Endologix, Inc.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. ___)
Filed by the Registrant þ Filed by a Party other than the Registrant o
Check the appropriate box:
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12 |
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. |
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Aggregate number of securities to which transaction applies: |
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Fee paid previously with preliminary materials. |
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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. |
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Form, Schedule or Registration Statement No.: |
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Date Filed: |
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 23, 2006
To the Stockholders of Endologix, Inc.:
You are cordially invited to attend the 2006 Annual Meeting of Stockholders (the Annual
Meeting) of Endologix, Inc. (the Company) on May 23, 2006 at 9:00 a.m., Pacific time. The
Annual Meeting will be held at the Companys offices at 11 Studebaker, Irvine, California 92618 for
the following purposes, as more fully described in the accompanying proxy statement:
1. To elect two individuals to serve as Class II members of the Companys Board of Directors
for a term of three years or until their successors are duly elected and qualified.
2. To approve the 2006 Employee Stock Purchase Plan.
3. To approve the 2006 Stock Incentive Plan.
4. To approve an amendment to the Companys Amended and Restated Certificate of Incorporation,
as amended, to increase the number of authorized shares of common stock from 50,000,000 to
60,000,000 and to increase the total number of authorized shares of the Companys capital stock
from 55,000,000 to 65,000,000.
5. To transact such other business as may properly come before the Annual Meeting or any
adjournment or postponement thereof.
Only stockholders of record at the close of business on April 11, 2006 will be entitled to
vote at the Annual Meeting or any adjournment or postponement thereof.
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By Order of the Board of Directors |
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Paul McCormick |
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President and Chief Executive Officer |
Irvine, California
April 13, 2006
Your vote is important. To vote your shares by proxy you may do any one of the following:
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Vote at the internet site address listed on your proxy card; |
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Call the toll-free number listed on your proxy card; or |
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Sign, date and return in the envelope provided the enclosed proxy card. |
If you choose the third option, please do so promptly to ensure your proxy arrives in sufficient time.
TABLE OF CONTENTS
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of Endologix, Inc. (the
Company) for use at the 2006 Annual Meeting of Stockholders (the Annual Meeting) to be held on
May 23, 2006 at 9:00 a.m., Pacific time, at the Companys offices at 11 Studebaker, Irvine,
California 92618, at which time stockholders of record as of April 11, 2006 will be entitled to
vote. On April 11, 2006, the Company had 36,538,364 shares of its common stock outstanding.
The Company intends to mail this proxy statement and the accompanying proxy card on or about
April 19, 2006 to all stockholders entitled to vote at the Annual Meeting. The Companys principal
executive offices are located at 11 Studebaker, Irvine, California 92618.
VOTING
The shares of common stock constitute the only outstanding class of voting securities of the
Company. The presence in person or by proxy of the holders of a majority of the common stock
issued and outstanding constitutes a quorum for the transaction of business at the Annual Meeting.
Each stockholder of record is entitled to one vote for each share of common stock held as of the
record date on each matter to be voted on at the Annual Meeting. For purposes of the quorum and
the discussion below regarding the vote necessary to take stockholder action, stockholders of
record who are present at the Annual Meeting in person or by proxy and who abstain, including
brokers holding customers shares of record who cause abstentions to be recorded at the Annual
Meeting, are considered stockholders who are present and entitled to vote and count toward the
quorum. Brokers holding shares of record for customers generally are not entitled to vote on
certain matters unless they receive voting instructions from their customers.
Directors are elected by the affirmative vote of a plurality of votes cast at the Annual Meeting
and therefore, broker non-votes and abstentions or votes that are withheld will be excluded
entirely from the vote and have no effect on the election of directors. The proposals to approve
the 2006 Employee Stock Purchase Plan and the 2006 Stock Incentive Plan require the affirmative
vote of a majority of the shares present or represented and entitled to be voted at the Annual
Meeting and, therefore, abstentions are counted as votes against a proposal and broker non-votes
are not counted. The proposal to approve an amendment to the Companys Amended and Restated
Certificate of Incorporation to increase the authorized number of shares of common stock from
50,000,000 to 60,000,000 and to increase the total number of authorized shares of the Companys
capital stock from 55,000,000 to 65,000,000 requires the affirmative vote of a majority of the
shares of common stock of the Company outstanding as of the record date and, therefore, abstentions
and broker non-votes are counted as votes against the proposal.
Shares of common stock represented by a properly executed proxy received in time for the
Annual Meeting will be voted as specified therein, unless the proxy previously has been revoked.
Unless otherwise specified in the proxy, the persons named therein will vote FOR the election of
each of the director nominees named in this proxy statement, FOR the approval of the 2006 Employee
Stock Purchase Plan, FOR the approval of the 2006 Stock Incentive Plan and FOR the approval of the
amendment to the Amended and Restated Certificate of Incorporation to increase the
number of authorized shares of common stock from 50,000,000 to 60,000,000 and to increase the total
number of authorized shares of the Companys capital stock from 55,000,000 to 65,000,000. As to
any other business properly submitted to stockholders at the Annual Meeting, the persons named in
the proxy will vote as recommended by the Board of Directors or, if no recommendation is given, in
their discretion.
HOW TO VOTE
You may vote by proxy or in person at the Annual Meeting. To vote by proxy, you may: vote at
the Internet site address listed on your proxy card, call the toll-free number set forth on your
proxy card or mail your signed and dated proxy card in the envelope provided. Even if you plan to
attend the Annual Meeting, you are recommended to vote by proxy prior to the Annual Meeting. You
can always change your vote as described below.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to revoke it at any time
before it is voted. It may be revoked by the holder of record by filing with the Secretary of the
Company at the address above, a written notice of revocation or a new duly executed proxy bearing a
date later than the date indicated on the previous proxy, or it may be revoked by the holder of
record attending the Annual Meeting and voting in person. Attendance at the Annual Meeting will
not, by itself, revoke a proxy.
SOLICITATION
The Company will bear the entire cost of proxy solicitation, including costs of preparing,
assembling, printing and mailing this proxy statement, the proxy card and any additional material
furnished to stockholders. Copies of the solicitation materials will be furnished to brokerage
houses, fiduciaries and custodians holding in their names shares of common stock beneficially owned
by others, to forward to such beneficial owners. The Company may, if deemed necessary or
advisable, retain a proxy solicitation firm to deliver solicitation materials to beneficial owners
and to assist the Company in collecting proxies from such individuals. The Company may reimburse
persons representing beneficial owners of shares for their expenses in forwarding solicitation
materials to such beneficial owners. Original solicitation of proxies by mail may be supplemented
by telephone, electronic mail or personal solicitation by directors, officers or other regular employees
of the Company. No additional compensation will be paid to directors, officers or other regular
employees for such services.
2
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information known to the Company regarding the
ownership of the Companys common stock as of April 7, 2006 by: (i) each stockholder known to the
Company to be a beneficial owner of more than five percent (5%) of the Companys common stock; (ii)
each director; (iii) each executive officer named in the Summary Compensation Table; and (iv) all
current directors and officers of the Company as a group.
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Number of Shares |
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Percentage of |
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Beneficially Owned |
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Outstanding Shares |
Name and Address (1) |
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(2) |
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(3) |
Federated Investors, Inc. (4) |
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7,981,406 |
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21.8 |
% |
Elliott Associates (5) |
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3,086,621 |
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8.3 |
% |
Goldman,
Sachs & Co. (6) |
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2,817,134 |
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7.7 |
% |
Franklin D.
Brown (7) |
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427,200 |
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1.2 |
% |
Paul
McCormick (8) |
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568,988 |
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1.6 |
% |
Robert J.
Krist (9) |
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62,955 |
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Karen
Uyesugi (10) |
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134,864 |
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* |
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Stefan D.
Schreck (11) |
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54,547 |
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* |
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Ronald H.
Coelyn (12) |
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30,000 |
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* |
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Roderick de
Greef (13) |
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55,104 |
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* |
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Edward B.
Diethrich, M.D. (14) |
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623,775 |
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1.7 |
% |
Jeffrey F.
ODonnell (15) |
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388,415 |
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1.1 |
% |
Gregory D.
Waller (16) |
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55,625 |
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* |
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Herbert Mertens |
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All
directors and officers as a group (10 persons) (17) |
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2,401,473 |
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6.4 |
% |
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* |
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Represents beneficial ownership of less than 1% |
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Unless otherwise indicated, the business address of each holder is: c/o Endologix, Inc., 11
Studebaker, Irvine, CA 92618. |
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(2) |
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The number of shares of common stock beneficially owned includes any shares issuable pursuant
to stock options that are currently exercisable or may be exercised within 60 days after April
7, 2006. Shares issuable pursuant to such options are deemed outstanding for computing the
ownership percentage of the person holding such options but are not deemed to be outstanding
for computing the ownership percentage of any other person. |
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Applicable percentages are based on 36,538,364 shares
outstanding on April 7, 2006, plus the
number of shares such stockholder can acquire within 60 days
after April 7, 2006. |
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Based on information contained in a Schedule 13-G/A filed with the Securities and Exchange
Commission on February 14, 2006. The address of Federated Investors, Inc. is Federated
Investors Tower, 5800 Corporate Drive, Pittsburgh, Pennsylvania 15222. |
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Based on information contained in a Schedule 13D filed with the Securities and Exchange
Commission on April 7, 2006. The address of Elliott Associates,
L.P. is 712 Fifth Avenue,
36th Floor, New
York, New York 10019. |
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Based on information contained in a Schedule 13-G filed with the Securities and Exchange
Commission on February 1, 2006. The address of Goldman, Sachs & Co. is 85 Broad Street New
York, New York 10004. |
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Includes 162,500 shares subject to options exercisable within 60 days after April 7, 2006 and
214,700 shares held in a family trust. |
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Includes 87,500 shares subject to options exercisable within 60 days after April 7, 2006. |
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(9) |
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Includes 48,923 shares subject to options exercisable within 60 days after April 7, 2006. |
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(10) |
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Includes 99,973 shares subject to options exercisable within 60 days after April 7, 2006. |
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(11) |
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Includes 52,671 shares subject to options exercisable within 60 days after April 7, 2006. |
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(12) |
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Consists of shares subject to options exercisable within 60 days after April 7, 2006. |
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(13) |
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Consists of shares subject to options exercisable within 60 days after April 7, 2006. |
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(14) |
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Includes 523,775 shares held by T&L Investments L.P. Dr. and Mrs. Edward B. Diethrich hold a
total of 98% of the voting and dispositive power over the shares through a 98% ownership of
the capital stock of EBDFam, Inc., the general partner in T&L Investments L.P. and 70,000
shares subject to options exercisable within 60 days after April 7, 2006. |
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(15) |
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Includes 387,915 shares subject to options exercisable within 60 days after April 7, 2006. |
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(16) |
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Consists of shares subject to options exercisable within 60 days after April 7, 2006. |
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(17) |
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Includes 1,050,211 shares subject to options exercisable
within 60 days after April 7, 2006. |
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4
PROPOSAL ONE
ELECTION OF DIRECTORS
The Board of Directors currently consists of seven members, divided into three classes
approximately equal in size. Each class of directors is elected for three-year terms on a
staggered term basis, so that each year the term of office of one class will expire and the terms
of office of the other classes will continue for periods of one and two years, respectively. The
nominees for election at the Annual Meeting will serve as Class II directors, with a term
expiring at the annual meeting of stockholders to be held in 2009. Each director is elected to
serve until the expiration of his term, or until his successor is duly elected and qualified.
The nominees for election as Class II directors at the Annual Meeting are Franklin D. Brown
and Edward B. Diethrich, M.D., each of whom is currently a director of the Company. Mr. Brown has
served as a director since 1997 and Dr. Diethrich has served as a director since 2002. Mr. Brown
and Dr. Diethrich have each indicated a willingness to continue to serve on the Board of Directors
if elected. However, in the event any nominee is unable to or declines to serve as a director at
the time of the Annual Meeting, the proxies will be voted for an additional nominee who shall be
designated by the current Board of Directors to fill the vacancy.
Unless otherwise instructed, the proxy holders intend to vote all proxies
received by them in favor of the nominees listed above.
Vote Required and Recommendation of the Board of Directors
The two candidates receiving the highest number of affirmative votes of shares entitled to
vote at the Annual Meeting will be elected directors of the Company. THE BOARD OF DIRECTORS
RECOMMENDS A VOTE FOR THE ELECTION OF THE TWO NOMINEES NAMED ABOVE.
Information With Respect to Nominees And Directors
Set forth below for each nominee for election as director and for each director of the
Company, is information regarding his age, position(s) with the Company, the period he has served
as a director, any family relationship with any other director or executive officer of the Company,
and the directorships currently held by him in corporations whose shares are publicly registered.
Class II
(Directors nominated for office with a term expiring in 2009)
Franklin D. Brown, 62, serves as the Companys Chairman and has been a director since 1997.
Following the merger with the former Endologix in May 2002, Mr. Brown was the Companys Chief
Executive Officer and Chairman until January 2003, when he was elected Executive Chairman. Mr.
Brown served as the Companys Executive Chairman until October 2004. Mr. Brown previously served
as the Chairman and Chief Executive Officer of the former Endologix, Inc. since joining that
company in 1998. From October 1994 until the sale of the company in September 1997, Mr. Brown
served as Chairman, President and Chief Executive Officer at Imagyn Medical, Inc. From 1986 until
the sale of the company in 1994, Mr. Brown served as President and Chief Executive Officer of
Pharmacia Deltec, Inc., an ambulatory drug delivery company. Mr. Brown also serves on the board of
directors of Triage Medical, Inc., a private company.
Edward B. Diethrich, M.D., 70, has served on the Companys Board of Directors since May 2002.
Dr. Diethrich was a Director for the former Endologix, Inc. from 1997 until its merger with the
Company in May 2002. Dr. Diethrich has been the Medical Director and Chief of Cardiovascular
Surgery of the Arizona Heart Hospital since 1997, and has been the Director and Chief of
Cardiovascular Surgery at the Arizona Heart Institute from 1971 to the present.
Class III
(Directors continuing in office with a term expiring in 2007)
5
Paul McCormick, 53, is the Companys President and Chief Executive Officer and has been a
director since May 2002. Mr. McCormick has more than 27 years in the medical device industry. The
majority of his career has been in emerging medical technologies. Mr. McCormick joined the former
Endologix in January 1998, prior to its merger with the Company in May 2002, as Vice President of
Sales and Marketing, and served as President and Chief Operating Officer from January 2001 until
the merger in May 2002. He then served in the same position with the Company until January 2003
when he became President and Chief Executive Officer. Previously, he held various sales and
marketing positions at Progressive Angioplasty Systems, Heart Technology, Trimedyne Inc., and
United States Surgical Corporation.
Roderick de Greef, 45, has served on the Companys Board of Directors since November 2003.
Mr. de Greef has served as the Chief Financial Officer of Cambridge Heart since October 2005. Mr. de
Greef served as the Executive Vice President, Chief Financial Officer and Secretary of Cardiac
Science, Inc. from March 2001 to September 2005. From 1995 to 2001, Mr. de Greef provided corporate
finance advisory services to a number of early stage companies including Cardiac Science, where he
was instrumental in securing equity capital beginning in 1997, and advising on merger and
acquisition activity. From 1989 to 1995, Mr. de Greef was Vice President and Chief Financial
Officer of BioAnalogics, Inc. and International BioAnalogics, Inc., both publicly held development
stage medical technology companies located in Portland, Oregon. From 1986 to 1989, Mr. de Greef was
Controller and then Chief Financial Officer of publicly held Brentwood Instruments, Inc. Mr. de
Greef has a B.A. in Economics and International Relations from California State University at San
Francisco and an M.B.A. from the University of Oregon. Mr. de Greef also serves on the boards of
BioLife Solutions, Inc. a public biotechnology company located in Binghamton, New York and
DentalView, Inc. an Irvine-based privately held medical device company.
Gregory D. Waller, 56, has served on the Companys Board of Directors since November 2003.
Mr. Waller served as Vice President-Finance, Chief Financial Officer and Treasurer of Sybron Dental
Specialties, Inc., a manufacturer and marketer of consumable dental products, from August 1993 to
May 2005 and was formerly the Vice President and Treasurer of Kerr, Ormco and Metrex. Mr. Waller
joined Ormco in December 1980 as Vice President and Controller and served as Vice President of Kerr
European Operations from July 1989 to August 1993. Mr. Waller has an MBA with a concentration in
accounting from California State University, Fullerton. Mr. Waller also serves on the
board of Alsius Corporation, an Irvine-based privately held medical device company and acts as
Chairman of its Audit Committee.
Class I
(Directors continuing in office with a term expiring in 2008)
Jeffrey F. ODonnell, 46, has served on the Companys Board of Directors since
June 1998.
Mr. ODonnell joined the Company in a management capacity in 1995, became President in
January 1998 and Chief Executive Officer that June. In November 1999
Mr. ODonnell joined
PhotoMedex, Inc. as President and Chief Executive Officer and has served as a member of its
Board of Directors since that date. From 1994 to 1995 Mr.
ODonnell held the position of President and CEO of Kensey Nash Corporation, a manufacturer
of
Cardiology Products. Additionally, he has held several senior sales and marketing management
positions at Boston Scientific, Guidant and Johnson & Johnson
Orthopedic. Mr. ODonnell is a
graduate of LaSalle University School of Business.
Ronald H. Coelyn, 61, has served on the Companys Board of Directors since January 2005. Mr.
Coelyn specializes in senior management and board appointments at the executive search firm The
Coelyn Group, which he founded in 1992. Prior to that, Mr. Coelyn served for three years as
President and Chief Operating Officer of a medical diagnostics company, American Diagnostics
Corporation, where he was responsible for sales and marketing, research and development, regulatory
affairs, quality systems, manufacturing and finance. Subsequently, Mr. Coelyn was Chairman,
President and Chief Executive Officer of a healthcare information systems company focused on
practice management and electronic medical records. Mr. Coelyn currently serves as co-Chairman of
LINC (LifeSciences Industry Council) of Orange County, California, a member of the BioMedical
Industry Councils board of directors and an advisory board member of the American Heart
Association.
6
Other Executive Officers
The other current executive officers of the Company are as follows:
Stefan G. Schreck, Ph.D., 46, joined the Company in February 2004 and serves as the Companys
Vice President of Research & Development and Operations. Dr. Schreck has more than 20 years of
experience in research and development of medical products. Prior to joining the Company, Dr.
Schreck held increasingly more responsible R&D management positions in the medical device industry.
From May 1995 to April 2000, Dr. Schreck served as Director of Research in Baxter Healthcares
Heart Valve Division. From April 2000 to August 2002, Dr. Schreck served as Senior Director R&D at
Edwards Lifesciences and was responsible for the development of all surgical heart valve repair and
replacement products. From August 2002 to February 2004, Dr. Schreck served as President & CEO of
MediMorph Solutions Inc., an engineering and management consulting firm for the medical device
industry that he founded.
Karen Uyesugi, 50, became the Companys Vice President of Clinical, Regulatory Affairs and
Quality Assurance following the Companys merger with the former Endologix in May 2002. Ms.
Uyesugi has over 25 years of both domestic and international regulatory experience in the medical
device and pharmaceutical industry. The majority of her career has been involved with a wide
variety of Class III and Class II medical devices ranging from implantable cardiovascular devices,
neurosurgery, and general surgery products. Prior to joining the former Endologix in July 1998, Ms.
Uyesugi held various positions in regulatory, clinical, and quality assurance at Neuro Navigational
Corporation, Trimedyne, Inc., Baxter Healthcare, Shiley, Inc., and Allergan Pharmaceuticals.
Robert J. Krist, 56, joined the Company in August 2004 and serves as the Companys Chief
Financial Officer and Secretary. Most recently, Mr. Krist served as Chief Financial Officer of
CardioNet, Inc., a privately held marketer of mobile cardiac outpatient telemetry tools and
services based in San Diego, California. Mr. Krist previously served for three years as Chief
Financial Officer of Irvine-based Datum, Inc., a technology manufacturer. Prior to that, Mr. Krist
served for three years as Chief Financial Officer and Vice President, Field Operations, of Bridge
Medical, Inc., a start-up pharmacy information systems company. Mr. Krist also held various
management positions during his six years at McGaw, Inc., including Chief Financial Officer and
President of the Central Admixture Pharmacy Services Division. Mr. Krist received a BS in physics
from Villanova University and an MBA from the University of Southern California.
Meetings of the Board of Directors
The Board of Directors met five times during the year ended December 31, 2005. Each director
attended at least 75% of the aggregate of (i) the total number of meetings of the Board of
Directors and (ii) the total number of meetings held by all committees of the Board of Directors on
which he served.
Committees of the Board of Directors
The Board of Directors has an Audit Committee, a Compensation Committee and a Nominating and
Governance Committee. Each committee operates under a written charter adopted by the Board of
Directors. A copy of the charter of the Audit Committee was included as Appendix A to the
Companys proxy statement relating to its 2004 annual meeting of stockholders. Copies of the
charters of all standing committees are available on the Investor Relations page on the Companys
web site located at www.endologix.com.
Audit Committee
The Audit Committee is composed of three directors. The current members are Gregory D.
Waller, Roderick de Greef and Jeffrey ODonnell. Each member of the Audit Committee qualifies as
an independent director in compliance with the applicable rules of the Securities and Exchange
Commission and the Nasdaq Marketplace Rules. The Board of Directors has determined that each member
of the Audit Committee qualifies as an audit committee financial expert as that term is defined
by the rules and regulations of the Securities and Exchange Commission.
7
The Audit Committee has the sole authority to appoint and, when deemed appropriate, replace
the Companys independent registered public accounting firm, and has established a policy of
pre-approving all audit and permissible non-audit services provided by the Companys independent
registered public accounting firm. The Audit Committee has, among other things, the
responsibility to review and approve the scope and results of the annual audit, to evaluate with
the independent registered public accounting firm the performance and adequacy of the Companys
financial personnel and the adequacy and effectiveness of the Companys systems and internal
financial controls, to review and discuss with management and the independent registered public
accounting firm the content of the Companys financial statements prior to the filing of the
Companys quarterly reports on Form 10-Q and annual reports on Form 10-K, to establish procedures
for receiving, retaining and investigating reports of illegal acts involving the Company or
complaints or concerns regarding questionable accounting or auditing matters and to establish
procedures for the confidential, anonymous submission by the Companys employees of concerns or
complaints regarding questionable accounting or auditing matters. The Audit Committee met seven
times during the year ended December 31, 2005. To ensure independence, the Audit Committee also
meets separately with the Companys independent registered public accounting firm and members of
management.
Compensation Committee
The Compensation Committee consists of two directors. During 2005, the members of the
Compensation Committee were Edward B. Diethrich, M.D. and Ronald Coelyn, each of whom satisfies the
independence standards set forth in the Nasdaq Marketplace Rules. The Compensation Committee is
primarily responsible for evaluating and approving the cash and equity compensation for the Chief
Executive Officer and other executive officers, and administers the Companys employee compensation
plans. The Compensation Committee held four meetings during the year ended December 31, 2005.
Nominating and Governance Committee
In 2005, the members of the Nominating and Governance Committee were Jeffrey ODonnell and
Roderick de Greef, each of whom satisfy the independence standards set forth in the
Nasdaq Marketplace Rules. The primary purposes of the Nominating and Governance Committee are to
identify and recommend to the Board of Directors individuals qualified to serve as members of the
Companys Board of Directors and each of its committees, to develop and recommend to the Board of
Directors corporate governance guidelines and to lead the Board of Directors in its annual review
of its composition, effectiveness and performance. The Nominating and Governance
Committee held one meeting during the year ended December 31, 2005.
Evaluation of Director Nominees
In the case of incumbent directors whose terms of office are set to expire, the Nominating and
Governance Committee reviews such directors overall service to the Company during their term,
including their level of participation and the quality of their performance. In the case of new
director nominees, the Nominating and Governance Committee screens candidates, does reference
checks, prepares a biography for each candidate for the Board to review and conducts interviews.
The members of the Nominating and Governance Committee and the Companys Chief Executive Officer
interview candidates that meet the criteria described below, and the Nominating and Governance
Committee recommends nominees to the Board that best suit the Boards needs. The Nominating and
Governance Committee does not intend to evaluate nominees for director any differently because the
nominee is or is not recommended by a stockholder. All of the nominees for director in this proxy
statement are standing for re-election. The Company does not pay a fee to any third party to
identify or evaluate or assist in identifying or evaluating potential director nominees.
The Nominating and Governance Committee believes that nominees for director must meet certain
minimum qualifications, including:
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having the highest character and integrity; |
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having business or other experience that is of particular relevance to the Company; |
8
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having sufficient time available to devote to the affairs of the Company; and |
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being free of any conflicts of interest which would violate any applicable law
or regulations or interfere with the proper performance of the responsibilities of
a director. |
Stockholder Nominations of Directors
The Nominating and Governance Committee will consider stockholder recommendations for
directors sent to the Nominating and Governance Committee, c/o Corporate Secretary, Endologix,
Inc., 11 Studebaker, Irvine, California 92618. Stockholder recommendations for directors must
include: (1) the name and address of the stockholder recommending the person to be nominated and
the name and address of the person or persons to be nominated, (2) a representation that the
stockholder is a holder of record of stock of the Company, (3) a description of all arrangements or
understandings between the stockholder and the recommended nominee, if any, (4) such other
information regarding the recommended nominee as would be required to be included in a proxy
statement filed pursuant to Regulation 14A promulgated under the Securities Exchange Act of 1934
had the nominee been nominated, or intended to be nominated, by the Board of Directors, and (5) the
consent of the recommended nominee to serve as a director of the Company if so elected. The
stockholder must also state if they intend to appear in person or by proxy at the annual meeting to
nominate the person specified in the notice. In accordance with the Companys bylaws, the notice
containing the nomination must be received by the Company not less than 90 days prior to the annual
or special meeting of stockholders or, in the event less than 100 days notice or prior public
disclosure of the date of the annual or special meeting has been given, then no later than 10 days
after such notice has been given.
Communications with the Board of Directors
The Board of Directors provides a process for stockholders to send communications to the
Board. Stockholders can send communications to the Board of Directors, or an individual director,
by sending a written communication to: Endologix, Inc., 11
Studebaker, Irvine, California 92618, Attn:
Corporate Secretary. All communications sent to this address are sent to the specific directors
identified in the communication or if no directors are identified, the communication is delivered
to the Chairman of the Board. The Company does not have a policy with respect to director
attendance at annual meetings of the Companys stockholders. Historically, other than employees of
the Company, few stockholders have attended the Companys annual meetings. Six directors, one of
whom was an employee of the Company, attended the Companys annual meeting in 2005.
Code of Ethics
The Company has adopted a Code of Conduct and Ethics that applies to its principal executive
officer, principal financial officer and principal accounting officer. A copy of the Code of
Conduct and Ethics is available on the Investor Relations page on the Companys website at
www.endologix.com, and a copy may also be obtained by any person, without charge, upon written
request delivered to Endologix, Inc., Attn: Corporate Secretary, 11 Studebaker, Irvine, California
92618. The Company will disclose any amendment to, or waiver from, a provision of the Code of
Conduct and Ethics by posting such information on the Companys website at the above address.
Compensation of Directors
Non-employee directors each receive a fee of $1,500 per quarter, $2,000 for each Board meeting
attended in person and reimbursement for certain travel expenses and other out-of-pocket costs.
Members of Board committees, other than the Audit Committee, each receive an additional fee of $500
for each committee meeting attended. Additionally, each member of the Audit Committee is entitled
to a fee of $1,000 per meeting attended and the chairman of the Audit Committee is entitled to an
additional quarterly retainer of $1,000. In addition, each individual who first becomes a
non-employee Board member, whether elected by the stockholders or appointed by the Board,
automatically will be granted, at the time of such initial election or appointment, an option to
purchase 30,000 shares of common stock at the fair market value per share of common stock on the
grant date, which vests in four equal annual installments.
9
On the date of each annual meeting of stockholders, each individual who is
to continue to serve as a non-employee Board member after the annual meeting will receive an
additional option grant to purchase 20,000 shares of common stock, other than the Chairman of the
Board who receives an option grant to purchase up to 50,000 shares of common stock, which vests upon the
completion of one year of Board service.
There are no arrangements or understandings involving any director or any nominee regarding
such persons status as a director or nominee.
Section 16(a) Beneficial Ownership Reporting Compliance
The members of the Companys Board of Directors, the Companys executive officers and persons
who hold more than 10% of the Companys outstanding common stock are subject to the reporting
requirements of Section 16(a) of the Securities Exchange Act of 1934 which requires them to file
reports with respect to their ownership of the common stock and their transactions in such common
stock. Based upon (i) the copies of Section 16(a) reports that the Company received from such
persons for their 2005 fiscal year transactions in the common stock and their common stock holdings
and/or (ii) the written representations received from one or more of such persons that no other
reports were required to be filed by them for the 2005 fiscal year, the Company believes that all
reporting requirements under Section 16(a) for such fiscal year were met in a timely manner by the
Companys executive officers, Board members and greater than 10% stockholders except that a Form 4
for Mr. Mertens grant of a stock appreciation right on
February 7, 2005 was not timely filed and a Form 4 for Mr.
ODonnells sale of shares of common stock on November 23,
2005 was not timely filed.
10
Executive Officer Compensation
The following table sets forth the salary and bonus earned for the three fiscal years ended
December 31, 2005, by the Companys Chief Executive Officer and the other executive officers whose
salary and bonus exceeded $100,000. All of the individuals named in the table are referred to in
this proxy statement as the Named Executive Officers.
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Summary Compensation Table |
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Annual Compensation |
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Long Term Compensation |
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Securities |
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Underlying |
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All Other |
Name and Principal Position |
|
Year |
|
Salary ($) |
|
Bonus ($) |
|
Options (#) |
|
Compensation ($) |
Paul McCormick |
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2005 |
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$ |
300,000 |
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$ |
63,000 |
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100,000 |
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President and Chief Executive |
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2004 |
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$ |
263,333 |
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$ |
82,950 |
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Officer |
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2003 |
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$ |
240,000 |
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$ |
50,400 |
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100,000 |
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Stefan G. Schreck (1) |
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2005 |
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$ |
185,000 |
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$ |
44,955 |
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46,400 |
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Vice President, Research |
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2004 |
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$ |
144,927 |
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$ |
47,328 |
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75,000 |
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and Development |
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2003 |
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Robert J. Krist (2) |
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2005 |
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$ |
196,000 |
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$ |
45,158 |
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19,100 |
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Chief Financial Officer and |
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2004 |
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$ |
71,250 |
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$ |
41,467 |
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100,000 |
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Secretary |
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2003 |
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Karen Uyesugi |
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2005 |
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$ |
183,577 |
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$ |
40,293 |
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59,900 |
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Vice President, Clinical and |
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2004 |
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$ |
176,800 |
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$ |
45,880 |
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Regulatory Affairs |
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2003 |
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$ |
170,000 |
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$ |
38,250 |
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30,000 |
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Herbert Mertens (3) |
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2005 |
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$ |
143,473 |
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$ |
35,417 |
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12,000 |
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Vice President, Marketing |
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2004 |
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and Sales |
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2003 |
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(1) |
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Mr. Schreck joined the Company as Vice President, Research and Development in February 2004.
Mr. Schrecks annualized salary for 2004 was $170,000. |
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(2) |
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Mr. Krist joined the Company as Chief Financial Officer and Secretary in August 2004. Mr.
Krists annualized salary for 2004 was $190,000. |
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(3) |
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Mr. Mertens joined the Company as Vice President, Marketing and Sales in February 2005. Mr.
Mertens annualized salary for 2005 was $160,000.
Mr. Mertens employment with the Company ceased on December 9, 2005. |
11
Option Grants
The following table sets forth the number and potential realizable value of options granted to
each of the Named Executive Officers during the year ended December 31, 2005.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
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Potential Realizable |
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Value of Options At |
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Assumed Annual Rates of Stock |
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Price Appreciation for |
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Individual Grants |
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Option Term (4) |
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Number of |
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% of Total Options |
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Securities |
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Granted To |
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Underlying Options |
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Employees in Fiscal |
|
Exercise of Base |
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|
Name |
|
Granted (#) (1) |
|
Year (2) |
|
Price ($/Sh) (3) |
|
Expiration Date |
|
5% ($) |
|
10% ($) |
Paul McCormick |
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100,000 |
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11.5 |
% |
|
$ |
5.81 |
|
|
|
04/04/2015 |
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|
$ |
365,388 |
|
|
$ |
925,964 |
|
Stefan G. Schreck |
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|
46,400 |
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5.3 |
% |
|
$ |
5.81 |
|
|
|
04/04/2015 |
|
|
$ |
169,540 |
|
|
$ |
429,647 |
|
Robert J. Krist |
|
|
19,100 |
|
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|
2.2 |
% |
|
$ |
5.81 |
|
|
|
04/04/2015 |
|
|
$ |
69,789 |
|
|
$ |
176,859 |
|
Karen Uyesugi |
|
|
59,900 |
|
|
|
6.9 |
% |
|
$ |
5.81 |
|
|
|
04/04/2015 |
|
|
$ |
218,867 |
|
|
$ |
554,653 |
|
Herbert Mertens |
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12,000 |
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1.4 |
% |
|
$ |
6.95 |
|
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02/18/2015 |
|
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$ |
52,450 |
|
|
$ |
132,918 |
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(1) |
|
The options listed in the table were granted under the Endologix 1996 Stock Option/Stock
Issuance Plan. The options have a maximum term of ten years measured from the date of grant.
Twenty-five percent (25%) of the options are exercisable upon the optionees completion of one
year of service measured from the date of grant, and the balance are exercisable in a series
of successive equal monthly installments upon the optionees completion of each additional
month of service over the next 36 months thereafter. |
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|
(2) |
|
Based upon options granted for an aggregate of 871,800 shares to employees in 2005, including
the Named Executive Officers. |
|
(3) |
|
The exercise price may be paid in cash or in shares of the Companys common stock valued at
fair market value on the exercise date. |
|
(4) |
|
The 5% and 10% assumed annual rates of compounded stock price appreciation are mandated by
rules of the Securities and Exchange Commission. There can be no guarantee that the actual
stock price appreciation over the option term will be at the assumed 5% and 10% levels or at
any other defined level. Unless the market price of the common stock appreciates over the
option term, no value will be realized from the option grants. |
12
Option Exercises
The following table sets forth the number of shares underlying both exercisable and
unexercisable stock options held by the Named Executive Officers as of December 31, 2005, and the
values for in-the-money options.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
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Number of Securities |
|
|
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|
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|
Underlying Unexercised |
|
Value of Unexercised |
|
|
Shares Acquired on |
|
Aggregate Value |
|
Options at Fiscal Year-End |
|
In-the-Money Options at |
Name |
|
Exercise (#) |
|
Realized ($) |
|
(#) |
|
Fiscal Year-End ($) (1) |
|
|
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Exercisable |
|
Unexercisable |
|
Exercisable |
|
Unexercisable |
Paul McCormick |
|
|
|
|
|
|
|
|
|
|
50,000 |
|
|
|
150,000 |
|
|
$ |
149,000 |
|
|
$ |
158,000 |
|
Stefan G. Schreck |
|
|
|
|
|
|
|
|
|
|
32,292 |
|
|
|
89,108 |
|
|
$ |
41,250 |
|
|
$ |
62,926 |
|
Robert J. Krist |
|
|
|
|
|
|
|
|
|
|
33,333 |
|
|
|
85,767 |
|
|
$ |
45,000 |
|
|
$ |
91,719 |
|
Karen Uyesugi |
|
|
|
|
|
|
|
|
|
|
73,333 |
|
|
|
86,567 |
|
|
$ |
397,615 |
|
|
$ |
120,676 |
|
Herbert Mertens |
|
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(1) |
|
Based on the fair market value of the Companys common stock on December 30, 2005, the last
trading day of the fiscal year, which was $6.90 per share, less the exercise price payable for
such shares. |
Change in Control and Severance Agreements
The Company has entered into employment agreements with each of its Named Executive Officers.
The agreements automatically renewed upon their initial expiration date of October 18, 2005 and
will now expire on October 18, 2006, unless sooner terminated pursuant to the terms and provisions
thereof. Unless thirty days notice is provided by either party to the agreement before the
expiration date, the agreement automatically renews for successive one-year terms thereafter. The
agreement provides that if the Company terminates the executive officers employment without cause
or he or she resigns for good reason, the executive officer is entitled to his or her base salary
and continued benefits for six months, all stock options that would have vested over the following
six months will vest immediately upon termination and he or she would be entitled to a prorated
payment equal to the target bonus amount for which he or she would have been eligible for the year
of termination. In addition, in the event the executive officer is terminated, or resigns for good
reason, in connection with a change in control, the executive officer is entitled to his or her
base salary and continued benefits for twelve months, all stock options will accelerate and vest
and he or she would be entitled to a prorated payment equal to the target bonus amount for which he
or she would have been eligible for the year of termination.
Compensation Committee Interlocks and Insider Participation
None of the Companys executive officers served on the board of directors or compensation
committee of any entity that has one or more executive officers serving as a member of the
Companys Board of Directors or Compensation Committee.
Board Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors evaluates and approves the base salary
and bonuses to be paid to the Companys executive officers each fiscal year. In addition, the
Compensation Committee administers the Companys equity compensation plans with respect to option
grants and stock issuances made thereunder to officers and other key employees. The following is a
summary of the policies of the Compensation Committee that affect the compensation paid to
executive officers, as reflected in the tables and text set forth elsewhere in this proxy
statement.
13
General Compensation Policy. The Companys compensation policy is designed to attract and
retain qualified key executives critical to the Companys success and to provide such executives
with performance-based incentives tied to the achievement of certain milestones. One of the
Compensation Committees primary objectives is to have a substantial portion of each officers
total compensation contingent upon the Companys performance as well as upon the individuals
contribution to the Companys success as measured by his personal performance. Accordingly, each
executive officers compensation package is comprised primarily of three elements:
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base salary which reflects individual performance and expertise and is designed to
be competitive with salary levels in the industry; |
|
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|
variable performance awards payable in cash and tied to the Companys achievement of
certain goals; and |
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|
long-term stock-based incentive awards that strengthen the mutuality of interests
between the executive officers and the Companys stockholders. |
The following are the principal factors that the Compensation Committee considered in
establishing the components of each executive officers compensation package for the 2005 fiscal
year. However, the Compensation Committee may in its discretion apply different factors,
particularly different measures of financial performance, in setting executive compensation for
future fiscal years.
Base Salary. The base salary levels for the executive officers were established for the 2005
fiscal year on the basis of the following factors: personal performance, the estimated salary
levels in effect for similar positions at a select group of companies with which the Company
competes for executive talent, and internal comparability considerations. Although the
Compensation Committee reviewed various compensation surveys, it did not rely upon any specific
survey for comparative compensation purposes. Instead, the Compensation Committee made its
decisions as to the appropriate market level of base salary for each executive officer on the basis
of its understanding of the salary levels in effect for similar positions at those companies with
which the Company competes for executive talent. The Compensation Committee on an annual basis
will review base salaries, and adjustments will be made in accordance with the factors indicated
above.
Annual Incentive Compensation. The Endologix Employee Bonus Plan provides the Compensation
Committee with discretionary authority to award cash bonuses to the Chief Executive Officer and to
the other executive officers in accordance with recommendations made by the Chief Executive
Officer. The awards are based upon the extent to which financial and performance targets
are met and the contribution of each such
officer to the attainment of such targets. For fiscal year 2005, the performance
targets for each of the executive officers included gross sales, cash flow, engineering product
goals and regulatory milestone goals. The weight given to each factor varied from individual to individual.
Long-Term Incentive Compensation. The 1996 Stock Option/Stock Issuance Plan also provides the
Board with the ability to align the interests of the executive officer with those of the
stockholders and provide each individual with a significant incentive to manage the Company from
the perspective of an owner with an equity stake in the business. The number of shares subject to
each option grant is based upon the officers tenure, level of responsibility and relative position
in the Company. The Company has established general guidelines for making option grants to the
executive officers in an attempt to target a fixed number of unvested option shares based upon the
individuals position with the Company and their existing holdings of unvested options. However,
the Company does not adhere strictly to these guidelines and will vary the size of the option grant
made to each executive officer as it feels the circumstances warrant. Each grant allows the
officer to acquire shares of the Companys common stock at a fixed price per share (the market
price on the grant date) over a specified period of time (up to 10 years from the date of grant).
The option normally vests in periodic installments over a four-year period, contingent upon the
executive officers continued employment with the Company. Accordingly, the option will provide a
return to the executive officer only if he or she remains in the Companys employ and the market
price of the Companys common stock appreciates over the option term.
14
CEO Compensation. The Compensation Committee sets the base salary for Paul McCormick, the
Companys Chief Executive Officer, at a level which is designed to provide a salary competitive
with salaries paid to chief executive officers of similarly-sized companies in the industry and
commensurate with each such individuals experience. Mr. McCormicks critical role in completing
the commercial launch of the Companys Powerlink System was an important determinant in setting
his compensation. As the Companys activities for 2005 switched from mainly research and development to a focused commercial launch
of the Powerlink System,
the Compensation Committee did not intend to have the base salary component of compensation
affected to any significant degree by the Companys financial performance.
Instead, the Compensation Committee set goals that included the
achievement of regulatory milestones, increasing clinical data
support for the Companys products, evaluating and modifying the revenue generation model, the completion of other
measures aimed at improving the Companys gross margins and
product performance and ensuring the adequacy of the Companys operating cash position.
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Compensation Committee |
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Ronald Coelyn |
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Edward B. Diethrich, M.D. |
The material in this report is not soliciting material and is not deemed filed with the
Securities and Exchange Commission and is not to be incorporated by reference in any filing of the
Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended, whether made before or after the date hereof and irrespective of any general incorporation
language in any such filing.
15
Report of the Audit Committee of the Board of Directors
Management is responsible for the Companys internal control over financial reporting and for
the preparation of the consolidated financial statements in accordance with generally accepted
accounting principles. The Companys independent registered public accounting firm is responsible
for performing an independent audit of the Companys consolidated financial statements in
accordance with standards of the Public Company Accounting Oversight Board (United States) and to
issue a report on the Companys financial statements and of its internal control over financial
reporting. The Audit Committees responsibility is to monitor and oversee these processes.
In this context, the Audit Committee has met and held discussions with management and the
independent registered public accounting firm. Management represented to the Audit Committee that
the Companys consolidated financial statements were prepared in accordance with generally accepted
accounting principles, and the Audit Committee has reviewed and discussed the consolidated
financial statements with management and the independent registered public accounting firm. The
Audit Committee discussed with the independent registered public accounting firm matters required
to be discussed by Statement on Auditing Standards No. 61 (Communications with Audit Committees, as
amended).
The Companys independent registered public accounting firm also provided to the Audit
Committee the written disclosure required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees), and the Audit Committee discussed with the
independent registered public accounting firm the independent registered public accounting firms
independence.
Based upon the Audit Committees discussions with management and the independent registered
public accounting firm and the Audit Committees review of the representations of management and
the report of the independent registered public accounting firm to the Audit Committee, the Audit
Committee recommended to the Board of Directors that the audited consolidated financial statements
be included in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2005
filed with the Securities and Exchange Commission.
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Members of the Audit Committee |
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Gregory D. Waller |
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Jeffrey ODonnell |
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Roderick de Greef |
The material in this report is not soliciting material and is not deemed filed with the
Securities and Exchange Commission and is not to be incorporated by reference in any filing of the
Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended, whether made before or after the date hereof and irrespective of any general incorporation
language in any such filing.
16
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP audited the Companys financial statements for the year ended December
31, 2005. A representative of PricewaterhouseCoopers LLP is expected to be present at the Annual
Meeting to respond to stockholders questions, and that representative will be given an opportunity
to make a brief presentation to the stockholders if he or she so desires and will be available to
respond to appropriate questions. The Company has been advised by PricewaterhouseCoopers LLP that
neither that firm nor any of its associates has any material relationship with the Company or any
affiliate of the Company.
As mandated by the rules and regulations of the PCAOB, PricewaterhouseCoopers LLP will be required
to rotate its partner responsible for auditing the Companys financial statements for the year
ending December 31, 2006. The Audit Committee has not yet met
with the new designated partner and therefore not yet selected the independent registered
public accounting firm to audit the Companys financial statements for the year ending December 31,
2006. As a result, and because no such proposal is required under Delaware law, no proposal for
the approval or ratification of the Companys independent registered public accounting firm for the
fiscal year ending December 31, 2006 is being presented for consideration at the Annual Meeting.
Pre-Approval Policy for Non-Audit Services
The Audit Committee reviews and pre-approves all non-audit services to be performed by the
Companys independent registered public accounting firm, PricewaterhouseCoopers LLP, subject to
certain de minimis exceptions. Such pre-approval is on a project by project basis. During 2005,
PricewaterhouseCoopers LLP did not provide any non-audit services to the Company.
Audit Fees
The following table sets forth the aggregate fees billed to the Company by
PricewaterhouseCoopers LLP for the fiscal years ended December 31, 2004 and December 31, 2005:
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December 31, |
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December 31, |
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2004 |
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2005 |
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Audit Fees (1) |
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$ |
874,000 |
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$ |
703,167 |
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Audit-Related Fees |
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Tax Fees |
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All Other Fees |
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Total |
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$ |
874,000 |
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|
$ |
703,167 |
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(1) |
|
Includes fees for professional services rendered for the audit of the Companys
annual financial statements, the audit of managements assessment of internal control
over financial reporting and the effectiveness of internal control, reviews of the
financial statements included in quarterly reports on Form 10-Q and services that are
normally provided by the Companys independent registered public accounting firm in
connection with the Companys statutory and regulatory filings. |
17
Stock Performance Graph
The graph depicted below shows the Companys stock price as an index assuming $100 invested on
December 31, 2000, along with the composite prices of companies listed on the CRSP Total Return
Index for National Association of Securities Dealers Automated Quotation (NASDAQ) Stock Market,
and the NASDAQ Medical Device Manufacturers Index.
The material in this performance graph is not soliciting material and is not deemed filed
with the Securities and Exchange Commission and is not to be incorporated by reference in any
filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act
of 1934, as amended, whether made before or after the date hereof and irrespective of any general
incorporation language in any such filing.
18
PROPOSAL TWO
APPROVAL OF THE 2006 EMPLOYEE STOCK PURCHASE PLAN
The Companys existing Employee Stock Purchase Plan, as amended (the Purchase
Plan) will expire pursuant to its terms on July 31, 2006. The Board of Directors believes that it
is in the best interests of the Company to continue to make available an employee stock purchase
plan for use as a part of its compensation strategy. Therefore, the Board of Directors approved on
March 31, 2006, subject to approval by the Companys stockholders, the 2006 Employee Stock Purchase
Plan (2006 Purchase Plan). The primary purposes of the 2006 Purchase Plan are to provide to
employees an incentive to join and remain in the service of the Company, to promote employee morale
and to encourage employee ownership of the Companys common stock by permitting them to purchase
shares at a discount through payroll deductions. The Purchase Plan is intended to qualify as an
employee stock purchase plan under Section 423 of the Internal Revenue Code of 1986, as amended
(the Internal Revenue Code).
The essential features of the 2006 Purchase Plan are summarized below. This summary does not
purport to be a complete description of the 2006 Purchase Plan and is qualified in its entirety by
reference to the 2006 Purchase Plan itself, a copy of which is attached hereto as Appendix A.
Description of the 2006 Employee Stock Purchase Plan
Administration. The 2006 Purchase Plan may be administered by either the Board of Directors or
a committee appointed by the Board (the Committee). If approved, the Board will delegate
administration of the 2006 Purchase Plan to the Compensation Committee, which is comprised of two
non-employee directors, who are not eligible to participate in the 2006 Purchase Plan. Subject to
the provisions of the 2006 Purchase Plan, the Committee has full authority to implement, administer
and make all determinations necessary under the 2006 Purchase Plan.
Eligibility. Every employee of the Company who customarily works more than 20 hours per week
for more than 5 months per calendar year will be eligible to participate in offerings made under
the 2006 Purchase Plan. An employee may not participate in an offering under the 2006 Purchase Plan
if immediately after the purchase the employee would own shares or options to purchase shares of
stock possessing 5% or more of the total combined voting power or value of all classes of stock of
the Company. As of April 1, 2006, approximately 128 persons were eligible to participate in the
2006 Purchase Plan.
Purchase of Shares. Shares of common stock are generally offered for purchase through a series of 6
month offering periods. The initial offering period will start on the first business day in
August 2006 and terminate on December 29, 2006, with subsequent
offering periods commencing on 6 month intervals thereafter
beginning on January 1, 2007.
Eligible employees who elect to participate in an offering period purchase shares of common stock
through regular payroll deductions in an amount designated by the employee not to exceed 10% of
such employees compensation. For this purpose, compensation means the amount indicated on the
Form W-2 issued to the employee by the Company, including any election deferrals with respect to a
plan of the Company qualified under either Section 125 or Section 401(a) of the Internal Revenue
Code. Shares of common stock are purchased automatically on the purchase date for each offering
period, which is the last day of each offering period, at a price equal to 85% of the fair market
value of the shares on the first business day of the offering period or 85% of the fair market
value of the shares as of the purchase date, whichever is lower. A participant may withdraw from an
offering at any time prior to the purchase date and receive a refund of his payroll deductions,
without interest. A participants rights in the 2006 Purchase Plan are nontransferable. As an employee benefit plan that
19
satisfies the coverage and participation requirements of Sections 423(b)(3) and 423(b)(5) of
the Internal Revenue Code, an affiliates transactions under the 2006 Purchase Plan are exempt from
liability under Section 16(b) of the Securities Exchange Act of 1934, as set forth in Rule 16b-3
promulgated thereunder.
No employee may purchase any stock under the 2006 Purchase Plan if immediately after the
purchase (1) the employee would own shares or hold outstanding options to purchase shares under the
2006 Purchase Plan, together with all other plans of the Company and its subsidiaries, possessing
5% or more of the total combined voting power of all classes of shares of the Company, or (2) the
purchase would permit the employees right to purchase shares under all employee stock purchase
plans of the Company and its subsidiaries to accrue at a rate which exceeds $25,000, based on the
fair market value of such shares determined as of the grant date, for any calendar year in which
the right is outstanding at any time.
Amendment and Termination. The Board of Directors may at any time amend, suspend or terminate
the 2006 Purchase Plan; provided that any amendment that would (1) materially increase the
aggregate number of shares authorized for sale under the 2006 Purchase Plan (except pursuant to
adjustments provided for in the 2006 Purchase Plan), (2) alter the purchase price formula so as to
reduce the purchase price payable for the shares of common stock purchasable under the 2006
Purchase Plan, or (3) materially increase the benefits which accrue to participants under the 2006
Purchase Plan or materially modify the requirements for eligibility to participate in the 2006
Purchase Plan, are not effective unless approved by the stockholders within 12 months of the
adoption of such amendment by the Board of Directors. Unless previously terminated by the Board of
Directors, the 2006 Purchase Plan will terminate on the last business
day of June 2016, or when all
shares authorized for sale thereunder have been sold, whichever is earlier.
New Plan Benefits
Future participation by the Companys executive officers and employees is discretionary. Therefore,
at this time the benefits that may be received by the Companys executive officers and other
employees if its stockholders approve the 2006 Purchase Plan cannot be determined.
Interest of Certain Persons in Matter to be Acted Upon
Officers of the Company are eligible to participate in the 2006 Purchase Plan, and have a
substantial direct interest in the approval of the 2006 Purchase Plan.
Required Vote and Recommendation of Board of Directors
Approval of the 2006 Purchase Plan will require the affirmative vote of a majority of the
shares present and entitled to vote at the Annual Meeting. THE BOARD RECOMMENDS A VOTE FOR
APPROVAL OF THE 2006 EMPLOYEE STOCK PURCHASE PLAN.
20
PROPOSAL THREE
APPROVAL OF THE 2006 STOCK INCENTIVE PLAN
The Companys existing equity incentive plan, the 1996 Stock Option/Stock Issuance
Plan, as amended (the 1996 Plan), will expire pursuant to its terms on April 29, 2006. The Board
of Directors believes that it is in the best interests of the Company to have available an equity
incentive plan for use as a part of its compensation strategy. Therefore, the Board of Directors
approved on March 31, 2006, subject to approval by the Companys stockholders, the 2006 Stock
Incentive Plan (2006 Plan). The primary purposes of the 2006 Plan are (a) to enhance the
Companys ability to attract and retain the services of qualified employees, officers, directors,
consultants and other service providers upon whose judgment, initiative and efforts the successful
conduct and development of the Companys business largely depends, and (b) to provide additional
incentives to such persons or entities to devote their utmost effort and skill to the advancement
and betterment of the Company, by providing them an opportunity to participate in the ownership of
the Company and thereby have an interest in the success and increased value of the Company.
The essential features of the 2006 Plan are summarized below. This summary does not purport
to be a complete description of the 2006 Plan and is qualified in its entirety by reference to the
2006 Plan itself, a copy of which is attached hereto as Appendix B.
Description of the 2006 Plan
The 2006 Plan is an omnibus stock plan consisting of a variety of equity vehicles to provide
flexibility in implementing equity awards, including incentive stock options, non-qualified stock
options, restricted stock grants, stock appreciation rights, stock payment awards, restricted stock
units and dividend equivalents. Participants in the 2006 Plan may be granted any one of the equity
awards or any combination thereof, as determined by the Board of Directors.
Shares
Reserved for Issuance. As of March 31, 2006, there were 887,583 shares available for
issuance under the 1996 Plan. All of the
shares available for grant under the 1996 Plan as of March 31,
2006, the date of approval of the 2006 Plan by the Board of Directors, will become available for grant under the 2006 Plan. Additionally, another
2,000,000 shares shall be reserved for issuance under the 2006 Plan.
Therefore, the approval of the 2006 Plan will authorize the Company
to grant awards covering up to an aggregate of 2,887,583 shares of
common stock, less any shares of common stock which are subject to
grants made between March 31, 2006 and the expiration of the 1996 Plan.
Limits
on Awards. A maximum of 2,887,583 shares of common stock may be issued and sold
under all awards, restricted and unrestricted, granted under the 2006 Plan. Of such aggregate
limit, the maximum number of shares of common stock that may be issued pursuant to (i) incentive
stock options shall be 2,887,583 shares and (ii) restricted stock grants, unrestricted stock
grants and restricted stock units shall be 500,000 shares. The maximum number of shares of
common stock with respect to one or more awards that may be granted to any one participant during
any calendar year shall be 200,000. Additionally, in connection with a Participants initial
service to the Company, the aggregate maximum number of shares of common stock with respect to
which awards
may be granted to the Participant shall not exceed 300,000 shares during the calendar
year which includes
21
such individuals initial service to the Company. The foregoing limitations
shall be subject to adjustments to reflect any recapitalizations, stock splits, reverse stock
splits, reclassifications, stock dividends or other changes in the capital structure of the Company
occurring after the effective date of the 2006 Plan.
Shares of common stock issued and sold under the 2006 Plan may be either authorized but
unissued shares or shares held in the Companys treasury. To the extent that any award involving
the issuance of shares of common stock is forfeited, cancelled, returned to the Company for failure
to satisfy vesting requirements or other conditions of the award, or otherwise terminates without
an issuance of shares of common stock being made thereunder, the shares of common stock covered
thereby will no longer be counted against the foregoing maximum share limitations and may again be
made subject to awards under the 2006 Plan pursuant to the limitations described above.
Administration. The Companys Board of Directors may delegate administration of the 2006 Plan
to a committee comprised of no fewer than two members of the Board of Directors (the Committee).
At the Board of Directors discretion, each Committee member shall satisfy the requirements for (i)
a non-employee director for purposes of Rule 16b-3 of the Exchange Act, and (ii) an outside
director under Section 162(m) of the Internal Revenue Code. The term Administrator, as used in
this proxy statement, refers to the Board of Directors, or, if the administration of the 2006 Plan
has been delegated to a committee, the Committee. Currently, the Board of Directors has delegated
administration of the 2006 Plan to the Companys Compensation Committee.
The Committee shall have such powers and authority as may be necessary or appropriate to carry
out the functions of the Administrator as described in the 2006 Plan. Subject to the express
limitations of the 2006 Plan, the Administrator shall have authority in its discretion to determine
the persons to whom, and the time or times at which, awards may be granted, the number of shares,
units or other rights subject to each award, the exercise, base or purchase price of an award (if
any), the time or times at which an award will become vested, exercisable or payable, the
performance goals and other conditions of an award, the duration of the award and all other terms
of the award. The Administrator may prescribe, amend and rescind rules and regulations relating to
the 2006 Plan. All interpretations, determinations and actions by the Administrator in good faith
shall be final, conclusive and binding upon all parties. Additionally, the Administrator may
delegate to one or more officers or directors of the Company the ability to grant and determine
terms and conditions of awards under the 2006 Plan to certain employees.
Eligibility. Any person who is an employee of or a consultant to the Company or any affiliate
thereof, or any person who is a non-employee director is eligible to be designated by the
Administrator to receive awards and becomes a participant under the 2006 Plan (a Participant or
the Participants). As of April 1, 2006, four executive officers, six non-employee directors, approximately 124 other employees, and consultants were eligible to participate in the 2006 Plan.
Types of Awards under 2006 Plan
The 2006 Plan includes the following types of equity compensation awards: incentive stock
options, non-qualified stock options, restricted stock grants, stock payment awards, stock
appreciation rights, restricted stock units and dividend equivalents, all of which are described
below.
Stock Options. Stock options granted under the 2006 Plan may be either incentive stock
options or non-qualified stock options, subject to the provisions of Section 422 of the Internal
Revenue Code or non-qualified stock options.
The exercise price per share of a stock option shall not be less than the fair market value of
the Companys common stock on the date the option is granted, provided that the Administrator may
in its discretion specify for any stock option an exercise price per share that is higher than the
fair market value of the Companys common stock on the date the option is granted. A stock option
may be subject to such vesting and exercisability requirements as specified by the Administrator in
an award agreement. Such vesting and exercisability requirements may be based on the continued
service of the Participant with the Company or its affiliates for a specified time period (or
periods) or on
the attainment of specified performance goals established by the Administrator in its
discretion. The
22
Administrator shall determine the period during which a vested stock option may be
exercised, provided that the maximum term of a stock option shall be ten years from the date the
option is granted.
Stock Appreciation Rights. A stock appreciation right will entitle the holder, upon exercise
or other payment of the stock appreciation right, as applicable, to receive an amount determined by
multiplying: (i) the excess of the fair market value of a share of common stock of the Company on
the date of exercise or payment of the stock appreciation right over the base price of such stock
appreciation right, by (ii) the number of shares as to which such stock appreciation right is
exercised or paid. Subject to the requirements of Section 409A of the Internal Revenue Code,
payment of the amount determined under the foregoing may be made, as approved by the Administrator
and set forth in the award agreement, in shares of common stock valued at their fair market value
on the date of exercise or payment, in cash, or in a combination of shares of common stock and
cash, subject to applicable tax withholding requirements.
A stock appreciation right may be subject to such vesting and exercisability requirements as
specified by the Administrator in an award agreement. Such vesting and exercisability requirements
may be based on the continued service of the Participant with the Company or its affiliates for a
specified time period (or periods) or on the attainment of specified performance goals established
by the Administrator in its discretion. A stock appreciation right will be exercisable or payable
at such time or times as determined by the Administrator. The base value of a stock appreciation
right shall not be less than 100 percent of the fair market value of the shares of common stock of
the Company on the date the right is granted.
Stock appreciation rights may be granted on a basis that allows for the exercise of the right
by the Participant or that provides for the automatic payment of the right upon a specified date or
event. Stock appreciation rights shall be exercisable or payable at such time or times and upon
conditions as may be approved by the Administrator, provided that the Administrator may accelerate
the exercisability or payment of a stock appreciation right at any time.
Restricted Stock Awards. Restricted stock awards are shares issued under the 2006 Plan that are
subject to restrictions on transfer and vesting requirements as determined by the Administrator.
The restrictions imposed on shares granted under a restricted stock award shall lapse in accordance
with the vesting requirements specified by the Administrator in the award agreement, provided that
the Administrator may accelerate the vesting of a restricted stock award at any time. Such vesting
requirements may be based on the continued service of the Participant with the Company or its
affiliates for a specified time period (or periods) or on the attainment of specified performance
goals established by the Administrator in its discretion. If the vesting requirements of a
restricted stock award shall not be satisfied, the award shall be forfeited and the unvested shares
of common stock subject to the award shall be returned to the Company (or, to the extent the
Participant paid for the shares of common stock, the Company shall have the right to repurchase
such shares from the Participant at the original purchase price).
Subject to the provisions of the 2006 Plan and the applicable award agreement, the Participant
shall have all rights of a stockholder with respect to the shares granted to the Participant under
a restricted stock award, including the right to vote the shares and receive all dividends and
other distributions paid or made with respect thereto.
Restricted Stock Unit Awards. The value of each stock unit under a restricted stock unit
award is equal to one share of the Companys common stock on the applicable date or time period of
determination, as specified by the Administrator. A restricted stock unit award shall be subject
to such restrictions and conditions as the Administrator shall determine. A restricted stock unit
award may be granted together with a dividend equivalent right with respect to the shares of common
stock subject to the award, which may be accumulated and may be deemed reinvested in additional
stock units, as determined by the Administrator in its discretion.
On the date the award is granted, the Administrator shall in its discretion determine the
vesting requirements with respect to a stock unit award, which shall be set forth in the award
agreement, provided that the Administrator may accelerate the vesting of a stock unit award at any
time. Vesting requirements may be based on the continued
service of the Participant with the Company or its affiliates for a specified time period (or
periods) or on the attainment of specified performance goals established by the Administrator in
its discretion.
23
A stock unit award shall become payable to a Participant at the time or times determined by
the Administrator and set forth in the award agreement, which may be upon or following the vesting
of the award. Payment of a stock unit award shall be made in shares of common stock of the
Company, and shall be subject to applicable tax withholding requirements. The Participant shall
not have any rights as a stockholder with respect to the shares subject to a stock unit award until
such time as shares of common stock are delivered to the Participant pursuant to the terms of the
award agreement.
Stock Payment Awards. A stock payment award may be granted for past services, in lieu of
bonus or other cash compensation, as directors compensation or for any other valid purpose as
determined by the Administrator. A stock payment award granted to a Participant represents shares
of the Companys common stock that are issued without restrictions on transfer and other incidents
of ownership and free of forfeiture conditions, except as otherwise provided in the 2006 Plan and
the award agreement. The Administrator may, in connection with any stock payment award, require
the payment of a specified purchase price.
Subject to the provisions of the 2006 Plan and the applicable award agreement, upon the
issuance of the common stock under a stock payment award the Participant shall have all rights of a
stockholder with respect to the shares of common stock, including the right to vote the shares and
receive all dividends and other distributions paid or made with respect thereto.
Dividend Equivalents. Dividend equivalents may be credited in respect of shares of common
stock covered by an award of Restricted Stock Units granted under the 2006 Plan, as determined by
the Administrator. At the sole discretion of the Administrator, such dividend equivalents may be
converted into additional shares of common stock such manner as determined by the Administrator.
Any additional shares covered by an Award credited by reason of such dividend equivalents will be
subject to all the terms and conditions of the underlying award agreement to which they relate.
Certain Features of Awards Under 2006 Plan
Payment of Exercise Price or Purchase Price. The payment of the exercise price for stock
options, or the purchase price for shares of restricted stock, shares covered by restricted stock
units, or stock payment awards may be made, in the discretion of the Committee, through a variety
of methods more particularly described in the 2006 Plan, including payment by (1) cash, (2) check, (3)
by delivery of shares of the Companys common stock (provided that any shares acquired pursuant to exercise
of options have been held by the participant for the requisite period necessary to avoid a charge
to our earnings for financial reporting purposes), which surrendered shares shall be valued at the
fair market value of the Companys common stock on the date of exercise or purchase, (4) cancellation of
indebtedness of the Company to the participant, (5) waiver of compensation due to the participant
for services rendered, or (6) any combination of the foregoing methods of payment or any other
consideration or method of payment as shall be permitted by applicable corporate law.
Transferability of Awards. All incentive stock options are nontransferable except upon the
Participants death by will or the laws of descent or distribution or pursuant to the terms of
certain domestic relations orders. In the case of awards other than incentive stock options, the
Administrator may provide, in its discretion, for the transfer of all or part of the award to a
Participants family member (as defined for purposes of the Form S-8 registration statement under
the Securities Act of 1933).
Adjustments to Awards Upon Certain Changes in Capitalization. In the event that the
outstanding shares of the Companys common stock are increased or decreased or exchanged for a
different number or kind of shares or other securities of the Company
by reason of a
recapitalization, stock split, combination of shares, reclassification, stock dividend or other
change in the Companys capital structure, then the Administrator shall make adjustments to the
aggregate number and kind of shares subject to the 2006 Plan, the number and kind of shares and the
exercise
price per share subject to outstanding awards, and the maximum share limitations, as
applicable, all in order to preserve, as nearly as practical, but not to increase, the benefits to
the Participants.
24
Occurrence of Corporate Transaction. The 2006 Plan provides that in order to preserve a
Participants rights in the event of certain transactions constituting a change in control of the
Company, the Administrator shall have the discretion to provide in each award agreement the terms
and conditions that relate to the vesting of such award in the event of a change in control of the
Company and the assumption of such awards or the issuance of comparable securities under an
incentive program in the event of such occurrence. The terms and conditions of each award
agreement may vary. If the terms of an outstanding option or stock appreciation right provide for
accelerated vesting in the event of a change in control, or to the extent that such award is vested
and not yet exercised, the Administrator in its discretion may provide, in connection with the
change in control transaction, for the purchase or exchange of each option or stock appreciation
right for cash or other property. All outstanding option and stock appreciation rights will
terminate and cease to be exercisable upon the consummation of a change in control except to the
extent that the options or stock appreciation rights are assumed by a successor entity (or parent)
pursuant to the terms of such transaction.
Section 162(m) Awards. Awards of options and stock appreciation rights granted under the 2006
Plan will automatically qualify for the performance-based compensation exception under Internal
Revenue Code Section 162(m) pursuant to their expected terms. Awards of restricted stock and
restricted stock units may qualify for the performance-based compensation exception under Section
162(m) if the terms of the awards state, in terms of an objective formula or standard, the method
of computing the amount of compensation payable under the award and preclude discretion to increase
the amount of compensation payable under the terms of the award.
Performance Criteria. The 2006 Plan includes a number of performance criteria that may be
used to determine whether and to what extent the shares covered by an award have vested. The
Administrator will have discretion to specify whether the criteria will be measured either annually
or cumulatively over a period of years on an absolute basis or relative to a pre-established
target, to the previous years results or to a designated peer group of companies, in each case as
specified in the individual award agreement at the time of grant. The performance criteria may be
stated as either target amounts, or as a percentage increase over a base period amount, and may be
based upon any one or a combination of the following:
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sales; |
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operating income; |
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pre-tax income; |
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earnings before interest, taxes, depreciation and amortization; |
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earnings per share of common stock on a fully-diluted basis; |
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consolidated net income of the Company divided by the average consolidated
common stockholders equity; |
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cash and cash equivalents derived from either (i) net cash flow from operations,
or (ii) net cash flow from operations, financings and investing activities; |
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adjusted operating cash flow return on income; |
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cost containment or reduction; |
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the percentage increase in the market price of the Companys common stock over a
stated period; |
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return on assets;
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new product introductions;
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obtaining regulatory approvals for new or existing products;
and
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individual business objectives. |
Amendment and Termination of the 2006 Plan
The 2006 Plan may be altered, amended, suspended or terminated by the Board of Directors at
any time. No such alteration, amendment, suspension or termination of the 2006 Plan shall be made
which shall substantially affect or impair the rights of any Participant under an outstanding award
agreement without such Participants consent. Unless previously terminated by the Board of
Directors, the 2006 Plan will terminate on March 31, 2016, which is the tenth anniversary of the
date of its adoption by the Board of Directors.
25
New Plan Benefits
Future awards to the Companys executive officers and employees are discretionary. Therefore,
at this time the benefits that may be received by the Companys executive officers and other
employees if its stockholders approve the 2006 Plan cannot be determined. Because the value of
stock issuable to the Companys non-employee directors under the 2006 Plan will depend on the fair
market value of its common stock at future dates, it is not possible to determine exactly the
benefits that might be received by the Companys non-employee directors under the 2006 Plan.
Formula Grants to Non-Employee Directors
Each non employee director
shall be automatically granted (i) Nonqualified Options to purchase
30,000 shares of common stock upon commencement of service as a director of the Company. These
Nonqualified Options have an exercise price equal to 100% of the fair market value of the common
stock on the date of grant, have a ten-year term and vest in four equal annual installments, and will
otherwise be subject to the terms and provisions of the 2006 Plan and (ii) Nonqualified Options to
purchase 20,000 shares of common stock at each annual meeting of the Companys stockholders
(including any meeting coincident with the commencement of service as a director), or up to a maximum of 50,000 in the case of the Chairman of the Board. These
Nonqualified Options have an exercise price equal to 100% of the fair market value of the common
stock on the date of grant, have a ten-year term and vest in one year, and will otherwise be
subject to the terms and provisions of the 2006 Plan.
Summary of Federal Income Tax Consequences of the 2006 Plan
The following is a brief summary of certain federal income tax consequences of participation
in the 2006 Plan. The summary should not be relied upon as being a complete statement of all
possible federal income tax consequences. Federal tax laws are complex and subject to change.
Participation in the 2006 Plan may also have consequences under state and local tax laws which vary
from the federal tax consequences described below. For such reasons, the Company recommends that
each Participant consult his or her personal tax advisor to determine the specific tax consequences
applicable to him or her.
Incentive Stock Options. A Participant who receives an incentive stock option will not
recognize taxable income upon the grant of the option or the exercise of the option. However, the
amount by which the fair market value of the shares at the time of exercise exceeds the option
exercise price will generally be included in the Participants alternative minimum taxable income
upon exercise. If stock received on exercise of an incentive option is disposed of in the same
year the option was exercised, the regular tax treatment and the alternative tax treatment will be
the same. If stock received on exercise of an incentive option is sold during a year subsequent to
that in which the option was exercised, the basis of the stock acquired will equal its fair market
value on the date of exercise for purposes of computing alternative minimum taxable income in the
year of sale.
A Participant who is subject to the alternative minimum tax in the year of exercise of an
incentive option may claim, as a credit against the Participants regular tax liability in future
years, the amount of alternative minimum tax
paid that is attributable to the exercise of the incentive option. This credit is available
in the first year following the year of exercise in which the Participant has a regular tax
liability.
Gain realized by a Participant upon sale of stock issued on exercise of an incentive stock
option is taxable as long-term capital gain if the Participant disposes of the shares more than two
years after the date of grant of the option and more than one year after the date of exercise. If
the Participant disposes of the shares less than two years after the date of grant or less than one
year after the date of exercise (a disqualifying disposition), the Participant will recognize
ordinary income in an amount equal to the difference between the option exercise price and the
lower of the fair market value of the shares on the date of exercise or on the date of disposition
of the shares. If the amount
26
realized in a disqualifying disposition exceeds the fair market value
of the shares on the date of exercise, the gain realized, in excess of the amount taxed as ordinary
income as indicated above, will be taxed as capital gain. Any loss realized upon a disqualifying
disposition will be treated as a capital loss. Capital gains and losses resulting from
disqualifying dispositions will be treated as long-term or short-term depending upon whether the
shares were held for more or less than the applicable statutory holding period (which is currently
more than one year for long-term capital gains). The Company will generally be entitled to a tax
deduction in an amount equal to the amount the Participant must recognize as ordinary income.
Non-Qualified Stock Options. Generally, no taxable income is recognized by a Participant upon
the grant of a non-qualified stock option or at the time or times a non-qualified stock option
becomes vested where the exercise price of such option is no less than 100% of the fair market
value of the stock underlying such option at the time such option is granted. Under the 2006 Plan,
the exercise price for all options shall be at least equal to 100% of the fair market value of the
stock underlying such options at the time of the grant. Upon exercise, however, the Participant
will recognize ordinary income in the amount by which the fair market value of the shares
purchased, on the date of exercise, exceeds the exercise price paid for such shares. The income
recognized by the Participant who is an employee of the Company will be subject to income tax
withholding by the Company out of the Participants current compensation. If such compensation is
insufficient to pay the taxes due, the Participant will be required to make a direct payment to the
Company for the balance of the tax withholding obligation. The Company will be entitled to a tax
deduction equal to the amount of ordinary income recognized by the Participant, provided that
certain reporting requirements are satisfied. If the exercise price of a non-qualified stock
option is paid by the Participant in cash, the tax basis of the shares acquired will be equal to
the cash paid plus the amount of income recognized by the Participant as a result of such exercise.
If the exercise price is paid by delivering shares of the Companys common stock already owned by
the Participant or by a combination of cash and already-owned shares, there will be no current
taxable gain or loss recognized by the Participant on the already-owned shares exchanged (however,
the Participant will nevertheless recognize ordinary income to the extent that the fair market
value of the shares purchased on the date of exercise exceeds the price paid, as described above).
The new shares received by the Participant, up to the number of the old shares exchanged, will have
the same tax basis and holding period as the Participants basis and holding period in the old
shares. The balance of the new shares received will have a tax basis equal to any cash paid by the
Participant plus the amount of income recognized by the Participant as a result of such exercise,
and will have a holding period commencing with the date of exercise. Upon the sale or disposition
of shares acquired pursuant to the exercise of a non-qualified stock option, the difference between
the proceeds realized and the Participants basis in the shares will be a capital gain or loss and
will be treated as long-term capital gain or loss if the shares have been held for more than the
applicable statutory holding period (which is currently more than one year for long-term capital
gains).
Restricted Stock. If no Section 83(b) election is made and repurchase rights are retained by
the Company, a taxable event will occur on each date the Participants ownership rights vest (e.g.,
when the Companys repurchase rights expire) as to the number of shares that vest on that date, and the
holding period for capital gain purposes will not commence until the date the shares vest. The
Participant will recognize ordinary income on each date shares vest in an amount equal to the
excess of the fair market value of such shares on that date over the amount paid for such shares.
Any income recognized by a Participant who is an employee will be subject to income tax withholding
by the Company out of the Participants current compensation. If such compensation is insufficient
to cover the amount to be withheld, the Participant will be required to make a direct payment to
the Company for the balance of the tax withholding obligation. The Company is entitled to a tax
deduction in an amount equal to the ordinary income recognized by the
Participant. The Participants basis in the shares will be equal to the purchase price, if
any, increased by the amount of ordinary income recognized. If a Section 83(b) election is made
within 30 days after the date of transfer, or if no repurchase rights are retained by the Company,
then the Participant will recognize ordinary income on the date of purchase in an amount equal to
the excess of the fair market value of such shares on the date of purchase over the purchase price
paid for such shares.
Stock Appreciation Rights. Generally no taxable income is recognized by a Participant
receiving a stock appreciation right at the time the stock appreciation right is granted or at the
time or times a stock appreciation right becomes vested where the base price of a stock
appreciation right is no less than 100% of the fair market value of the stock underlying such stock
appreciation right at the time such option is granted. Under the 2006 Plan, the base value for all
stock appreciation rights shall be at least equal to 100% of the fair market value of the stock
underlying
27
such stock appreciation rights at the time of the grant. If the Participant receives
the appreciation inherent in the stock appreciation right in cash, the cash will be taxed as
ordinary income to the Participant at the time it is received. If the Participant receives the
appreciation inherent in a stock appreciation right in stock, the spread between the then current
market value and the base price will be taxed as ordinary income to the Participant at the time
such amount is received. The Company is not entitled to a federal income tax deduction upon the
grant or termination of a stock appreciation right. However, upon the settlement of a stock
appreciation right, the Company is entitled to a deduction equal to the amount of ordinary income
the Participant is required to recognize as a result of the settlement.
Restricted Stock Unit Award, Stock Payment Awards and Dividend Equivalents. Restricted stock
unit awards, stock payment awards and dividend equivalents are generally subject to ordinary income
tax at the time of payment.
Tax Withholding. Under the 2006 Plan, the Company has the power to withhold, or require a
Participant to remit to it, an amount sufficient to satisfy Federal, state and local withholding
tax requirements with respect to any award granted under the 2006 Plan. To the extent permissible
under applicable tax, securities, and other laws, the Administrator may, in its sole discretion,
permit a Participant to satisfy an obligation to pay any tax to any governmental entity in whole or in part, by (i) directing the Company to apply
shares of common stock to which the Participant is entitled pursuant to an award, or (ii)
delivering to the Company shares of common stock owned by the Participant.
Tax Deduction Limitation. Section 162(m) of the Internal Revenue Code generally limits to $1.0 million the
amount that a publicly-held corporation is allowed each year to deduct for the compensation paid to
the corporations chief executive officer and each of the corporations four most highly
compensated executive officers other than the chief executive officer. However, performance-based
compensation is not subject to the $1.0 million deduction limit. In general, to qualify as
performance-based compensation, the following requirements must be satisfied: (1) payments must be
computed on the basis of an objective, performance-based compensation standard determined by a
committee consisting solely of two or more outside directors, (2) the material terms under which
the compensation is to be paid, including the business criteria upon which the performance goals
are based, and a limit on the maximum amount which may be paid to any participant pursuant to any
award with respect to any performance period, must be approved by the corporations stockholders,
and (3) the committee must certify in writing whether, and the extent to which, the applicable
performance goals have been satisfied before payment of any performance-based compensation is made.
The Committee currently consists solely of outside directors as defined for purposes of Section
162(m) of the Internal Revenue Code, and it is the intent of the Board that all future Committee members will also
satisfy that definition. Stock options and stock appreciation rights, the terms of which limit the
amount of compensation that an employee may receive to an increase in the value of the underlying
stock covered by the option or right after the date of grant, automatically satisfy the performance
goal requirement described in item (1) above.
Deferred Compensation. Any deferrals made under the 2006 Plan, including awards granted under
the 2006 Plan that are considered to be deferred compensation, must satisfy the requirements of
Internal Revenue Code Section 409A to avoid adverse tax consequences to Participants, which include
the current inclusion of deferred
amounts in income and interest and a surtax on any amount included in income. The Section
409A requirements include limitations on election timing, acceleration of payments, and
distributions. Section 409A applies to certain stock appreciation rights, stock unit awards, and
other awards that provide the Participant with an opportunity to defer to recognition of income.
The Company intends to structure any awards under the 2006 Plan to meet the applicable tax law
requirements under Internal Revenue Code Section 409A in order to avoid its adverse tax
consequences.
Interest of Certain Persons in Matter to be Acted Upon.
Directors and officers of the Company are eligible to participate in the 2006 Plan, and
have a substantial direct interest in the approval of the 2006 Plan.
28
Required Vote and Recommendation of Board of Directors
Approval of the 2006 Plan will require the affirmative vote of a majority of the shares
present and entitled to vote at the Annual Meeting. THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF
THE 2006 STOCK INCENTIVE PLAN.
Securities Authorized for Issuance under Equity Compensation Plans
The following table set forth certain information regarding outstanding options, rights and
shares reserved for future issuance under the Companys existing equity compensation plans as of December 31,
2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
securities to be |
|
|
|
|
|
Number of |
|
|
issued upon |
|
|
|
|
|
securities |
|
|
exercise of |
|
|
|
|
|
remaining available |
|
|
outstanding options |
|
Weighted average |
|
for future issuance |
|
|
as of December 31, |
|
exercise price of |
|
as of December 31, |
|
|
2005 |
|
outstanding options |
|
2005 |
Plan category |
|
(a) |
|
(b) |
|
(c) |
Equity compensation
plans approved by
security holders: |
|
|
|
|
|
|
|
|
|
|
|
|
1996 Stock
Option/Stock
Issuance Plan |
|
|
2,601,201 |
|
|
$ |
4.53 |
|
|
|
1,002,301 |
|
1996 Employee Stock
Purchase Plan |
|
|
|
|
|
|
|
|
|
|
136,324 |
|
Equity compensation
plans not approved
by security
holders: |
|
|
|
|
|
|
|
|
|
|
|
|
1997 Supplemental
Stock Option Plan |
|
|
77,000 |
|
|
$ |
4.67 |
|
|
|
1,500 |
|
Total |
|
|
2,678,201 |
|
|
$ |
4.53 |
|
|
|
1,140,125 |
|
1997 Supplemental Stock Option Plan.
This stock option plan is used to provide compensation to non-employees, typically as part of
a consulting services arrangement. The plan authorizes the issuance of non-qualified stock options
only. We account for non-employee stock-based awards, in which goods or services are the
consideration received for the stock options issued, in accordance with the provisions of SFAS
No.123 and related interpretations.
29
PROPOSAL FOUR
APPROVAL OF AN AMENDMENT TO THE COMPANYS AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK THEREUNDER FROM 50,000,000 TO 60,000,000 AND TO
INCREASE THE TOTAL NUMBER OF AUTHORIZED SHARES OF THE COMPANYS
CAPITAL STOCK FROM 55,000,000 TO 65,000,000
General
The Companys Amended and Restated Certificate of Incorporation, as amended, currently
authorizes the issuance of 50,000,000 shares of common stock and 5,000,000 shares of preferred
stock. On March 23, 2006, the Board of Directors unanimously adopted a resolution approving, and
declaring advisable, subject to stockholder approval, an amendment to the Amended and Restated
Certificate of Incorporation to increase the number of authorized shares of the Companys common
stock from 50,000,000 to 60,000,000 and to increase the number of authorized shares of the
Companys capital stock from 55,000,000 to 65,000,000. No change to the authorized number of shares
of preferred stock is being proposed.
An increase in the number of authorized shares of common stock is necessary to enable the
Company to have a sufficient number of authorized and unissued shares of common stock for corporate
opportunities, such as additional stock offerings, acquisitions, stock dividends and compensation
plans. If the stockholders approve this proposal, the first four sentences of the first paragraph
of Article IV of the Companys Amended and Restated Certificate of Incorporation would be amended
to read in its entirety as follows:
This corporation is authorized to issue two classes of stock, to be designated,
respectively, Common Stock and Preferred Stock. The total number of shares that this
corporation is authorized to issue is sixty-five million (65,000,000). The number of shares of Preferred Stock authorized to be issued is five million (5,000,000), par value
$0.001 per share. The number of shares of Common Stock authorized to be issued is sixty
million (60,000,000), par value $0.001 per share.
Reasons for the Increase in the Number of Authorized Shares of Common Stock
The Companys reserve of authorized but unissued shares of common stock has been depleted as a
result of the Companys financing activities through the sale of common stock and the granting of
stock options under the Companys stock option plans. As of April 1, 2006, the Company was
authorized to issue 50,000,000 shares of common stock and had 36,538,364 shares of common stock
outstanding and a total of 2,476,932 shares of common stock were committed for issuance pursuant to
outstanding stock options under the Companys stock option plans.
Effect of Amendment to Amended and Restated Certificate of Incorporation
To provide that the Company will have a sufficient number of authorized and unissued shares of
common stock for corporate opportunities, such as additional stock offerings, acquisitions, stock
dividends and compensation plans, the Companys Board of Directors approved an increase to the
number of authorized shares of common stock from 50,000,000 to 60,000,000. However, other than the
shares of common stock the Company has reserved for issuance under its equity compensation plans,
the Company currently has no specific commitments or agreements to issue any shares of common stock
pursuant to any stock offerings, acquisitions, stock dividends or compensation plans. However, the
availability of additional shares for issuance, without the delay and expense of obtaining
stockholder approval at a special meeting, will restore the Companys flexibility to issue common
stock to a level that the Board of Directors believes is advisable. Also, while it is not the
intent of this proposal, in addition to general corporate purposes, the share increase can be used
to make a change in control of the Company more difficult. See the section of this proxy statement
titled Potential Anti-Takeover Effect of Authorized Securities below.
30
The additional shares of common stock authorized for issuance are identical to the shares of
common stock of the Company authorized prior to approval of this proposal. Holders of common stock
do not have preemptive rights to subscribe to additional securities that may be issued by the
Company, which means that current stockholders do not have a prior right to purchase any new issue
of capital stock of the Company in order to maintain their proportionate ownership of the Company.
If approved by the stockholders, the proposed amendment will become effective upon the filing
of a Certificate of Amendment with the Secretary of State of the State of Delaware amending the
Companys Amended and Restated Certificate of Incorporation, which filing will be made as soon as
reasonably practicable after receiving stockholder approval. If approved by the stockholders, the
increased number of authorized shares of common stock will be available for issuance from time to
time for such purposes and consideration as the Board of Directors may approve, and no further vote
of stockholders of the Company will be required, except as provided under Delaware law or under
applicable Nasdaq Marketplace Rules. The availability of additional shares for issuance, without
the delay and expense of obtaining stockholder approval at a special meeting, will restore the
Companys flexibility to issue common stock to a level that the Board of Directors believes is
advisable.
Potential Anti-Takeover Effect of Authorized Securities
The increase in the authorized shares of common stock may facilitate certain anti-takeover
devices that may be advantageous to management if management attempts to prevent or delay a change
of control. The Board of Directors could create impediments to a takeover or transfer of control of
the Company by causing such additional authorized shares to be issued to a holder or holders who
might side with the Board of Directors in opposing a takeover bid. For example, the Board of
Directors could issue shares of common stock to a holder that would thereby have sufficient voting
power to assure that certain types of proposals would not receive the requisite stockholder vote,
including any proposal to remove directors, to accomplish certain business combinations opposed by
the Board of Directors, or to alter, amend or repeal provisions in the Companys Amended and
Restated Certificate of Incorporation or Bylaws relating to any such action. Furthermore, the
existence of such shares might have the effect of discouraging any attempt by a person or entity,
through the acquisition of a substantial number of shares of common stock, to acquire control of
the Company, since the issuance of such shares could dilute the common stock ownership of such
person or entity. Employing such devices may adversely impact stockholders who desire a change in
management or who desire to participate in a tender offer or other sale transaction involving the
Company. By use of such anti-takeover devices, the Board of Directors may thwart a merger or tender
offer even though stockholders might be offered a substantial premium over the then current market
price of the common stock. At the present time, the Company is not aware of any contemplated
mergers, tender offers or other plans by a third party to attempt to effect a change in control of
the Company, and the proposal to amend the Amended and Restated Certificate of Incorporation was
not made in response to any such attempt.
The Amended and Restated Certificate of Incorporation of the Company authorizes the issuance
of 5,000,000 shares of preferred stock. The Board of Directors, within the limitations and
restrictions contained in the Amended and Restated Certificate of Incorporation and without further
action by the Companys stockholders, has the authority to issue the preferred stock from time to
time in one or more series and to fix the number of shares and the relative conversion rights,
voting rights, rights and terms of redemption, liquidation preferences and any other preferences,
special rights and qualifications of any such series. Any issuance of preferred stock with voting
rights could, under certain circumstances, have the effect of delaying or preventing a change in
control of the Company by
increasing the number of outstanding shares entitled to vote and increasing the number of
votes required to approve a change in control of the Company.
31
While it may be deemed to have potential anti-takeover effects, the amendment to the Amended
and Restated Certificate of Incorporation to increase the number of shares of authorized common
stock was not prompted by any specific effort or takeover threat currently perceived by the Board
of Directors. Moreover, the Board of Directors does not currently intend to propose additional
anti-takeover measures in the foreseeable future.
Board of Directors Reservation of Rights
The Board of Directors retains the authority to take or to authorize discretionary actions as
may be appropriate to carry out the purposes and intentions of this proposal, including without
limitation editorial modifications or any other change to the amendment to the Companys Amended
and Restated Certificate of Incorporation which the Board of Directors may adopt without
stockholder vote in accordance with the Delaware General Corporation Law.
Required Vote and Recommendation of Board of Directors
Approval of the amendment to increase the number of authorized shares of common stock under
the Companys Amended and Restated Certificate of Incorporation will require the affirmative vote
of a majority of the shares of common stock of the Company outstanding as of the record date. THE
BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO INCREASE THE NUMBER OF AUTHORIZED SHARES
OF COMMON STOCK UNDER THE COMPANYS AMENDED AND RESTATED CERTIFICATE OF INCORPORATION FROM
50,000,000 TO 60,000,000 AND TO INCREASE THE TOTAL NUMBER OF AUTHORIZED SHARES OF THE COMPANYS
CAPITAL STOCK FROM 55,000,000 TO 65,000,000.
32
DEADLINE FOR RECEIPT OF
STOCKHOLDER PROPOSALS FOR 2007 ANNUAL MEETING
If the Company holds its 2007 annual meeting of stockholders on or about the same time as this
years Annual Meeting, then any stockholder desiring to submit a proposal for action at the 2007
annual meeting of stockholders should arrange for such proposal to be delivered to the Company at
its principal place of business no later than December 27, 2006, in order to be considered for
inclusion in the Companys proxy statement relating to that meeting. However, if the Company holds
its 2007 annual meeting of stockholders on a date that is more than 30 days earlier or later than
this years Annual Meeting, then a stockholder proposal must be received by the Company at its
principal place of business in a reasonable amount of time prior to when the Company begins to
print and mail its proxy materials. Matters pertaining to such proposals, including the number and
length thereof, the eligibility of persons entitled to have such proposals included and other
aspects are regulated by the Securities Exchange Act of 1934, as amended, rules and regulations of
the SEC and other laws and regulations.
SEC rules also establish a different deadline, the discretionary vote deadline, for submission
of stockholder proposals that are not intended to be included in the Companys proxy statement with
respect to discretionary voting. The discretionary vote deadline for the 2007 annual meeting of
stockholders is March 11, 2007 (which is at least 45 calendar days prior to the anniversary of the
mailing date of this proxy statement). If a stockholder gives notice of such a proposal after the
discretionary vote deadline, the Companys proxy holders will be allowed to use their discretionary
voting authority to vote against the stockholder proposal when and if the proposal is raised at the
Companys 2007 annual meeting of stockholders.
The Company was not notified of any stockholder proposals to be addressed at the Annual
Meeting. Because the Company was not provided notice of any stockholder proposal to be included in
the proxy statement within a reasonable time before mailing, the Company will be allowed to use its
voting authority if any stockholder proposals are raised at the meeting.
OTHER BUSINESS
The Board of Directors is not aware of any other matter which may be presented for action at
the Annual Meeting. Should any other matter requiring a vote of the stockholders arise, it is
intended that the proxy holders will vote on such matters in accordance with their best judgment.
|
|
|
|
|
BY ORDER OF THE BOARD OF DIRECTORS |
|
|
|
|
|
|
Paul McCormick |
|
|
President and Chief Executive Officer |
April 13, 2006
33
Appendix A
ENDOLOGIX, INC.
2006 EMPLOYEE STOCK PURCHASE PLAN
This 2006 Employee Stock Purchase Plan is intended to promote the interests of Endologix, Inc.
by providing eligible employees with the opportunity to acquire a proprietary interest in the
Corporation through participation in a payroll-deduction based employee stock purchase plan
designed to qualify under Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to such terms in the attached
Appendix.
II. |
|
ADMINISTRATION OF THE PLAN |
The Plan Administrator shall have full authority to interpret and construe any provision of
the Plan and to adopt such rules and regulations for administering the Plan as it may deem
necessary in order to comply with the requirements of Code Section 423. Decisions of the Plan
Administrator shall be final and binding on all parties having an interest in the Plan.
III. |
|
STOCK SUBJECT TO PLAN |
A. The stock purchasable under the Plan shall be shares of authorized but unissued or
reacquired Common Stock, including shares of Common Stock purchased on the open market. The
maximum number of shares of Common Stock which may be issued over the term of the Plan shall not
exceed the sum of: (i) 250,000 shares; plus (ii) the number of shares of Common Stock remaining
available for issuance under the Endologix, Inc. Employee Stock Purchase Plan as of July 31, 2006.
B. Should any change be made to the Common Stock by reason of any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporations receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and class of securities issuable under the
Plan, and (ii) the number and class of securities and the price per share in effect under each
outstanding purchase right in order to prevent the dilution or enlargement of benefits thereunder.
A. Shares of Common Stock shall be offered for purchase under the Plan through a series of
successive Offering Periods until such time as (i) the maximum number of shares of Common Stock
available for issuance under the Plan shall have been purchased or (ii) the Plan shall have been
sooner terminated.
B. The Initial Offering Period shall commence on the first business day in August 2006 and
terminate on the last business day in December 2006. Each Offering Period thereafter shall be
a six-month period from January 1 through June 30 and from July 1 through December 31.
C. The Purchase Date shall be the last day of each Offering Period. The initial Purchase Date
shall be the last business day in December 2006.
1
Commencing August 1, 2006:
A. Each individual who is an Eligible Employee on the start date of any Offering Period under
the Plan may enter that Offering Period on such start date, provided he or she remains an Eligible
Employee.
B. Each individual who first becomes an Eligible Employee after the start date of an Offering
Period may enter on the start date of the Offering Period that commences immediately after the date
such individual first became an Eligible Employee, provided he or she remains an Eligible Employee.
C. To participate in the Plan for a particular Offering Period, the Eligible Employee must
complete the enrollment forms prescribed by the Plan Administrator (including a stock purchase
agreement and a payroll deduction authorization) and file such forms with the Plan Administrator
(or its designate) on or before the start date of such Offering Period.
A. The payroll deduction authorized by the Participant for purposes of acquiring shares of
Common Stock during an Offering Period may be any multiple of one percent (1%) of the Compensation
paid to the Participant during each Offering Period within that Offering Period, up to a maximum of
ten percent (10%). The deduction rate so authorized shall continue in effect throughout the
Offering Period, except to the extent such rate is changed in accordance with the following
guidelines:
1. The Participant may, at any time during the Offering Period, reduce his or her rate of
payroll deduction to become effective as soon as possible after filing the appropriate form with
the Plan Administrator. The Participant may not, however, effect more than one (1) such reduction
per Offering Period.
2. The Participant may, at any time during any Offering Period, increase the rate of his or
her payroll deduction by filing the appropriate form with the Plan Administrator. The new rate
(which may not exceed the ten percent (10%) maximum) shall become effective on the start date of
the first Offering Period following the filing of such form.
B. Payroll deductions shall begin on the first pay day following the start date of the
Offering Period with respect to which an Eligible Employee elects to participate and shall (unless
sooner terminated by the Participant) continue through the pay day ending with or immediately prior
to the last day of that Offering Period. The amounts so collected shall be credited to the
Participants book account under the Plan, but no interest shall be paid on the balance from time
to time outstanding in such account. The amounts collected from the Participant shall not be held
in any segregated account or trust fund and may be commingled with the general assets of the
Corporation and used for general corporate purposes.
C. Payroll deductions shall automatically cease upon the termination of the Participants
purchase right in accordance with the provisions of the Plan.
2
D. The Participants acquisition of Common Stock under the Plan on any Purchase Date shall
neither limit nor require the Participants acquisition of Common Stock on any subsequent Purchase
Date, whether within the same or a different Offering Period.
A. Grant of Purchase Right; Grant Date. A Participant shall be granted a separate purchase
right for each Offering Period in which he or she participates. The purchase right shall be
granted on the Grant Date and shall provide the Participant with the right to purchase shares of
Common Stock, in a series of successive installments over the remainder of such Offering Period,
upon the terms set forth below. The Participant shall execute a stock purchase agreement embodying
such terms and such other provisions (not inconsistent with the Plan) as the Plan Administrator may
deem advisable.
Under no circumstances shall purchase rights be granted under the Plan to any Eligible
Employee if such individual would, immediately after the grant, own (within the meaning of Code
Section 424(d)) or hold outstanding options or other rights to purchase, stock possessing five
percent (5%) or more of the total combined voting power or value of all classes of stock of the
Corporation or any Corporate Affiliate.
B. Exercise of the Purchase Right. Each purchase right shall be automatically exercised on
each Purchase Date, and shares of Common Stock shall accordingly be purchased on behalf of each
Participant (other than Participants whose payroll deductions have previously been refunded
pursuant to the Termination of Purchase Right provisions below) on each such Purchase Date. The
purchase shall be effected by applying the Participants payroll deductions for the Offering Period
ending on such Purchase Date to the purchase of whole shares of Common Stock at the purchase price
in effect for the Participant for that Purchase Date.
C. Purchase Price. The purchase price per share at which Common Stock will be purchased on
the Participants behalf on each Purchase Date shall not be less than eighty-five percent (85%) of
the lower of (i) the Fair Market Value per share of Common Stock on the Grant Date with respect to
that Offering Period or (ii) the Fair Market Value per share of Common Stock on that Purchase Date.
D. Number of Purchasable Shares. The number of shares of Common Stock purchasable by a
Participant on each Purchase Date shall be the number of whole shares obtained by dividing the
amount collected from the Participant through payroll deductions during the Offering Period ending
with that Purchase Date by the purchase price in effect for the Participant for that Purchase Date.
E. Excess Payroll Deductions. Any payroll deductions not applied to the purchase of shares of
Common Stock on any Purchase Date because they are not sufficient to purchase a whole share of
Common Stock shall be held for the purchase of Common Stock on the next Purchase Date. However,
any payroll deductions not applied to the purchase of Common Stock by reason of the limitation on
the maximum number of shares purchasable by the Participant on the Purchase Date shall be promptly
refunded.
F. Termination of Purchase Right. The following provisions shall govern the termination of
outstanding purchase rights:
3
1. A Participant may, at any time prior to the next scheduled Purchase Date, terminate his or
her outstanding purchase right by filing the appropriate form with the Plan Administrator (or its
designate), and no further payroll deductions shall be collected from the Participant with respect
to the terminated purchase right. Any payroll deductions collected during the Offering Period in
which such termination occurs shall, at the Participants election, be immediately refunded or held
for the purchase of shares on the next Purchase Date. If no such election is made at the time such
purchase right is terminated, then the payroll deductions collected with respect to the terminated
right shall be refunded as soon as possible.
2. The termination of such purchase right shall be irrevocable, and the Participant may not
subsequently rejoin the Offering Period for which the terminated purchase right was granted. In
order to resume participation in any subsequent Offering Period, such individual must re-enroll in
the Plan (by making a timely filing of the prescribed enrollment forms) on or before the start date
of such Offering Period.
3. Should the Participant cease to remain an Eligible Employee for any reason (including
death, disability or change in status) while his or her purchase right remains outstanding, then
that purchase right shall immediately terminate, and all of the Participants payroll deductions
for the Offering Period in which the purchase right so terminates shall be immediately refunded.
However, should the Participant cease to remain in active service by reason of an approved unpaid
leave of absence, then the Participant shall have the right, exercisable up until the last business
day of the Offering Period in which such leave commences, to (a) withdraw all the payroll
deductions collected to date on his or her behalf for that Offering Period or (b) have such funds
held for the purchase of shares on his or her behalf on the next scheduled Purchase Date. In no
event, however, shall any further payroll deductions be collected on the Participants behalf
during such leave. Upon the Participants return to active service, his or her payroll deductions
under the Plan shall automatically resume at the rate in effect at the time the leave began, unless
the Participant withdraws from the Plan prior to his or her return.
G. Corporate Transaction. Each outstanding purchase right shall automatically be exercised,
immediately prior to the effective date of any Corporate Transaction, by applying the payroll
deductions of each Participant for the Offering Period in which such Corporate Transaction occurs
to the purchase of whole shares of Common Stock at a purchase price per share not less than
eighty-five percent (85%) of the lower of (i) the Fair Market Value per share of Common Stock on
the Grant Date of the Offering Period in which such Corporate Transaction occurs or (ii) the Fair
Market Value per share of Common Stock immediately prior to the effective date of such Corporate
Transaction.
The Corporation shall use its best efforts to provide at least ten (10) days prior written
notice of the occurrence of any Corporate Transaction, and Participants shall, following the
receipt of such notice, have the right to terminate their outstanding purchase rights prior to the
effective date of the Corporate Transaction.
H. Proration of Purchase Rights. Should the total number of shares of Common Stock to be
purchased pursuant to outstanding purchase rights on any particular date exceed the number of
shares then available for issuance under the Plan, the Plan Administrator shall make a pro-rata
allocation of the available shares on a uniform and nondiscriminatory basis, and the payroll
deductions of each Participant, to the extent in excess of the aggregate purchase price payable for
the Common Stock pro-rated to such individual, shall be refunded.
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I. Assignability. The purchase right shall be exercisable only by the Participant and shall
not be assignable or transferable by the Participant.
J. Stockholder Rights. A Participant shall have no stockholder rights with respect to the
shares subject to his or her outstanding purchase right until the shares are purchased on the
Participants behalf in accordance with the provisions of the Plan and the Participant has become a
holder of record of the purchased shares.
VIII. |
|
ACCRUAL LIMITATIONS |
A. No Participant shall be entitled to accrue rights to acquire Common Stock pursuant to any
purchase right outstanding under this Plan if and to the extent such accrual, when aggregated with
(i) rights to purchase Common Stock accrued under any other purchase right granted under this Plan
and (ii) similar rights accrued under other employee stock purchase plans (within the meaning of
Code Section 423) of the Corporation or any Corporate Affiliate, would otherwise permit such
Participant to purchase more than Twenty-Five Thousand Dollars ($25,000) worth of stock of the
Corporation or any Corporate Affiliate (determined on the basis of the Fair Market Value per share
on the Grant Date) for each calendar year such rights are at any time outstanding.
B. For purposes of applying such accrual limitations to the purchase rights granted under the
Plan, the following provisions shall be in effect:
1. The right to acquire Common Stock under each outstanding purchase right shall accrue in a
series of installments on each successive Purchase Date during the Offering Period on which such
right remains outstanding.
2. No right to acquire Common Stock under any outstanding purchase right shall accrue to the
extent the Participant has already accrued in the same calendar year the right to acquire Common
Stock under one (1) or more other purchase rights at a rate equal to Twenty-Five Thousand Dollars
($25,000) worth of Common Stock (determined on the basis of the Fair Market Value per share on the
Grant Date) for each calendar year such rights were at any time outstanding.
C. If by reason of such accrual limitations, any purchase right of a Participant does not
accrue for a particular Offering Period, then the payroll deductions which the Participant made
during that Offering Period with respect to such purchase right shall be promptly refunded.
D. In the event there is any conflict between the provisions of this Article and one or more
provisions of the Plan or any instrument issued thereunder, the provisions of this Article shall be
controlling.
IX. |
|
EFFECTIVE DATE AND TERM OF THE PLAN |
A. The Plan was adopted by the Board on March 31, 2006, provided no purchase rights granted
under the Plan shall be exercised, and no shares of Common Stock shall be issued hereunder, until
(i) the Plan shall have been approved by the stockholders of the Corporation and (ii) the
Corporation shall have complied with all applicable requirements of the 1933 Act (including the
registration of the shares of Common Stock issuable under the Plan on a Form S-8 registration
statement filed with the Securities and Exchange Commission), all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which the Common Stock is
5
listed for trading and all other applicable requirements established by law or regulation. In
the event such stockholder approval is not obtained, or such compliance is not effected, within
twelve (12) months after the date on which the Plan is adopted by the Board, the Plan shall
terminate and have no further force or effect, and all sums collected from Participants during the
initial Offering Period hereunder shall be refunded.
B. Unless sooner terminated by the Board, the Plan shall terminate upon the earliest of (i)
the last business day in June 2016, (ii) the date on which all shares available for issuance under
the Plan shall have been sold pursuant to purchase rights exercised under the Plan or (iii) the
date on which all purchase rights are exercised in connection with a Corporate Transaction. No
further purchase rights shall be granted or exercised, and no further payroll deductions shall be
collected, under the PIan following such termination.
The Board may alter, amend, suspend or discontinue the Plan at any time to become effective
immediately following the close of any Offering Period. However, the Board may not, without the
approval of the Corporations stockholders, (i) materially increase the number of shares of Common
Stock issuable under the Plan or the maximum number of shares purchasable per Participant on any
one Purchase Date, except for permissible adjustments in the event of certain changes in the
Corporations capitalization, (ii) alter the purchase price formula so as to reduce the purchase
price payable for the shares of Common Stock purchasable under the Plan or (iii) materially
increase the benefits accruing to Participants under the Plan or materially modify the requirements
for eligibility to participate in the Plan.
A. All costs and expenses incurred in the administration of the Plan shall be paid by the
Corporation.
B. Nothing in the Plan shall confer upon the Participant any right to continue in the employ
of the Corporation or any Corporate Affiliate for any period of specific duration or interfere with
or otherwise restrict in any way the rights of the Corporation (or any Corporate Affiliate
employing such person) or of the Participant, which rights are hereby expressly reserved by each,
to terminate such persons employment at any time for any reason, with or without cause.
C. The provisions of the Plan shall be governed by the laws of the State of California without
resort to that states conflict-of-laws rules.
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APPENDIX
The following definitions shall be in effect under the Plan:
A. Board shall mean the Corporations Board of Directors.
B. Code shall mean the Internal Revenue Code of 1986, as amended.
C. Common Stock shall mean the Corporations common stock.
D. Compensation shall mean the total amount required to be reported on a Form W-2,
including any elective deferrals or other payroll deductions with respect to a plan of the Company
qualified under either Section 125 or Section 401(a) of the Code, issued to an employee by the
Company.
E. Corporate Affiliate shall mean any parent or subsidiary corporation of the
Corporation (as determined in accordance with Code Section 424), whether now existing or
subsequently established.
F. Corporate Transaction shall mean either of the following stockholder-approved transactions
to which the Corporation is a party:
1. a merger or consolidation in which securities possessing more than fifty percent (50%) of
the total combined voting power of the Corporations outstanding securities are transferred to a
person or persons different from the persons holding those securities immediately prior to such
transaction, or
2. the sale, transfer or other disposition of all or substantially all of the assets of the
Corporation in complete liquidation or dissolution of the Corporation.
G. Corporation shall mean Endologix, Inc., a Delaware corporation.
H. Eligible Employee shall mean any person who is employed by the Corporation on a basis under
which he or she is regularly expected to render more than twenty (20) hours of service per week for
more than five (5) months per calendar year for earnings considered wages under Code Section
3401(a).
I. Fair Market Value per share of Common Stock on any relevant date shall be determined in
accordance with the following provisions:
1. If the Common Stock is then listed or admitted to trading on the Nasdaq National Market
System or a Stock Exchange which reports closing sale prices, the Fair Market Value shall be the
closing sale price on the date of valuation on the Nasdaq National Market System or principal Stock
Exchange on which the Common Stock is then listed or admitted to trading, or, if no closing sale
price is quoted or no sale takes place on such day, then the Fair Market Value shall be the closing
sale price of the Common Stock on the Nasdaq National Market System or such Stock Exchange on the
next preceding day on which a sale occurred.
2. If the Common Stock is not then listed or admitted to trading on the Nasdaq National Market
System or a Stock Exchange which reports closing sale prices, the Fair Market
-1-
Value shall be the average of the closing bid and asked prices of the Common Stock in the
over-the-counter market on the date of valuation.
3. If neither (a) nor (b) is applicable as of the date of valuation, then the Fair Market
Value shall be determined by the Administrator in good faith using any reasonable method of
valuation, which determination shall be conclusive and binding on all interested parties
J. Grant Date shall mean the start date of each Offering Period. The initial Grant Date shall
be the first business day in August 2006.
K. Initial Offering Period shall mean the five-month period from August 1, 2006 through
December 31, 2006.
L. 1933 Act shall mean the Securities Act of 1933, as amended.
M. Offering Period shall mean a six-month period from January 1 through June 30 and from
July 1 through December 31.
N. Participant shall mean any Eligible Employee of the Corporation who is actively
participating in the Plan.
O. Plan shall mean the Corporations 2006 Employee Stock Purchase Plan, as set forth in this
document.
P. Plan Administrator shall mean the Board of Directors or a committee of two (2) or more
Board members appointed by the Board to administer the Plan.
Q. Purchase Date shall mean the last business day of each Offering Period. The initial
Purchase Date shall be the last business day in December 2006.
R. Stock Exchange shall mean either the American Stock Exchange or the New York Stock
Exchange.
2
Appendix B
ENDOLOGIX, INC.
2006 STOCK INCENTIVE PLAN
The 2006 STOCK INCENTIVE PLAN (the Plan) is hereby established and adopted this 31st day of
March, 2006 (the Effective Date) by Endologix, Inc., a Delaware Corporation (the Company).
ARTICLE 1.
PURPOSES OF THE PLAN
1.1 Purposes. The purposes of the Plan are (a) to enhance the Companys ability to attract
and retain the services of qualified employees, officers, directors, consultants and other service
providers upon whose judgment, initiative and efforts the successful conduct and development of the
Companys business largely depends, and (b) to provide additional incentives to such persons or
entities to devote their utmost effort and skill to the advancement and betterment of the Company,
by providing them an opportunity to participate in the ownership of the Company and thereby have an
interest in the success and increased value of the Company.
ARTICLE 2.
DEFINITIONS
For purposes of this Plan, the following terms shall have the meanings indicated:
2.1 Administrator. Administrator means the Board or, if the Board delegates responsibility
for any matter to the Committee, the term Administrator shall mean the Committee.
2.2 Affiliated Company. Affiliated Company means:
(a) with respect to Incentive Options, any parent corporation or subsidiary corporation of
the Company, whether now existing or hereafter created or acquired, as those terms are defined in
Sections 424(e) and 424(f) of the Code, respectively; and
(b) with respect to Awards other than Incentive Options, any entity described in paragraph (a)
of this Section 2.2 above, plus any other corporation, limited liability company (LLC),
partnership or joint venture, whether now existing or hereafter created or acquired, with respect
to which the Company beneficially owns more than fifty percent (50%) of: (1) the total combined
voting power of all outstanding voting securities or (2) the capital or profits interests of an
LLC, partnership or joint venture.
2.3 Award. Award means an Option, a Restricted Stock award, a Stock Appreciation Right
award, a Dividend Equivalents award, a Stock Payment award or a Restricted Stock Unit award granted
to a Participant pursuant to the Plan.
2.4 Award Agreement. Award Agreement means a written or electronic agreement entered into
between the Company and a Participant setting forth the terms and conditions of an Award granted to
a Participant.
2.5 Board. Board means the Board of Directors of the Company.
2.6 Change in Control. Change in Control shall mean:
(a) The acquisition, directly or indirectly, in one transaction or a series of related
transactions, by any person or group (within the meaning of Section 13(d)(3) of the Exchange Act)
of the beneficial ownership of securities of the Company possessing more than fifty percent (50%)
of the total combined voting power of all outstanding securities of the Company;
(b) A merger or consolidation in which the Company is not the surviving entity, except for a
transaction in which the holders of the outstanding voting securities of the Company immediately
prior to such merger or consolidation hold as a result of holding Company securities prior to such
transaction, in the aggregate, securities possessing more than fifty percent (50%) of the total
combined voting power of all outstanding voting securities of the surviving entity (or the parent
of the surviving entity) immediately after such merger or consolidation;
(c) A reverse merger in which the Company is the surviving entity but in which the holders of
the outstanding voting securities of the Company immediately prior to such merger hold, in the
aggregate, securities possessing less than fifty percent (50%) of the total combined voting power
of all outstanding voting securities of the Company or of the acquiring entity immediately after
such merger;
(d) The sale, transfer or other disposition (in one transaction or a series of related
transactions) of all or substantially all of the assets of the Company, except for a transaction in
which the holders of the outstanding voting securities of the Company immediately prior to such
transaction(s) receive as a distribution with respect to securities of the Company, in the
aggregate, securities possessing more than fifty percent (50%) of the total combined voting power
of all outstanding voting securities of the acquiring entity immediately after such transaction(s);
or
(e) The approval by the stockholders of a plan or proposal for the liquidation or dissolution
of the Company.
2.7 Code. Code means the Internal Revenue Code of 1986, as amended from time to time.
2.8 Committee. Committee means a committee of two or more members of the Board appointed to
administer the Plan, as set forth in Section 10.1 hereof.
2.9 Common Stock. Common Stock means the Common Stock of the Company, subject to adjustment
pursuant to Section 4.2 hereof.
2.10 Covered Employee. Covered Employee means the Chief Executive Officer of the Company
(or the individual acting in a similar capacity) and the four (4) other individuals that are the
highest compensated executive officers of the Company for the relevant taxable year for whom total
compensation is required to be reported to stockholders under the Exchange Act.
2
2.11 Disability. Disability means permanent and total disability as defined in Section
22(e)(3) of the Code. The Administrators determination of a Disability or the absence thereof
shall be conclusive and binding on all interested parties.
2.12 Dividend Equivalent. Dividend Equivalent means a right to receive payments equivalent
to the amount of dividends paid by the Company to holders of shares of Common Stock with respect to
the number of Dividend Equivalents held by the Participant. The Dividend Equivalent may provide for
payment in Common Stock or in cash, or a fixed combination of Common Stock or cash, or the
Administrator may reserve the right to determine the manner of payment at the time the Dividend
Equivalent is payable. Dividend Equivalents may be granted only in connection with a grant of
Restricted Stock Units and shall be subject to the vesting conditions that govern Restricted Stock
Units as set forth in the applicable Restricted Stock Award Agreement.
2.13 DRO. DRO means a domestic relations order as defined in the Code or Title I of the
Employee Retirement Income Security Act of 1974, as amended, or the regulations thereunder.
2.14 Effective Date. Effective Date means the date on which the Plan was originally adopted
by the Board, as set forth on the first page hereof.
2.15 Exchange Act. Exchange Act means the Securities and Exchange Act of 1934, as amended.
2.16 Exercise Price. Exercise Price means the purchase price per share of Common Stock
payable upon exercise of an Option.
2.17 Fair Market Value. Fair Market Value on any given date means the value of one share of
Common Stock, determined as follows:
(a) If the Common Stock is then listed or admitted to trading on a Nasdaq market system or a
stock exchange which reports closing sale prices, the Fair Market Value shall be the closing sale
price on the date of valuation on such Nasdaq market system or principal stock exchange on which
the Common Stock is then listed or admitted to trading, or, if no closing sale price is quoted on
such day, then the Fair Market Value shall be the closing sale price of the Common Stock on such
Nasdaq market system or such exchange on the next preceding day on which a closing sale price is
reported.
(b) If the Common Stock is not then listed or admitted to trading on a Nasdaq market system or
a stock exchange which reports closing sale prices, the Fair Market Value shall be the average of
the closing bid and asked prices of the Common Stock in the over-the-counter market on the date of
valuation.
(c) If neither (a) nor (b) is applicable as of the date of valuation, then the Fair Market
Value shall be determined by the Administrator in good faith using any reasonable method of
evaluation, which determination shall be conclusive and binding on all interested parties.
2.18 Incentive Option. Incentive Option means any Option designated and qualified as an
incentive stock option as defined in Section 422 of the Code.
2.19 Incentive Option Agreement. Incentive Option Agreement means an Option Agreement with
respect to an Incentive Option.
3
2.20 NASD Dealer. NASD Dealer means a broker-dealer that is a member of the National
Association of Securities Dealers, Inc.
2.21 Non-Employee Director. Non-Employee Director shall have the meaning given in Section
5.12 below.
2.22 Nonqualified Option. Nonqualified Option means any Option that is not an Incentive
Option. To the extent that any Option designated as an Incentive Option fails in whole or in part
to qualify as an Incentive Option, including, without limitation, for failure to meet the
limitations applicable to a 10% Stockholder or because it exceeds the annual limit provided for in
Section 5.7 below, it shall to that extent constitute a Nonqualified Option.
2.23 Nonqualified Option Agreement. Nonqualified Option Agreement means an Option Agreement
with respect to a Nonqualified Option.
2.24 Option. Option means any option to purchase Common Stock granted pursuant to the Plan.
2.25 Option Agreement. Option Agreement means the written agreement entered into between
the Company and the Optionee with respect to an Option granted under the Plan.
2.26 Optionee. Optionee means any Participant who holds an Option.
2.27 Participant. Participant means an individual or entity that holds an Option, Stock
Appreciation Right, shares of Stock, Restricted Stock, Restricted Stock Units, Stock Payment or
Dividend Equivalents under the Plan.
2.28 Performance Criteria. Performance Criteria means one or more of the following as
established by the Administrator, which may be stated as a target percentage or dollar amount, a
percentage increase over a base period percentage or dollar amount or the occurrence of a specific
event or events:
(a) Sales;
(b) Operating income;
(c) Pre-tax income;
(d) Earnings before interest, taxes, depreciation and amortization;
(e) Earnings per share of Common Stock on a fully-diluted basis;
(f) Consolidated net income of the Company divided by the average consolidated common
stockholders equity;
(g) Cash and cash equivalents derived from either (i) net cash flow from operations, or (ii)
net cash flow from operations, financings and investing activities;
(h) Adjusted operating cash flow return on income;
4
(i) Cost containment or reduction;
(j) The percentage increase in the market price of the Common Stock over a stated period;
(k) Return on assets;
(l) New Company product introductions;
(m) Obtaining regulatory approvals for new or existing products; and
(n) Individual business objectives.
2.29 Purchase Price. Purchase Price means the purchase price payable to purchase a share of
Restricted Stock, or a Restricted Stock Unit, which, in the sole discretion of the Administrator,
may be zero (0), subject to limitations under applicable law.
2.30 Repurchase Right. Repurchase Right means the right of the Company to repurchase either
unvested shares of Restricted Stock pursuant to Section 6.6 or to cancel unvested Restricted Stock
Units pursuant to Section 7.6.
2.31 Restricted Stock. Restricted Stock means shares of Common Stock issued pursuant to
Article 6 hereof, subject to any restrictions and conditions as are established pursuant to such
Article 6.
2.32 Restricted Stock Award. Restricted Stock Award means either the issuance of Restricted
Stock or the grant of Restricted Stock Units or Dividend Equivalents under the Plan.
2.33 Restricted Stock Award Agreement. Restricted Stock Award Agreement means the written
agreement entered into between the Company and a Participant evidencing the issuance of Restricted
Stock or the grant of Restricted Stock Units or Dividend Equivalents under the Plan.
2.34 Restricted Stock Unit. Restricted Stock Unit means the right to receive one share of
Common Stock issued pursuant to Article 7 hereof, subject to any restrictions and conditions as are
established pursuant to such Article 7.
2.35 Service Provider. Service Provider means a consultant or other person or entity the
Administrator authorizes to become a Participant in the Plan and who provides services to (i) the
Company, (ii) an Affiliated Company, or (iii) any other business venture designated by the
Administrator in which the Company or an Affiliated Company has a significant ownership interest.
2.36 Stock Appreciation Right. "Stock Appreciation Right means a contractual right granted
to a Participant under Article 8 hereof entitling such Participant to receive a payment
representing the difference between the base price per share of the right and the Fair Market Value
of a share of Common Stock, payable either in cash or in shares of the Companys Common Stock, at
such time, and subject to such conditions, as are set forth in this Plan and the applicable Stock
Appreciation Rights Award agreement.
5
2.37 Stock Appreciation Rights Holder. Stock Appreciation Rights Holder means any
Participant who holds a Stock Appreciation Right.
2.38 Stock Payment. Stock Payment means a payment in the form of shares of Common Stock.
2.39 10% Stockholder. 10% Stockholder means a person who, as of a relevant date, owns or is
deemed to own (by reason of the attribution rules applicable under Section 424(d) of the Code)
stock possessing more than 10% of the total combined voting power of all classes of stock of the
Company or of an Affiliated Company.
ARTICLE 3.
ELIGIBILITY
3.1 Incentive Options. Only employees of the Company or of an Affiliated Company (including
members of the Board if they are employees of the Company or of an Affiliated Company) are eligible
to receive Incentive Options under the Plan.
3.2 Nonqualified Options, Stock Appreciation Rights, Stock Payments and Restricted Stock
Awards. Employees of the Company or of an Affiliated Company, members of the Board (whether or not
employed by the Company or an Affiliated Company), and Service Providers are eligible to receive
Nonqualified Options, Stock Appreciation Rights, Stock Payments or Restricted Stock Awards under
the Plan.
3.3 Section 162(m) Limitation. In no event shall any Participant be granted Options or Stock
Appreciation Rights in any one calendar year pursuant to which the aggregate number of shares of
Common Stock that may be acquired thereunder exceeds 200,000 shares, subject to adjustment as to
the number and kind of shares pursuant to Section 4.2 hereof. Notwithstanding the foregoing, in
connection with his or her initial service to the Company, the aggregate number of shares of Common
Stock with respect to which Options or Stock Appreciation Rights may be granted to any Participant
shall not exceed 300,000 shares of Common Stock during the calendar year which includes such
individuals initial service to the Company. The foregoing limitations shall be applied on an
aggregate basis taking into account Awards granted to a Participant under the Plan as well as
awards of the same type granted to a Participant under any other equity-based compensation plan of
the Company or any Affiliated Company.
ARTICLE 4.
PLAN SHARES
4.1 Shares Subject to the Plan.
(a) The number of shares of Common Stock that may be issued pursuant to Awards under the Plan
shall be the sum of: (i) 2,000,000 shares; plus (ii) the number of shares of Common Stock remaining
available for issuance and not subject to awards granted under the Endologix, Inc. 1996 Stock
Option / Stock Issuance Plan (the Existing Plan) as of the Effective Date. The foregoing shall
be subject to adjustment as to the number and kind of shares pursuant to
6
Section 4.2 hereof. In the event that (a) all or any portion of any Option granted under the
Plan can no longer under any circumstances be exercised, or (b) any shares of Common Stock subject
to an Award Agreement are reacquired by the Company, the shares of Common Stock allocable to the
unexercised portion of such Option or the shares so reacquired shall again be available for grant
or issuance under the Plan.
As of the Effective Date, there were 887,583 shares of Common Stock available for issuance
under the Existing Plan. Accordingly, the maximum number of shares of Common Stock that could be
issued pursuant to Awards under the Plan is 2,887,583 shares of Common Stock, subject to adjustment
as to the number and kind of shares pursuant to Section 4.2 hereof.
(b) The maximum number of shares of Common Stock that may be issued under the Plan as
Incentive Options shall be 2,887,583 shares, subject to adjustment as to the number and kind of
shares pursuant to Section 4.2 hereof.
(c) The maximum number of shares of Common Stock that may be issued as Restricted Stock, Stock
Payment awards, or subject to Restricted Stock Units shall be 500,000, subject to adjustment as to
the number and kind of shares pursuant to Section 4.2 hereof.
4.2 Changes in Capital Structure. In the event that the outstanding shares of Common Stock
are hereafter increased or decreased or changed into or exchanged for a different number or kind of
shares or other securities of the Company by reason of a recapitalization, stock split, reverse
stock split, reclassification, stock dividend, or other change in the capital structure of the
Company, then appropriate adjustments shall be made by the Administrator to the aggregate number
and kind of shares subject to this Plan, the number and kind of shares and the price per share
subject to outstanding Award Agreements and the limit on the number of shares under Section 3.3,
all in order to preserve, as nearly as practical, but not to increase, the benefits to
Participants.
ARTICLE 5.
OPTIONS
5.1 Grant of Stock Options. The Administrator shall have the right to grant, pursuant to this
Plan, Options subject to such terms, restrictions and conditions as the Administrator may determine
at the time of grant. Such conditions may include, but are not limited to, continued employment or
the achievement of specified performance goals or objectives established by the Administrator with
respect to one or more Performance Criteria.
5.2 Option Agreements. Each Option granted pursuant to this Plan shall be evidenced by an
Option Agreement which shall specify the number of shares subject thereto, vesting provisions
relating to such Option, the Exercise Price per share, and whether the Option is an Incentive
Option or Nonqualified Option. As soon as is practical following the grant of an Option, an Option
Agreement shall be duly executed and delivered by or on behalf of the Company to the Optionee to
whom such Option was granted. Each Option Agreement shall be in such form and contain such
additional terms and conditions, not inconsistent with the provisions of this Plan, as the
Administrator shall, from time to time, deem desirable.
7
5.3 Exercise Price. The Exercise Price per share of Common Stock covered by each Option shall
be determined by the Administrator, subject to the following: (a) the Exercise Price of an
Incentive Option shall not be less than 100% of Fair Market Value on the date the Incentive Option
is granted, (b) the Exercise Price of a Nonqualified Option shall not be less than 100% of Fair
Market Value on the date the Nonqualified Option is granted, and (c) if the person to whom an
Incentive Option is granted is a 10% Stockholder on the date of grant, the Exercise Price shall not
be less than 110% of Fair Market Value on the date the Incentive Option is granted. However, an
Option may be granted with an exercise price lower than that set forth in the preceding sentence if
such Option is granted pursuant to an assumption or substitution for another option in a manner
satisfying the provisions of Section 424 of the Code.
5.4 Payment of Exercise Price. Payment of the Exercise Price shall be made upon exercise of
an Option and may be made, in the discretion of the Administrator, subject to any legal
restrictions, by: (a) cash; (b) check; (c) the surrender of shares of Common Stock owned by the
Optionee (provided that shares acquired pursuant to the exercise of options granted by the Company
must have been held by the Optionee for the requisite period necessary to avoid a charge to the
Companys earnings for financial reporting purposes), which surrendered shares shall be valued at
Fair Market Value as of the date of such exercise; (d) the cancellation of indebtedness of the
Company to the Optionee; (e) the waiver of compensation due or accrued to the Optionee for services
rendered; (f) provided that a public market for the Common Stock exists, a same day sale
commitment from the Optionee and an NASD Dealer whereby the Optionee irrevocably elects to exercise
the Option and to sell a portion of the shares so purchased to pay for the Exercise Price and
whereby the NASD Dealer irrevocably commits upon receipt of such shares to forward the Exercise
Price directly to the Company; (g) provided that a public market for the Common Stock exists, a
margin commitment from the Optionee and an NASD Dealer whereby the Optionee irrevocably elects to
exercise the Option and to pledge the shares so purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount of the Exercise Price, and whereby the NASD
Dealer irrevocably commits upon receipt of such shares to forward the Exercise Price directly to
the Company; or (h) any combination of the foregoing methods of payment or any other consideration
or method of payment as shall be permitted by applicable law.
5.5 Term and Termination of Options. The term and provisions for termination of each Option
shall be as fixed by the Administrator, but no Option may be exercisable more than ten (10) years
after the date it is granted.
5.6 Vesting and Exercise of Options. Each Option shall vest and become exercisable in one or
more installments, at such time or times and subject to such conditions, including without
limitation the achievement of specified performance goals or objectives established with respect to
one or more Performance Criteria, as shall be determined by the Administrator.
5.7 Annual Limit on Incentive Options. To the extent required for incentive stock option
treatment under Section 422 of the Code, the aggregate Fair Market Value (determined as of the time
of grant) of the Common Stock with respect to which Incentive Options granted under this Plan and
any other plan of the Company or any Affiliated Company become exercisable for the first time by an
Optionee during any calendar year shall not exceed $100,000.
5.8 Nontransferability of Options. Except as otherwise provided in this Section 5.8, Options
shall not be assignable or transferable except by will, the laws of descent and distribution or
pursuant to a DRO entered by a court in settlement of marital property rights, and during the life
of
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the Optionee, Options shall be exercisable only by the Optionee. At the discretion of the
Administrator and in accordance with rules it establishes from time to time, Optionees may be
permitted to transfer some or all of their Nonqualified Options to one or more family members,
which is not a prohibited transfer for value, provided that (i) the Optionee (or such Optionees
estate or representative) shall remain obligated to satisfy all income or other tax withholding
obligations associated with the exercise of such Nonqualified Option; (ii) the Optionee shall
notify the Company in writing that such transfer has occurred and disclose to the Company the name
and address of the family member or family members and their relationship to the Optionee, and
(iii) such transfer shall be effected pursuant to transfer documents in a form approved by the
Administrator. For purposes of the foregoing, the terms family members and prohibited transfer
for value have the meaning ascribed to them in the General Instructions to Form S-8 (or any
successor form) promulgated under the Securities Act of 1933, as amended.
5.9 Repricing Prohibited. Subject to Section 4.2 hereof, without the prior approval of the
Companys stockholders, evidenced by a majority of votes cast, the Administrator shall not cause
the cancellation, substitution or amendment of an Option Agreement that would have the effect of
reducing the exercise price of such an Option previously granted under the Plan, or otherwise
approve any modification to such an Option that would be treated as a repricing under the then
applicable rules, regulations or listing requirements adopted by the Nasdaq Stock Market.
5.10 Rights as a Stockholder. An Optionee or permitted transferee of an Option shall have no
rights or privileges as a stockholder with respect to any shares covered by an Option until such
Option has been duly exercised and certificates representing shares purchased upon such exercise
have been issued to such person.
5.11 Unvested Shares. The Administrator shall have the discretion to grant Options which are
exercisable for unvested shares of Common Stock. Should the Optionee cease being an employee,
officer or director of the Company while owning such unvested shares, the Company shall have the
right to repurchase, at the exercise price paid per share, any or all of those unvested shares.
The terms upon which such repurchase right shall be exercisable (including the period and procedure
for exercise and the appropriate vesting schedule for the purchased shares) shall be established by
the Administrator and set forth in the document evidencing such repurchase right.
5.12 Option Grants to Non-Employee Directors.
(a) Automatic Grants. Each director of the Company who is not an employee or executive
officer of the Company (a Non-Employee Director) shall automatically be granted (i) a
Nonqualified Option to purchase 30,000 shares of the Common Stock upon commencement of service as a
director of the Company, and (ii) a Nonqualified Option to purchase 20,000 shares of Common Stock
at each annual meeting of the Companys stockholders (provided such individual has served as a
Non-Employee Director for at least six (6) months prior to such meeting); provided, however, that
the Chairman of the Board shall automatically be granted a Nonqualified Option to purchase a
maximum of 50,000 shares of Common Stock at each annual meeting of the Companys stockholders, with
the exact amount determined by the Administrator. All such Non-Qualified Options shall be subject
to the terms and conditions of this Plan, including Section 5.11 above.
9
(b) Vesting
of Options Granted to Non-Employee Directors. Each initial Nonqualified Option granted to a newly-elected or appointed Non-Employee Director shall vest,
in a series of four (4) successive equal annual installments over the Non-Employee Directors
period of continued service as a director, with the first such installment to vest upon the
Non-Employee Directors completion of one (1) year of service as a Non-Employee Director measured
from the Nonqualified Option grant date. Each annual Nonqualified Option granted to continuing
Non-Employee Directors shall vest, upon the Non-Employee Directors completion of one (1) year of
service as a Non-Employee Director measured from the Nonqualified Option grant date.
ARTICLE 6.
RESTRICTED STOCK
6.1 Issuance of Restricted Stock. The Administrator shall have the right to issue pursuant to
this Plan and at a Purchase Price determined by the Administrator, shares of Common Stock subject
to such terms, restrictions and conditions as the Administrator may determine at the time of grant.
Such conditions may include, but are not limited to, continued employment or the achievement of
specified performance goals or objectives established by the Administrator with respect to one or
more Performance Criteria, which require the Administrator to certify in writing whether and the
extent to which such performance goals were achieved before such restrictions are considered to
have lapsed.
6.2 Restricted Stock Award Agreements. A Participant shall have no rights with respect to the
shares of Restricted Stock covered by a Restricted Stock Award Agreement until the Participant has
paid the full Purchase Price, if any, to the Company in the manner set forth in Section 6.3(b)
hereof and has executed and delivered to the Company the applicable Restricted Stock Award
Agreement. Each Restricted Stock Award Agreement shall be in such form, and shall set forth the
Purchase Price, if any, and such other terms, conditions and restrictions of the Restricted Stock
Award Agreement, not inconsistent with the provisions of this Plan, as the Administrator shall,
from time to time, deem desirable. Each such Restricted Stock Award Agreement may be different
from each other Restricted Stock Award Agreement.
6.3 Purchase Price.
(a) Amount. Restricted Stock may be issued to Participants for such consideration as is
determined by the Administrator in its sole discretion, including no consideration or such minimum
consideration as may be required by applicable law.
(b) Payment. Payment of the Purchase Price, if any, may be made, in the discretion of the
Administrator, subject to any legal restrictions, by: (a) cash; (b) check; (c) the surrender of
shares of Common Stock owned by the Participant (provided that shares acquired pursuant to the
exercise of options granted by the Company shall have been held by the Participant for the
requisite period necessary to avoid a charge to the Companys earnings for financial reporting
purposes), which surrendered shares shall be valued at Fair Market Value as of the date of such
acceptance; (d) the cancellation of indebtedness of the Company to the Participant; (e) the waiver
of compensation due or accrued to the Participant for services rendered; or (f) any combination of
the foregoing methods of payment or any other consideration or method of payment as shall be
permitted by applicable law. If payment for shares of Restricted Stock is made by promissory note,
any cash
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dividends paid with respect to the Restricted Stock may be applied, in the discretion of the
Administrator, to repayment of such note.
6.4 Vesting of Restricted Stock. The Restricted Stock Award Agreement shall specify the date
or dates, the performance goals, if any, established by the Administrator with respect to one or
more Performance Criteria that must be achieved, and any other conditions on which the Restricted
Stock may vest.
6.5 Rights as a Stockholder. Upon complying with the provisions of Sections 6.2 and 6.3
hereof, a Participant shall have the rights of a stockholder with respect to the Restricted Stock
acquired pursuant to a Restricted Stock Award Agreement, including voting and dividend rights,
subject to the terms, restrictions and conditions as are set forth in such Restricted Stock Award
Agreement. Unless the Administrator shall determine otherwise, certificates evidencing shares of
Restricted Stock shall remain in the possession of the Company until such shares have vested in
accordance with the terms of the Restricted Stock Award Agreement.
6.6 Restrictions. Shares of Restricted Stock may not be sold, pledged or otherwise encumbered
or disposed of and shall not be assignable or transferable except by will, the laws of descent and
distribution or pursuant to a DRO entered by a court in settlement of marital property rights,
except as specifically provided in the Restricted Stock Award Agreement or as authorized by the
Administrator. In the event of termination of a Participants employment, service as a director of
the Company or Service Provider status for any reason whatsoever (including death or disability),
the Restricted Stock Award Agreement may provide, in the discretion of the Administrator, that the
Company may, at the discretion of the Administrator, exercise a Repurchase Right to repurchase at
the original Purchase Price the shares of Restricted Stock that have not vested as of the date of
termination.
ARTICLE 7.
RESTRICTED STOCK UNITS
7.1 Grants of Restricted Stock Units and Dividend Equivalents. The Administrator shall have
the right to grant, pursuant to this Plan, Restricted Stock Units and Dividend Equivalents, subject
to such terms, restrictions and conditions as the Administrator may determine at the time of grant.
Such conditions may include, but are not limited to, continued employment or the achievement of
specified performance goals or objectives established by the Administrator with respect to one or
more Performance Criteria, which require the Administrator to certify in writing whether and the
extent to which such performance goals were achieved before such restrictions are considered to
have lapsed.
7.2 Restricted Stock Unit Agreements. A Participant shall have no rights with respect to the
Restricted Stock Units or Dividend Equivalents covered by a Restricted Stock Award Agreement until
the Participant has executed and delivered to the Company the applicable Restricted Stock Award
Agreement. Each Restricted Stock Award Agreement shall be in such form, and shall set forth the
Purchase Price, if any, and such other terms, conditions and restrictions of the Restricted Stock
Award Agreement, not inconsistent with the provisions of this Plan, as the Administrator shall,
from time to time, deem desirable. Each such Restricted Stock Award Agreement may be different
from each other Restricted Stock Award Agreement.
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7.3 Purchase Price.
(a) Amount. Restricted Stock Units may be issued to Participants for such consideration as is
determined by the Administrator in its sole discretion, including no consideration or such minimum
consideration as may be required by applicable law.
(b) Payment. Payment of the Purchase Price, if any, may be made, in the discretion of the
Administrator, subject to any legal restrictions, by: (a) cash; (b) check; (c) the surrender of
shares of Common Stock owned by the Participant (provided that shares acquired pursuant to the
exercise of options granted by the Company shall have been held by the Participant for the
requisite period necessary to avoid a charge to the Companys earnings for financial reporting
purposes), which surrendered shares shall be valued at Fair Market Value as of the date of such
acceptance; (d) the cancellation of indebtedness of the Company to the Participant; (e) the waiver
of compensation due or accrued to the Participant for services rendered; or (f) any combination of
the foregoing methods of payment or any other consideration or method of payment as shall be
permitted by applicable law.
7.4 Vesting of Restricted Stock Units and Dividend Equivalents. The Restricted Stock Award
Agreement shall specify the date or dates, the performance goals, if any, established by the
Administrator with respect to one or more Performance Criteria that must be achieved, and any other
conditions on which the Restricted Stock Units and Dividend Equivalents may vest.
7.5 Rights as a Stockholder. Holders of Restricted Stock Units shall not be entitled to vote
or to receive dividends unless or until they become owners of the shares of Common Stock pursuant
to their Restricted Stock Award Agreement and the terms and conditions of the Plan.
7.6 Restrictions. Restricted Stock Units and Dividend Equivalents may not be sold, pledged or
otherwise encumbered or disposed of and shall not be assignable or transferable except by will, the
laws of descent and distribution or pursuant to a DRO entered by a court in settlement of marital
property rights, except as specifically provided in the Restricted Stock Award Agreement or as
authorized by the Administrator. In the event of termination of a Participants employment,
service as a director of the Company or Service Provider status for any reason whatsoever
(including death or disability), the Restricted Stock Award Agreement may provide that all
Restricted Stock Units and Dividend Equivalents that have not vested as of such date shall be
automatically forfeited by the Participant. However, if, with respect to such unvested Restricted
Stock Units the Participant paid a Purchase Price, the Administrator shall have the right,
exercisable at the discretion of the Administrator, to exercise a Repurchase Right to cancel such
unvested Restricted Stock Units upon payment to the Participant of the original Purchase Price.
The Participant shall forfeit such unvested Restricted Stock Units upon the Administrators
exercise of such right.
ARTICLE 8.
STOCK APPRECIATION RIGHTS
8.1 Grant of Stock Appreciation Rights. A Stock Appreciation Right may be granted to any
Participant selected by the Administrator. Stock Appreciation Rights may be granted on a basis
that allows for the exercise of the right by the Participant or that provides for the automatic
payment of the right upon a specified date or event. Stock Appreciation Rights shall be
exercisable
12
or payable at such time or times and upon conditions as may be approved by the Administrator,
provided that the Administrator may accelerate the exercisability or payment of a Stock
Appreciation Right at any time.
8.2 Vesting of Stock Appreciation Rights. Each Stock Appreciation Right shall vest and become
exercisable in one or more installments at such time or times and subject to such conditions,
including without limitation the achievement of specified performance goals or objectives
established with respect to one or more Performance Criteria, as shall be determined by the
Administrator. A Stock Appreciation Right will be exercisable or payable at such time or times as
determined by the Administrator, provided that the maximum term of a Stock Appreciation Right shall
be ten (10) years from the date of grant. The base price of a Stock Appreciation Right shall be
determined by the Administrator in its sole discretion; provided, however, that the base price per
share of any Stock Appreciation Right shall not be less than one hundred percent (100%) of the Fair
Market Value of the shares of Common Stock on the date of grant.
8.3 Payment of Stock Appreciation Rights. A Stock Appreciation Right will entitle the holder,
upon exercise or other payment of the Stock Appreciation Right, as applicable, to receive an amount
determined by multiplying: (i) the excess of the Fair Market Value of a share of Common Stock on
the date of exercise or payment of the Stock Appreciation Right over the base price of such Stock
Appreciation Right, by (ii) the number of shares as to which such Stock Appreciation Right is
exercised or paid. Payment of the amount determined under the foregoing shall be made either in
cash or in shares of Common Stock, as determined by the Administrator in its discretion. If
payment is made in shares of Common Stock, such shares shall be valued at their Fair Market Value
on the date of exercise or payment, subject to applicable tax withholding requirements and to such
conditions, as are set forth in this Plan and the applicable Stock Appreciation Rights Award
Agreement.
8.4 Nontransferability of Stock Appreciation Rights. Except as otherwise provided in this
Section 8.4, Stock Appreciation Rights shall not be assignable or transferable except by will, the
laws of descent and distribution or pursuant to a DRO entered by a court in settlement of marital
property rights, and during the life of the Stock Appreciation Rights Holder, Stock Appreciation
Rights shall be exercisable only by the Stock Appreciation Rights Holder. At the discretion of the
Administrator and in accordance with rules it establishes from time to time, Stock Appreciation
Rights Holders may be permitted to transfer some or all of their Stock Appreciation Rights to one
or more family members, which is not a prohibited transfer for value, provided that (i) the
Stock Appreciation Rights Holder (or such holders estate or representative) shall remain obligated
to satisfy all income or other tax withholding obligations associated with the exercise of such
Stock Appreciation Right; (ii) the Stock Appreciation Rights Holder shall notify the Company in
writing that such transfer has occurred and disclose to the Company the name and address of the
family member or family members and their relationship to the holder, and (iii) such transfer
shall be effected pursuant to transfer documents in a form approved by the Administrator. For
purposes of the foregoing, the terms family members and prohibited transfer for value have the
meaning ascribed to them in the General Instructions to Form S-8 (or any successor form)
promulgated under the Securities Act of 1933, as amended.
13
ARTICLE 9.
STOCK PAYMENT AWARDS
9.1 Grant of Stock Payment Awards. A Stock Payment award may be granted to any Participant
selected by the Administrator. A Stock Payment award may be granted for past services, in lieu of
bonus or other cash compensation, as directors compensation or for any other valid purpose as
determined by the Administrator. A Stock Payment award granted to a Participant represents shares
of Common Stock that are issued without restrictions on transfer and other incidents of ownership
and free of forfeiture conditions, except as otherwise provided in the Plan and the Award
Agreement. The Administrator may, in connection with any Stock Payment award, provide that no
payment is required, or require the payment by the Participant of a specified purchase price.
9.2 Rights as Stockholder. Subject to the foregoing provisions of this Article 9 and the
applicable Award Agreement, upon the issuance of the Common Stock under a Stock Payment award the
Participant shall have all rights of a stockholder with respect to the shares of Common Stock,
including the right to vote the shares and receive all dividends and other distributions paid or
made with respect thereto.
ARTICLE 10.
ADMINISTRATION OF THE PLAN
10.1 Administrator. Authority to control and manage the operation and administration of the
Plan shall be vested in the Board, which may delegate such responsibilities in whole or in part to
a Committee. Members of the Committee may be appointed from time to time by, and shall serve at
the pleasure of, the Board. The Board may limit the composition of the Committee to those persons
necessary to comply with the requirements of Section 162(m) of the Code and Section 16 of the
Exchange Act.
10.2 Powers of the Administrator. In addition to any other powers or authority conferred upon
the Administrator elsewhere in the Plan or by law, the Administrator shall have full power and
authority: (a) to determine the persons to whom, and the time or times at which, Awards shall be
granted, the number of shares to be represented by each Award, and the consideration to be received
by the Company upon the exercise and/or vesting of such Awards; (b) to interpret the Plan; (c) to
create, amend or rescind rules and regulations relating to the Plan; (d) to determine the terms,
conditions and restrictions contained in, and the form of, Award Agreements; (e) to determine the
identity or capacity of any persons who may be entitled to exercise a Participants rights under
any Award Agreement under the Plan; (f) to correct any defect or supply any omission or reconcile
any inconsistency in the Plan or in any Award Agreement; (g) to accelerate the vesting of any Award
or release or waive any repurchase rights of the Company with respect to Restricted Stock Awards;
(h) to extend the expiration date of any Option; (i) to amend outstanding Award Agreements to
provide for, among other things, any change or modification which the Administrator could have
included in the original Agreement or in furtherance of the powers provided for herein; and (j) to
make all other determinations necessary or advisable for the administration of the Plan, but only
to the extent not contrary to the express provisions of the Plan. Any action, decision,
interpretation or determination made in good faith by the Administrator in the exercise of its
authority conferred upon it under the Plan shall be final and binding on the Company and all
Participants. To the extent permitted by applicable law, the Administrator may from time to time
delegate to one or more members of the Board or one or more officers of the Company the authority
14
to grant or amend Awards to Participants other than (a) senior executives of the Company who
are subject to Section 16 of the Exchange Act, (b) Covered Employees, or (c) officers of the
Company (or members of the Board) to whom authority to grant or amend Awards has been delegated
hereunder. Any delegation hereunder shall be subject to the restrictions and limits that the
Administrator specifies at the time of such delegation, and the Administrator may at any time
rescind the authority so delegated or appoint a new delegatee.
10.3 Limitation on Liability. No employee of the Company or member of the Board or
Administrator shall be subject to any liability with respect to duties under the Plan unless the
person acts fraudulently or in bad faith. To the extent permitted by law, the Company shall
indemnify each member of the Board or Administrator, and any employee of the Company with duties
under the Plan, who was or is a party, or is threatened to be made a party, to any threatened,
pending or completed proceeding, whether civil, criminal, administrative or investigative, by
reason of such persons conduct in the performance of duties under the Plan.
ARTICLE 11.
CHANGE IN CONTROL
11.1 Impact of Change in Control on Awards Under Plan. In order to preserve a Participants
rights in the event of a Change in Control of the Company:
(a) The Administrator shall have the discretion to provide in each Award Agreement the terms
and conditions that relate to (i) vesting of such Award in the event of a Change in Control, and
(ii) assumption of such Awards or issuance of comparable securities under an incentive program in
the event of a Change in Control. The aforementioned terms and conditions may vary in each Award
Agreement.
(b) If the terms of an outstanding Option provide for accelerated vesting in the event of a
Change in Control, or to the extent that a Option is vested and not yet exercised, the
Administrator in its discretion may provide, in connection with the Change in Control transaction,
for the purchase or exchange of each Option for an amount of cash or other property having a value
equal to the difference (or spread) between: (x) the value of the cash or other property that the
Participant would have received pursuant to the Change in Control transaction in exchange for the
shares issuable upon exercise of the Option had the Option been exercised immediately prior to the
Change in Control, and (y) the Exercise Price of the Option.
(c) If the terms of an outstanding Stock Appreciation Right provide for accelerated vesting in
the event of a Change in Control, or to the extent that a Stock Appreciation Right is vested and
not yet exercised, the Administrator in its discretion may provide, in connection with the Change
in Control transaction, for the purchase or exchange of each Stock Appreciation Right for an amount
of cash or other property having a value equal to the value of the cash or other property that the
Participant would have received pursuant to the Change in Control transaction in exchange for the
shares issuable upon exercise of the Stock Appreciation Right had the Stock Appreciation Right been
exercised immediately prior to the Change in Control.
(d) Outstanding Options and Stock Appreciation Rights shall terminate and cease to be
exercisable upon consummation of a Change in Control except to the extent that the Options or
15
Stock Appreciation Rights are assumed by the successor entity (or parent thereof) pursuant to
the terms of the Change in Control transaction.
(e) The Administrator shall cause written notice of a proposed Change in Control transaction
to be given to Participants not less than fifteen (15) days prior to the anticipated effective date
of the proposed transaction.
ARTICLE 12.
AMENDMENT AND TERMINATION OF THE PLAN
12.1 Amendments. The Board may from time to time alter, amend, suspend or terminate the Plan
in such respects as the Board may deem advisable. No such alteration, amendment, suspension or
termination shall be made which shall substantially affect or impair the rights of any Participant
under an outstanding Award Agreement without such Participants consent. The Board may alter or
amend the Plan to comply with requirements under the Code relating to Incentive Options or other
types of options which give Optionees more favorable tax treatment than that applicable to Options
granted under this Plan as of the date of its adoption. Upon any such alteration or amendment, any
outstanding Option granted hereunder may, if the Administrator so determines and if permitted by
applicable law, be subject to the more favorable tax treatment afforded to an Optionee pursuant to
such terms and conditions.
12.2 Plan Termination. Unless the Plan shall theretofore have been terminated, the Plan shall
terminate on the tenth (10th) anniversary of the Effective Date and no Awards may be granted under
the Plan thereafter, but Awards and Award Agreements then outstanding shall continue in effect in
accordance with their respective terms.
ARTICLE 13.
TAX WITHHOLDING
13.1 Tax Withholding. The Participant shall be responsible for payment of any taxes or
similar charges required by law to be withheld from an Award or an amount paid in satisfaction of
an Award, which shall be paid by the Participant on or prior to the payment or other event that
results in taxable income in respect of an Award. The Award Agreement may specify the manner in
which the withholding obligation shall be satisfied with respect to the particular type of Award.
ARTICLE 14.
MISCELLANEOUS
14.1 Benefits Not Alienable. Other than as provided above, benefits under the Plan may not be
assigned or alienated, whether voluntarily or involuntarily. Any unauthorized attempt at
assignment, transfer, pledge or other disposition shall be without effect.
14.2 Awards subject to Code Section 409A. Any Award that constitutes, or provides for, a
deferral of compensation subject to Section 409A of the Code (a Section 409A Award) shall satisfy
the requirements of Section 409A of the Code, to the extent applicable as determined by the
16
Administrator. The Award Agreement with respect to a Section 409A Award shall incorporate the
terms and conditions required by Section 409A of the Code. If any deferral of compensation is to
be permitted in connection with a 409A Award, the Administrator shall establish rules and
procedures relating to such deferral in a manner intended to comply with the requirements of
Section 409A of the Code, including, without limitation, the time when an election to defer may be
made, the time period of the deferral and the events that would result in payment of the deferred
amount, the interest or other earnings attributable to the deferral and the method of funding, if
any, attributable to the deferred amount.
14.3 No Enlargement of Employee Rights. This Plan is strictly a voluntary undertaking on the
part of the Company and shall not be deemed to constitute a contract between the Company and any
Participant to be consideration for, or an inducement to, or a condition of, the employment of any
Participant. Nothing contained in the Plan shall be deemed to give the right to any Participant to
be retained as an employee of the Company or any Affiliated Company or to interfere with the right
of the Company or any Affiliated Company to discharge any Participant at any time.
14.4 Application of Funds. The proceeds received by the Company from the sale of Common Stock
pursuant to Option Agreements and Restricted Stock Award Agreements, except as otherwise provided
herein, will be used for general corporate purposes.
14.5 Unfunded Plan. The adoption of the Plan and any reservation of shares of Common Stock or
cash amounts by the Company to discharge its obligations hereunder shall not be deemed to create a
trust or other funded arrangement. Except upon the issuance of Common Stock pursuant to an Award,
any rights of a Participant under the Plan shall be those of a general unsecured creditor of the
Company, and neither a Participant nor the Participants permitted transferees or estate shall have
any other interest in any assets of the Company by virtue of the Plan.
14.6 Annual Reports. During the term of this Plan, the Company will furnish to each
Participant who does not otherwise receive such materials, copies of all reports, proxy statements
and other communications that the Company distributes generally to its stockholders.
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ENDOLOGIX, INC
11 STUDEBAKER
IRVINE, CA 92618
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shareholder communications electronically in future years. |
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VOTE BY PHONE 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions
up until 11:59 P.M. Eastern Time the day before the cut-off date
or meeting date. Have your proxy card in hand when you call
and then follow the instructions. |
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VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to ENDOLOGIX, INC.,
c/o ADP, 51 Mercedes Way, Edgewood, NY 11717. |
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS
FOLLOWS:
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ENDOL 1
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KEEP THIS PORTION FOR YOUR RECORDS |
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DETACH AND RETURN THIS PORTION ONLY |
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
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ENDOLOGIX INC. |
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THE DIRECTORS
RECOMMEND A VOTE FOR ITEMS 1, 2, 3 AND 4. |
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Vote on Directors |
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1. |
ELECTION OF DIRECTORS:
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For All |
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Withhold All |
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For All Except |
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Instructions: To withhold
authority to vote for any nominee, mark For All Except
and print that nominees name on the line below.
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Election of the following nominees as directors: |
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(01) Franklin D. Brown |
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(02) Edward B. Diethrich, M.D. |
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Vote on Proposals |
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For
Against Abstain |
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2. |
APPROVAL OF THE 2006 EMPLOYEE STOCK PURCHASE PLAN. |
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o
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3. |
APPROVAL OF
THE 2006 STOCK INCENTIVE PLAN. |
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o
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4. |
APPROVAL OF
AN AMENDMENT TO THE COMPANYS AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK THEREUNDER FROM 50,000,000 TO 60,000,000 AND TO
INCREASE THE TOTAL NUMBER OF AUTHORIZED SHARES OF THE COMPANYS CAPITAL STOCK FROM 55,000,000 TO 65,000,000.
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o
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IN THEIR DISCRETION, ON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.
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WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO SIGN AND RETURN THIS PROXY, WHICH MAY BE REVOKED AT ANY TIME PRIOR TO ITS USE.
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Please sign your name exactly as it appears hereon. Executors, administrators, guardians, officers of corporations and others signing in a fiduciary capacity should state their full titles as such.
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Signature [PLEASE SIGN WITHIN BOX] |
Date |
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Signature (Joint Owners) |
Date |
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PROXY
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ENDOLOGIX, INC. |
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Proxy Solicited by the Board
of Directors Annual Meeting
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of Stockholders May 23, 2006 |
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The undersigned hereby nominates, constitutes and appoints Paul McCormick and Robert J. Krist,
and each of them individually, the attorney, agent and proxy of the undersigned, with full power of
substitution, to vote all stock of ENDOLOGIX, INC. which the undersigned is entitled to represent
and vote at the 2006 Annual Meeting of Stockholders to be held at the companys offices at 11
Studebaker, Irvine, California 92618 on May 23, 2006, at 9:00 a.m., Pacific time, and at any and
all adjournments or postponements thereof, as fully as if the undersigned were present and voting
at the meeting, as listed on the reverse.
IMPORTANTPLEASE SIGN AND DATE ON OTHER SIDE AND RETURN PROMPTLY.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE STOCKHOLDER. WHERE NO
DIRECTION IS GIVEN, SUCH SHARES WILL BE VOTED FOR THE ELECTION OF THE DIRECTORS NAMED ON THE
REVERSE SIDE OF THIS PROXY, FOR APPROVAL OF THE 2006 EMPLOYEE STOCK PURCHASE PLAN, FOR APPROVAL
OF THE 2006 STOCK INCENTIVE PLAN, AND FOR APPROVAL OF AN AMENDMENT TO THE COMPANYS AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
THEREUNDER FROM 50,000,000 TO 60,000,000 AND TO INCREASE THE TOTAL NUMBER OF AUTHORIZED SHARES OF
THE COMPANYS CAPITAL STOCK FROM 55,000,000 TO 65,000,000.