During fiscal 2000, all executive
officers as a group and all other individuals as a group received options to
purchase 810,000 shares and 752,400 shares, respectively, pursuant to the
Option Plan. As of March 1, 2001, approximately 83 employees, directors and
consultants were eligible to participate in the Option Plan.
Vote Required
The affirmative vote of a majority of the shares of the Company's Common
Stock present and voting at the Annual Meeting will be required to approve the
amendment of the Option Plan.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
APPROVAL OF THE AMENDMENT OF THE OPTION PLAN.
11
PROPOSAL THREE
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected PricewaterhouseCoopers LLP, independent
accountants, to audit the consolidated financial statements of the Company for
the fiscal year ending December 31, 2001. Although action by stockholders is
not required by law, the Board of Directors has determined that it is
desirable to request approval of this selection by the stockholders.
Notwithstanding the selection, the Board of Directors, in its discretion, may
direct the appointment of new independent accountants at any time during the
year, if the Board of Directors feels that such a change would be in the best
interest of the Company and its stockholders. In the event of a negative vote
on ratification, the Board of Directors will reconsider its selection.
PricewaterhouseCoopers LLP audited the Company's financial statements
annually from 1994 until 1999. As described under the heading "Change of
Accountants" below, the Company retained KPMG LLP to audit its financial
statements as of and for the year ended December 31, 2000. Representatives of
KPMG LLP are expected to be present at the 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.
Change in Accountants
On January 22, 2001, PricewaterhouseCoopers LLP resigned as the independent
accountants of the Company. The reports of PricewaterhouseCoopers LLP on the
financial statements for the Company's past two fiscal years contained no
adverse opinion or disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope or accounting principle. In connection with its
audits for the Company's two most recent fiscal years and through January 22,
2001, there have been no disagreements with PricewaterhouseCoopers LLP on any
matter of accounting principles or practices, financial statement disclosure,
or auditing scope or procedure, which disagreements if not resolved to the
satisfaction of PricewaterhouseCoopers LLP would have caused them to make
reference thereto in their reports on the financial statements for such years.
During the two most recent fiscal years and through January 22, 2001, there
have been no reportable events (as defined in Regulation S-K Item
304(a)(1)(v)).
On February 9, 2001, the Company engaged KPMG LLP as its new independent
accountant to audit its financial statements as of and for the year ended
December 31, 2000. During the years ended December 31, 1999 and 2000 and
between January 1, 2001 and February 9, 2001, the Company did not consult with
KMPG LLP regarding the application of accounting principles to a specified
transaction either completed or proposed, the Company did not consult with
KPMG LLP regarding the type of audit opinion that might be rendered or the
Company's financial statements and there was not any written or oral advice
provided to the Company prior to KPMG LLP's retention as the Company's
independent accountant.
Fees billed to Company by PricewaterhouseCoopers LLP and KPMG LLP for Fiscal
2000
Audit Fees:
Audit fees billed to the Company by PricewaterhouseCoopers LLP during the
Company's 2000 fiscal year for review of the Company's financial statements
included in the Company's quarterly reports on Form 10-Q totaled $69,340.
Audit fees billed to the Company by KPMG LLP for review of the Company's
annual financial statements for the Company's 2000 fiscal year totaled
approximately $100,000.
Financial Information Systems Design and Implementation Fees:
The Company did not engage PricewaterhouseCoopers LLP or KPMG LLP to provide
advice to the Company regarding financial information systems design and
implementation during the fiscal year ended December 31, 2000.
12
All Other Fees:
Fees billed to the Company by PricewaterhouseCoopers LLP during the
Company's 2000 fiscal year for all other non-audit services rendered to the
Company, including tax related services totaled $166,250. KPMG LLP did not
bill the Company during the 2000 fiscal year for non-audit services rendered
to the Company.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT
ACCOUNTANTS.
13
EXECUTIVE COMPENSATION AND OTHER MATTERS
Executive Compensation
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth certain information
regarding the compensation of the Chief Executive Officer of the Company and
the four next most highly compensated executive officers in the fiscal year
ended December 31, 2000 (collectively, the "Named Executive Officers") of the
Company for services rendered in all capacities to the Company for the fiscal
years indicated.
Long-Term
Annual Compensation
Compensation Awards
------------------ ------------
Number of
Securities
Underlying
Fiscal Options
Name and Principal Position Year Salary Bonus ($) (#)(1)
--------------------------- ------ -------- --------- ------------
Kirk B. Davis(2)....................... 2000 $281,061 $41,885 140,000
President and Chief Executive Officer 1999 100,482 80,000 650,000
R. Michael Crompton(3)................. 2000 187,597 165,246 25,000
Vice President of Regulatory Affairs
and Quality Assurance 1999 157,337 40,246 75,000
1998 155,253 38,390 10,000
Patrick J. Rimroth .................... 2000 198,805 41,885 70,000
Vice President of Operations 1999 161,353 41,085 75,000
1998 149,128 37,037 10,000
Bob H. Katz(4) ........................ 2000 193,253 41,140 70,000
Vice President of Research and
Development 1999 173,583 41,140 75,000
1998 153,678 31,539 --
Deborah Arthur......................... 2000 154,389 47,665 70,000
Vice President of Clinical Affairs 1999 139,928 11,475 45,000
1998 80,788 10,000 50,000
- --------
(1) These shares are subject to exercise under stock options granted pursuant
to the Company's 1994 Stock Option Plan. See "--Option Grants in Last
Fiscal Year."
(2) Mr. Davis joined the Company in August 1999.
(3) Mr. Crompton resigned from the Company in November 2000.
(4) Mr. Katz resigned from the Company in February 2001.
14
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information relating to stock options awarded
to each of the Named Executive Officers during the fiscal year ended December
31, 2000. All such options were awarded under the Company's 1994 Stock Option
Plan.
Potential
Realizable Value
at Assumed Rates
of Stock Price
Appreciation for
Individual Grants Options Term(1)
--------------------------------------------- ----------------
Number of Percent of
Securities Total Options
Underlying Granted to Exercise
Options Employees in Price Per
Granted Fiscal 2000 Share Expiration
Name (#)(2) (%)(3) ($)(4)(5) Date 5% ($) 10% ($)
---- ---------- ------------- --------- ---------- ------- --------
Kirk Davis.............. 50,000 3.20% $3.750 08/25/10 $39,014 $173,185
Kirk Davis.............. 90,000 5.76% 1.875 12/20/10 238,975 480,484
R. Michael Crompton .... 25,000 1.60% 3.750 08/25/10 19,507 86,593
Patrick J. Rimroth...... 25,000 1.60% 3.750 08/25/10 19,507 86,593
Patrick J. Rimroth...... 45,000 2.88% 1.875 12/20/10 119,488 240,242
Bob H. Katz............. 25,000 1.60% 3.750 08/25/10 19,507 86,593
Bob H. Katz............. 45,000 2.88% 1.875 12/20/10 119,488 240,242
Deborah Arthur.......... 25,000 1.60% 3.750 08/25/10 19,507 86,593
Deborah Arthur.......... 45,000 2.88% 1.875 12/20/10 119,488 240,242
- --------
(1) Potential realizable value is based on the assumption that the Common
Stock of the Company appreciates at the annual rate shown (compounded
annually) from the date of grant until the expiration of the ten year
option term. These numbers are calculated based on the requirements
promulgated by the Securities and Exchange Commission and do not reflect
the Company's estimate of future stock price growth.
(2) The options are immediately exercisable, conditioned upon the optionee
entering into a restricted stock purchase agreement with the Company with
respect to any unvested shares. The options vest or are released from the
repurchase option of the Company at the rate of one forty-eighth ( 1/48)
of the total number of shares subject to each option at the end of each
full month beginning on the grant date for each option.
(3) Based on an aggregate of 1,562,400 options granted by the Company in the
year ended December 31, 2000 to employees of and consultants to the
Company, including the Named Executive Officers.
(4) Options were granted at an exercise price equal to the fair market value
of the Company's Common Stock on the date of grant.
(5) Exercise price may be paid in cash, check, promissory note, by delivery of
already-owned shares of the Company's Common Stock subject to certain
conditions, delivery of a properly executed exercise notice together with
irrevocable instructions to a broker to deliver promptly to the Company
amount of sale or loan proceeds required to pay the exercise price, a
reduction in the amount of any Company liability to an optionee, or any
combination of the foregoing methods of payment or such other
consideration or method of payment to the extent permitted under
applicable law.
15
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information regarding the exercise of
stock options by the Named Executive Officers during the fiscal year ended
December 31, 2000 and the value of stock options held as of December 31, 2000
by the Named Executive Officers.
Securities Underlying Value of Unexercised
Unexercised Options at In-The-Money Optons at
Value December 31, 2000 (#) December 31, 2000 ($)(1)
Shares Acquired Realized ------------------------- -------------------------
Name on Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- --------------- -------- ----------- ------------- ----------- -------------
Kirk B. Davis........... -- -- 183,330 506,670 $ 97,385 $276,333
R. Michael Crompton..... -- -- 132,598 -- 156,510 --
Bob H. Katz............. -- -- 29,166 115,834 5,455 40,779
Patrick J. Rimroth...... -- -- 34,999 120,001 5,455 40,779
Deborah Arthur.......... -- -- 55,832 109,168 5,455 40,779
- --------
(1) Fair market value of the Company's Common Stock at fiscal year-end
($2.7812 based on the last reported sale price of the Company's Common
Stock on December 31, 2000) minus the exercise price.
Employment Contracts and Change-in-Control Arrangements
Option Vesting Agreements
The Company has entered into an option vesting agreement with each of its
officers with whom it has entered into a stock option agreement, to provide
for accelerated vesting of all shares subject to such option (i) 12 months
after a change in control or (ii) in the event such officer is involuntarily
terminated within the 12 month period following a change in control. For
purposes of the option vesting agreement, "change in control" is defined as
(i) the closing of a merger, reorganization, sale of shares or sale of
substantially all of the assets of the Company in which the stockholders of
the Company immediately prior to the closing of the transaction own less than
50% of the voting power of the surviving or controlling entity (or its parent)
immediately after the transaction, or (ii) the date of the approval by the
stockholders of the Company of a plan of complete liquidation of the Company.
Certain Transactions
Transactions with Directors, Executive Officers and Others
On November 10, 2000, the Company issued an aggregate of 6,397,632 shares of
its common stock to investors (the "Private Placement") for a purchase price
of approximately $26 million, which represented a per share price of $4.064.
Pursuant to the terms of the Private Placement, each investor may elect to
receive, once during the two-year period following the closing of the Private
Placement and at no extra cost, additional shares of Company common stock
based upon the difference between the original purchase price paid by the
investor and the 33-day average closing price of the common stock as of the
date of such price adjustment.
The investors in the Private Placement included three trusts (the "Trusts")
of which B.J. Cassin, one of Company's directors, is a trustee. The Company
issued and sold an aggregate of 246,061 shares of its Common Stock to the
Trusts in the Private Placement for a purchase price of approximately
$999,992. In connection with the issuance of 2,460,630 shares to each of J.P.
Morgan Capital and Patricof & Co. Ventures, the Company agreed that its Board
of Directors will nominate one individual designated by each of J.P. Morgan
and Patricof to its Board of Directors, and that its Board of Directors and
management will vote all shares for which they hold proxies or otherwise are
entitled to vote in favor of these nominees. Martin Friedman a nominee of
J.P. Morgan and Adele Oliva a nominee of is the Patricof & Co. have been
serving on the Board of Directors since the closing of the Private Placement.
16
The Company believes that the Private Placement set forth above was made on
terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans, between
the Company and its officers, directors, principal stockholders and their
affiliates will be approved by a majority of the Board of Directors, including
a majority of the independent and disinterested outside directors, and will
continue to be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.
Report of the Compensation Committee of the Board of Directors on Executive
Compensation
During the fiscal year ended December 31, 2000 the Company's executive
compensation program was approved by the Board's Compensation Committee and
the Board of Directors. The following is the report of the Compensation
Committee with respect to the compensation paid to the Company's executive
officers during fiscal 2000. Actual compensation earned during the fiscal year
by the Named Executive Officers is shown in the Summary Compensation Table
(see page 14).
Compensation Philosophy
The Company's philosophy in setting its compensation policies for executive
officers is to maximize stockholder value over time. The primary goal of the
Company's executive compensation program is therefore to closely align the
interests of the executive officers with those of the Company's stockholders.
To achieve this goal the Company attempts to (i) offer compensation
opportunities that attract and retain executives whose abilities are critical
to the long-term success of the Company, motivate individuals to perform at
their highest level and reward outstanding achievement, (ii) maintain a
significant portion of the executive's total compensation at risk, tied to
achievement of financial, organizational and management performance goals, and
(iii) encourage executives to manage from the perspective of owners with an
equity stake in the Company. The compensation program for the Company's
executive officers consists of the following components: base salary, annual
cash incentives and long-term stock option incentives.
Base Salary
The Compensation Committee reviewed and approved fiscal 2000 base salaries
for the Chief Executive Officer and other executive officers at the beginning
of the fiscal year and as necessary at various times during the fiscal year.
Base salaries were established by the Compensation Committee based upon
competitive compensation data for similarly situated companies in the medical
device industry, the executive's job responsibilities, level of experience,
individual performance and contribution to the business. Executive officer
salaries have been targeted at or above the average rates paid by competitors
to enable the Company to attract, motivate, reward and retain highly skilled
executives. In order to evaluate the Company's competitive posture in the
industry, the Compensation Committee reviewed and analyzed the compensation
packages, including base salary levels, offered by other medical device
companies. The competitive information was obtained from surveys prepared by
reputable consulting companies or industry associations. In making base salary
decisions, the Compensation Committee exercised its discretion and judgment
based upon these factors. No specific formula was applied to determine the
weight of each factor.
Annual Cash Incentives
Annual cash incentives are established to provide a direct linkage between
individual pay and annual corporate performance. The Company generally
provides annual bonus payments to its executive officers based on achieving a
set of specific corporate and individual goals established at the beginning of
the fiscal year. Target bonuses are established based on a percentage of each
officer's salary and the portion of that target that is paid is based on the
committee's determination of the extent to which each officer's predetermined
goals were accomplished. In establishing bonus payments for fiscal 2000, the
Committee measured progress in the Company's product development programs,
clinical trials and manufacturing operations during the year, as well as
financial performance.
17
Long-Term Stock Option Incentives
The Company generally provides its executive officers with long-term
incentive compensation through grants of stock options under the Company's
1994 Stock Option Plan. The Compensation Committee believes that stock options
provide the Company's executive officers with the opportunity to purchase and
maintain an equity interest in the Company and to share in the appreciation of
the value of the Company's Common Stock.
The Compensation Committee believes that stock options directly motivate an
executive to maximize long-term stockholder value. The options also utilize
vesting periods that encourage key executives to continue in the employ of the
Company. All options granted to executive officers in fiscal 2000 were granted
at an exercise price that was at the fair market value of the Company's Common
Stock on the date of grant. The Compensation Committee considers the grant of
each option subjectively, considering factors such as the individual
performance of the executive officer and the anticipated contribution of the
executive officer to the attainment of the Company's long-term strategic
performance goals. Long-term incentives granted in prior years are also taken
into consideration.
Section 162(m)
The Board has considered the potential future effects of Section 162(m) of
the Internal Revenue Code on the compensation paid to the Company's executive
officers. Section 162(m) disallows a tax deduction for any publicly-held
corporation for individual compensation exceeding $1.0 million in any taxable
year for any of the executive officers named in the proxy statement, unless
compensation is performance-based. The Company has adopted a policy that,
where reasonably practicable, the Company will seek to qualify the variable
compensation paid to its executive officers for an exemption from the
deductibility limitations of Section 162(m). In approving the amount and form
of compensation for the Company's executive officers, the Compensation
Committee will continue to consider all elements of the cost to the Company of
providing such compensation, including the potential impact of Section 162(m).
Respectfully submitted by:
B.J. Cassin
Adele Oliva
18
Report of the Audit Committee
The Audit Committee reviews the Company's financial reporting process on
behalf of the Board of Directors. In fulfilling its responsibilities, the
Audit Committee has reviewed and discussed the audited financial statements
contained in the 2000 Annual Report on SEC Form 10-K with the Company's
management and the independent auditors. The Audit Committee discussed with
the independent auditors the matters required to be discussed by Statement on
Auditing Standards No. 61, Communication with Audit Committees, as amended. In
addition, the Audit Committee has discussed with the independent auditors the
auditors' independence from the Company and its management, including the
matters in the written disclosures and the letter required by Independence
Standards Board Standard No. 1, Independence Discussions with Audit
Committees. In reliance on the reviews and discussions referred to above, the
committee recommended to the Board of Directors, and the Board of Directors
has approved, the inclusion of the audited financial statements in the
Company's Annual Report on SEC Form 10-K for the year ended December 31, 2000,
for filing with the Securities and Exchange Commission.
Respectfully submitted by:
George Montgomery
B.J. Cassin
Adele Oliva
19
PERFORMANCE GRAPH
Set forth below is a line graph comparing the percentage change in the
cumulative return to the stockholders of the Company's Common Stock with the
cumulative return of The NASDAQ National Market, U.S. index and of the NASDAQ
Medical Devices, Instruments and Supplies index for the period commencing
February 19, 1998 (the date the Company's Common Stock commenced trading on
the NASDAQ National Market) and ending on December 31, 2000. Returns for the
indices are weighted based on market capitalization at the beginning of each
fiscal year.
Comparison of 34 Month Cumulative Total Return*
among Symphonix Devices, Inc.,
the Nasdaq Stock Market (U.S.) Index and a Peer Group
[PERFORMANCE CHART]
* $100 invested on 02/19/98 in stock or index, including reinvestment of
dividends.
Cumulative Total Return
------------------------------
2/19/1998 12/98 12/99 12/00
--------- ------ ------ ------
Symphonix Devices, Inc. ......................... 100.00 34.38 28.13 23.18
Peer Group....................................... 100.00 55.37 62.32 41.99
Nasdaq Stock Market (U.S.)....................... 100.00 128.10 238.10 143.26
The information contained under the caption (on page 17) "Report of the
Compensation Committee of the Board of Directors on Executive Compensation"
and "Performance Graph" (shown above) shall not be deemed to be "soliciting
material" or to be "filed" with the Securities and Exchange Commission, nor
shall such information be incorporated by reference into any future filing
under the Securities Act of 1933, as amended, or Securities Exchange Act of
1934, as amended (the "Exchange Act"), except to the extent that the Company
specifically incorporates it by reference into such filing.
20
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors, and persons who own more than ten percent of a registered class
of the Company's equity securities to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC") and the National
Association of Securities Dealers, Inc. Executive officers, directors and
greater than ten percent stockholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they file. Based
solely on its review of the copies of such forms received by it, or written
representations from reporting persons, the Company believes that, during the
fiscal year ended December 31, 2000, all such forms were filed on a timely
basis.
OTHER MATTERS
The Company knows of no other matters to be submitted at the meeting. If any
other matters properly come before the meeting, it is the intention of the
persons named in the enclosed form of Proxy to vote the shares they represent
as the Board of Directors may recommend.
THE BOARD OF DIRECTORS
Dated: April 2, 2001
21
APPENDIX A
SYMPHONIX DEVICES, INC.
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
CHARTER
I. Purpose. The Audit Committee shall provide assistance to the corporate
directors in fulfilling their responsibility to the shareholders, potential
shareholders, and investment community relating to corporate accounting,
reporting practices of the Corporation, and the quality and integrity of the
financial reports of the Corporation. The Audit Committee's primary duties and
responsibilities are to:
. Oversee that management has maintained the reliability and integrity of
the accounting policies and financial reporting and disclosure practices
of the Corporation.
. Oversee that management has established and maintained processes to
assure that an adequate system of internal control is functioning within
the Corporation.
. Oversee that management has established and maintained processes to
assure compliance by the Corporation with all applicable laws,
regulations and corporate policy.
The Audit Committee will fulfill these responsibilities primarily by
carrying out the activities enumerated in Section IV of this Charter.
II. Composition. The Audit Committee shall be comprised of three or more
directors as determined by the Board, each of whom shall be independent
directors, and free from any relationship that, in the opinion of the Board,
would interfere with the exercise of his or her independent judgment as a
member of the Audit Committee. All members of the Audit Committee shall have a
working familiarity with basic finance and accounting practices, and at least
one member of the Audit Committee shall have accounting or related financial
management expertise. Audit Committee members may enhance their familiarity
with finance and accounting by participating in educational programs conducted
by the Corporation or an outside consultant.
The members of the Audit Committee shall be elected by the Board at the
annual organizational meeting of the Board or until their successors shall be
duly elected and qualified. Unless a Chairperson is elected by the full Board,
the members of the Audit Committee may designate a Chairperson by majority
vote of the full Audit Committee membership.
III. Meetings. As part of its job to foster open communication, the Audit
Committee should meet at least annually with management and the independent
accountants separately to discuss any matters that the Audit Committee or each
of these groups believes should be discussed privately. In addition, the Audit
Committee or at least its Chairperson should meet with the independent
accountants and management quarterly to review the Corporation's financials
consistent with Section IV.4 below.
IV. Responsibilities and Duties. To fulfill its responsibilities and duties
the Audit Committee shall:
Documents/Reports Review
1. Review and reassess, at least annually, the adequacy of this Charter.
Make recommendations to the Board, as conditions dictate, to update this
Charter.
2. Review with management and the independent accountants the Corporation's
annual financial statements, including a discussion with the independent
accountants of the matters required to be discussed by Statement of Auditing
Standards No. 61 ("SAS No. 61").
3. Review with management and the independent accountants the 10-Q prior to
its filing including a discussion with the independent accountants of the
matters to be discussed by SAS No. 61. The Chairperson of the Audit Committee
may represent the entire Audit Committee for purposes of this review.
A-1
Independent Accountants
4. Review the performance of the independent accountants and make
recommendations to the Board regarding the appointment of the independent
accountants. On an annual basis, the Audit Committee should review and discuss
with the accountants all significant relationships the accountants have with
the Corporation to determine the accountants' independence.
5. Oversee independence of the accountants by:
. receiving from the accountants, on a periodic basis, a formal written
statement delineating all relationships between the accountants and the
Corporation consistent with Independence Standards Board Standard 1
("ISB No, 1");
. reviewing, and actively discussing with the Board, if necessary, and the
accountants, on a periodic basis, any disclosed relationships or
services between the accountants and the Corporation or any other
disclosed relationships or services that may impact the objectivity and
independence of the accountants; and
. recommending, if necessary, that the Board take certain action to
satisfy itself of the auditor's independence.
6. Based on the review and discussions referred to in section IV.2 and IV.5,
the Audit Committee shall determine whether to recommend to the Board that the
Corporation's audited financial statements be included in the Corporation's
Annual Report on Form 10-K for the last fiscal year for filing with the
Securities and Exchange Commission.
Financial Reporting Process
7. In conjunction with the independent accountants, review the integrity of
the Corporation's financial reporting processes, both internal and external.
8. Consider and approve, if appropriate, major changes to the Corporation's
auditing and accounting principles and practices as suggested by the
independent accountants or management.
9. Establish regular systems of reporting to the Audit Committee by each of
management and the independent accountants regarding any significant judgments
made in management's preparation of the financial statements and any
significant difficulties encountered during the course of the review or audit,
including any restrictions on the scope of the work or access to required
information.
10. Review any significant disagreement among management and the independent
accountants or the internal auditing department in connection with the
preparation of the financial statements.
Legal Compliance/General
11. Review with the Corporation's counsel, any legal matter that could have
a significant impact on the Corporation's financial statements.
12. Report through its Chairperson to the Board following meetings of the
Audit Committee.
13. Maintain minutes or other records of meetings and activities of the
Audit Committee.
A-2
1702-PS-01
1702-PS-01
DETACH HERE
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
SYMPHONIX DEVICES, INC.
2001 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholders of Symphonix Devices, Inc., a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement each dated April 2, 2001 and hereby appoints
Kirk B. Davis as attorney-in-fact, with full power of substitution, on behalf
and in the name of the undersigned to represent the undersigned at the 2001
Annual Meeting of Stockholders of Symphonix Devices, Inc. to be held on April
27, 2001 at 8:30 a.m., local time, at the Company's principal executive offices
located at 2331 Zanker Road, San Jose, CA 95131 and at any postponement or
adjournment thereof, and to vote all shares of Common Stock which the
undersigned would be entitled to vote if then and there personally present, on
the matters set forth on the reverse side.
- --------------- -------------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
- --------------- -------------
SYMPHONIX DEVICES, INC.
c/o EquiServe
P.O. Box 9398
Boston, MA 02205-9398
DETACH HERE
- -------------------------------------------------------------------------------
[X] Please mark
votes as in
this example.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED "FOR" PROPOSALS 1, 2, AND 3 AS THE PROXY HOLDERS DEEM ADVISABLE ON
SUCH OTHER MATTERS AS MAY COME BEFORE THE MEETING.
1. Election of Class III Directors.
Nominees: (01) Kirk B. Davis and (02) B.J. Cassin
FOR WITHHELD
[_] [_]
[_] ______________________________________ MARK HERE [_]
For all nominees except as noted above FOR ADDRESS
CHANGE AND
NOTE BELOW
2. Proposal to approve an amendment of the Company's FOR AGAINST ABSTAIN
1994 Stock Option Plan to increase the number of shares [_] [_] [_]
of Common Stock reserved for issuance thereunder by
1,000,000 shares.
3. Proposal to ratify the appointment of FOR AGAINST ABSTAIN
PriceWaterhouseCoopers LLP as independent accountants [_] [_] [_]
of the Company for the fiscal year ending December 31,
2001.
Please sign exactly as your name appears hereon. If the stock is registered in
the names of two or more persons, each should sign. Executors, administrators,
trustees, guardians and attorneys-in-fact should add their titles. If signer is
a corporation, please give full corporate name and have a duly authorized
officer sign, stating title. If signer is a partnership, please sign in
partnership name by authorized person.
Please sign, date and promptly return this proxy in the enclosed return envelope
which is postage prepaid if mailed in the United States.
Signature:_________________ Date:______ Signature:_________________ Date: ______