SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, For Use of
[_] Definitive Proxy Statement Commission Only (as permitted
[_] Definitive Additional Materials by Rule 14a-6(e)(2))
[_] Soliciting Material Under Rule 14a-11(c)
or Rule 14a-12
ECLIPSE SURGICAL TECHNOLOGIES, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
________________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
________________________________________________________________________________
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
________________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
________________________________________________________________________________
5) Total fee paid:
________________________________________________________________________________
[_] Fee paid previously with preliminary materials:
________________________________________________________________________________
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
1) Amount previously paid:
________________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
________________________________________________________________________________
3) Filing Party:
________________________________________________________________________________
4) Date Filed:
________________________________________________________________________________
ECLIPSE SURGICAL TECHNOLOGIES, INC.
-------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held Friday, June 15, 2001
-------------------------
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Eclipse Surgical Technologies, Inc., a California corporation ("Eclipse"), will
be held on Friday, June 15, 2001, at 2:00 p.m. Pacific Daylight Time, at the
Westin Santa Clara Hotel, located at 5101 Great America Parkway, Santa Clara,
California 95054 for the following purposes:
1. To elect five (5) directors to serve until the next Annual
Meeting of Shareholders or until their successors are elected
and qualified.
2. To approve an amendment to Eclipse's Restated Articles of
Incorporation to change the name of Eclipse to CardioGenesis
Corporation.
3. To ratify the appointment of PricewaterhouseCoopers LLP as the
independent auditors of Eclipse for the fiscal year ending
December 31, 2001.
4. To approve an amendment to the Stock Option Plan to increase
the number of shares of Common Stock reserved for issuance
thereunder by 500,000 shares.
5. To approve an amendment to the Employee Stock Purchase Plan to
increase the number of shares of Common Stock reserved for
issuance thereunder by 300,000 shares.
6. To transact such other business as may properly come before
the meeting, including any motion to adjourn to a later date
to permit further solicitation of proxies, if necessary, or
any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. Only shareholders of record at the close of
business on April 19, 2001, are entitled to notice of and to vote at the meeting
and any adjournment thereof.
All shareholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Shareholders attending the
meeting may vote in person even if they have returned a proxy.
Sincerely,
/s/ Ian A. Johnston
Ian A. Johnston
Secretary
Sunnyvale, California
May 16, 2001
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YOUR VOTE IS IMPORTANT. IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING,
YOU ARE REQUESTED TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AS PROMPTLY AS
POSSIBLE AND RETURN IT IN THE ENCLOSED ENVELOPE.
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ECLIPSE SURGICAL TECHNOLOGIES, INC.
-------------------------
PROXY STATEMENT FOR 2001
ANNUAL MEETING OF SHAREHOLDERS
-------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
General
This Proxy Statement is furnished to the shareholders of ECLIPSE
SURGICAL TECHNOLOGIES, INC., a California corporation ("Eclipse"), in connection
with the solicitation of proxies on behalf of the Board of Directors of Eclipse
for use at the 2001 Annual Meeting of Shareholders ("2001 Annual Meeting") to be
held Friday, June 15, 2001, at 2:00 p.m. Pacific Daylight Time, or at any
adjournment thereof, for the purposes set forth herein and in the accompanying
Notice of Annual Meeting of Shareholders. The 2001 Annual Meeting will be held
at the Westin Santa Clara Hotel located at 5101 Great America Parkway, Santa
Clara, California 95054. The telephone number of the Westin Santa Clara Hotel is
(408) 986-0700.
Our Annual Report to Shareholders for the year ended December 31, 2000,
including financial statements, and these proxy materials were first mailed on
or about May 16, 2001 to all shareholders entitled to vote at the meeting.
Record Date and Voting Securities
Only shareholders of record at the close of business on April 19, 2001
are entitled to notice of and to vote at the 2001 Annual Meeting. We have one
series of Common Shares outstanding, no par value (the "Common Stock"). On April
19, 2001, 33,696,061 shares of our Common Stock were issued and outstanding and
held of record by 193 registered shareholders.
Voting
Each shareholder is entitled to one vote for each share of Common Stock
held on the record date of April 19, 2001. Every shareholder voting for the
election of directors (Proposal One) may cumulate votes and give one candidate a
number of votes equal to the number of directors to be elected multiplied by the
number of shares that the shareholder is entitled to vote, or distribute votes
on the same principle among as many candidates as the shareholder may select.
However, votes cannot be cast for more than five (5) candidates. No shareholder
is entitled to cumulate votes for a particular candidate unless that candidate's
name has been placed in nomination prior to the voting and the shareholder, or
any other shareholder, has given notice at the meeting, before the voting, of
his intention to cumulate votes. On all other matters, each share of Common
Stock has one vote. A quorum, representing the holders of a majority of the
outstanding shares of Common Stock on the record date, must be present or
represented for the transaction of business at the 2001 Annual Meeting.
Abstentions and broker nonvotes will be counted in establishing the quorum.
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by (a) delivering to the Secretary
of Eclipse a written notice of revocation or a duly executed proxy bearing a
later date or (b) attending the meeting and voting in person.
Solicitation Expenses
This solicitation of proxies is made by us and all related costs will
be borne by us. We may reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding solicitation
material to those beneficial owners. Proxies may also be solicited by certain of
our
1
directors, officers and regular employees, without additional compensation,
personally, by telephone or by telegram. Except as described above, we do not
presently intend to solicit proxies other than by mail.
Deadline for Shareholder Proposals
We currently intend to hold our 2002 Annual Meeting of Shareholders in
late-May 2002 and to mail proxy statements relating to such meeting in
late-April 2002. Shareholders interested in presenting a proposal for
consideration at Eclipse's 2002 Annual Meeting of Shareholders may do so by
following the procedures prescribed by Rule 14a-8 under the Securities Act of
1934 and Eclipse's Bylaws. To be eligible for inclusion in the proxy statement
and proxy card mailed to shareholders by Eclipse, shareholder proposals must be
submitted no later than December 21, 2001 to Eclipse Surgical Technologies, Inc.
at 1049 Kiel Court, Sunnyvale, California 94089, Attention: Secretary.
Shareholders who intend to present a proposal at the 2002 Annual Meeting of
Shareholders, without including such proposal in Eclipse's proxy statement, must
provide Eclipse's Secretary with written notice of such proposal no later than
February 28, 2002.
PROPOSAL ONE
ELECTION OF DIRECTORS
Nominees
We currently have five (5) directors. A board of five (5) directors is
to be elected at the 2001 Annual Meeting. Unless otherwise instructed, the proxy
holders will vote the proxies received by them for our five (5) nominees named
below, all of whom are presently directors of Eclipse. If any of our nominees is
unable or declines to serve as a director at the time of the 2001 Annual
Meeting, the proxies will be voted for any nominee who is designated by the
present Board of Directors to fill the vacancy. We are not aware of any nominee
who will be unable or who will decline to serve as a director. If additional
individuals are nominated for election as directors, the proxy holders intend to
vote all proxies received by them in such a manner (in accordance with
cumulative voting) that will assure the election of as many of the nominees
listed below as possible. In that event, the specific nominees to be voted for
will be determined by the proxy holders. The term of office for each person
elected as a director will continue until the 2002 Annual Meeting of
Shareholders or until a successor has been duly elected and qualified.
Vote Required
If a quorum is present and voting, the five (5) nominees receiving the
highest number of affirmative votes will be elected to the Board of Directors.
Abstentions and broker nonvotes are not counted in the election of directors.
Nominees
The names of the nominees and certain information about them as of
March 31, 2001 is set forth below:
Name Age Position
---- --- --------
Michael J. Quinn 56 Chief Executive Officer, President,
Chairman of the Board
Jack M. Gill, Ph.D. 65 Director
Alan L. Kaganov, Sc.D. 62 Director
Robert L. Mortensen(1)(2) 66 Director
Robert C. Strauss(1)(2) 59 Director
----------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
2
All directors hold office until the next annual meeting of shareholders
or until their successors have been elected and qualified. Officers serve at the
discretion of our Board of Directors and are appointed annually. There are no
family relationships between any of our directors or officers.
Michael J. Quinn has served as our Chief Executive Officer, President
and Chairman of the Board since October 2000. From 1978 to 1988, Mr. Quinn held
senior operating management positions at the level of Vice President, Chief
Operating Officer and President at major healthcare organizations including
American Hospital Supply Corporation, Picker International, Cardinal Health
Group, Bergen Brunswig and Fisher Scientific. Most recently Mr. Quinn served as
President and Chief Executive Officer of Premier Laser Systems, a manufacturer
of surgical and dental products. Prior to that position, he served as President
of Imagyn Medical Technologies, a manufacturer of minimally invasive surgical
specialty products.
Jack M. Gill, Ph.D. has been one of our directors since March 1999. Dr.
Gill formerly served as Chairman of the Board of Directors of CardioGenesis
Corporation from November 1993 to March 1999. Dr. Gill is a founding general
partner of Vanguard Venture Partners and has served in such capacity since 1981.
Dr. Gill is a director of a number of privately held medical device companies.
Dr. Gill received his B.S. degree in Engineering from Lamar University and his
Ph.D. in Organic Chemistry from Indiana University.
Alan L. Kaganov, Sc.D. has been one of our directors since January
1997. From December 1999 to October 2000, Dr. Kaganov served as Chief Executive
Officer. Since July 1996, Dr. Kaganov has been a Venture Partner at U.S. Venture
Partners. From May 1993 to June 1996, Dr. Kaganov was Vice President of Business
Development and Strategic Planning at Boston Scientific Corporation. From June
1991 until December 1992 he was President and CEO of EP Technologies, a
catheter-based electrophysiology company. Dr. Kaganov has a Masters and
Doctorate of Science in biomedical engineering from Columbia University and an
M.B.A. from New York University.
Robert L. Mortensen has been one of our directors since April 1992.
Since 1984, Mr. Mortensen has been either President or Chairman of the Board and
a director of Lightwave Electronics Corporation, a solid-state laser company
that he founded. He holds an M.B.A. from Harvard University.
Robert C. Strauss has been one of our directors since March 1999. Mr.
Strauss formerly served on the Board of Directors of CardioGenesis Corporation
from December 1997 to March 1999. Mr. Strauss has served as President and Chief
Executive Officer of Noven Pharmaceuticals, Inc. since December 1997. From March
1997 to July 1997, Mr. Strauss served as President and Chief Operating Officer
of IVAX Corporation, a pharmaceutical company. In 1983, Mr. Strauss joined
Cordis Corporation, a medical device company, as Chief Financial Officer. From
February 1987 to February 1997, he served as President and Chief Executive
Officer of Cordis Corporation and in 1995, Mr. Strauss was named Chairman of the
Board. Mr. Strauss serves on the board of trustees for the University of Miami
and holds positions on the board of directors of several public companies. Mr.
Strauss received his B.S. degree in Engineering Physics from the University of
Illinois and his M.S. in Physics from the University of Idaho.
Attendance at Meetings
Our Board of Directors held a total of five meetings during 2000. Of
the total number of meetings of the Board of Directors held in 2000, all
directors attended at least 75% of the meetings held except for Mr. Jack Gill.
The Board of Directors has an Audit Committee and a Compensation
Committee. The Board of Directors does not have a nominating committee or any
committee performing similar functions. Of the total number of meetings of the
Audit Committee and the Compensation Committee, all directors which were members
of those committees during 2000 attended at least 75% of the meetings held.
Audit Committee
The Audit Committee of Eclipse's Board of Directors is composed of two
"independent directors" as that term is defined by the listing standards of the
National Association of Securities Dealers, Inc. Eclipse intends to appoint a
third independent member to its Audit Committee before the June 14, 2001
3
deadline therefore imposed by such listing standards. The Audit Committee
operates under a written charter adopted by the Board of Directors which is
attached hereto as Apendix C.
In 2000, the Audit Committee consisted of Robert L. Mortensen and
Robert C. Strauss and met one (1) time. This committee is primarily responsible
for approving the services performed by our independent auditors and for
reviewing and evaluating our accounting principles and Eclipse's system of
internal accounting controls. For additional information on the Audit Committee,
see "REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS."
Compensation Committee
In 2000, the Compensation Committee consisted of Robert L. Mortensen
and Robert C. Strauss and met five (5) times. This committee reviews and
approves our executive compensation policy and plan. For additional information
on the Compensation Committee, see "REPORT OF THE COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS."
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of our Board of Directors for the year ended
December 31, 2000 consisted of Robert L. Mortensen and Robert C. Strauss. No
member of the Compensation Committee has a relationship that would constitute an
interlocking relationship with executive officers or directors of another
entity.
Director Compensation
For serving on the Board of Directors, directors who are not
compensated as our employees or as consultants to us receive fees of $1,500 per
board meeting and $500 per committee meeting, provided such committee meeting
does not occur on the same day as a board meeting. We also have a Director Stock
Option Plan for non-employee directors. In fiscal year 2000, directors Jack M.
Gill, Robert C. Strauss, Alan L. Kaganov and Robert L. Mortensen were each
granted an option to purchase an aggregate of 7,500 shares of Common Stock each
upon re-election to our Board of Directors.
Recommendation
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE FIVE
(5) NOMINEES FOR THE BOARD OF DIRECTORS LISTED ABOVE.
PROPOSAL TWO
AMEND THE RESTATED ARTICLES OF INCORPORATION
TO CHANGE THE CORPORATE NAME
Proposed Amendment
Eclipse's Board of Directors has adopted, and is recommending to the
shareholders for their approval at the 2001 Annual Meeting, a resolution to
amend Article First of Eclipse's Restated Articles of Incorporation to change
the corporate name. The applicable text of the Board's resolution is as follows:
"RESOLVED, that Article First of Eclipse's Restated Articles
of Incorporation be amended to read in its entirety as follows:
FIRST
The name of this corporation (the "Corporation") is:
CardioGenesis Corporation."
The Board of Directors believes that the new name CardioGenesis will
help Eclipse's customers, shareholders and the investment community to fully
grasp the nature of the company's products. Eclipse's products are used in
procedures for the treatment of severe chest pain known as angina. More
specifically, the products are used in transmyocardial revascularization ("TMR")
and percutaneous transluminal
4
myocardial revascularization ("PTMR") treatments in which channels are made in
the heart muscle. It is believed these procedures encourage new vessel
formation, or angiogenesis, and result in reduced angina pain.
Eclipse's Board of Directors believes that the new name CardioGenesis
communicates two key features of the company's products: (i) our products are
used in cardiological treatments; and (ii) we believe angiogenesis, the
formation of new vessels in the heart, to be one of the major benefits of TMR
and PTMR.
If the amendment is adopted, shareholders will not be required to
exchange outstanding stock certificates for new certificates.
Approval by Shareholders
Approval of this proposal requires the affirmative vote of the holders
of a majority of the outstanding shares of Common Stock of Eclipse. If approved
by the shareholders, the amendment to Article First will become effective upon
filing with the Secretary of State of California of a Certificate of Amendment
to Eclipse's Restated Articles of Incorporation, which filing is expected to
take place shortly after the Annual Meeting. However, the Board of Directors
will be authorized, without a further vote of the shareholders, to abandon the
name change and determine not to file the Certificate of Amendment if the Board
concludes that such action would be in the best interests of Eclipse and its
shareholders. If this proposal is not approved by the shareholders, then the
Certificate of Amendment will not be filed.
Recommendation
THE BOARD OF DIRECTORS BELIEVES THAT THE PROPOSAL TO AMEND ECLIPSE'S
RESTATED ARTICLES OF INCORPORATION TO CHANGE THE CORPORATE NAME IS IN THE BEST
INTERESTS OF ECLIPSE AND ITS SHAREHOLDERS AND RECOMMENDS A VOTE FOR THE APPROVAL
OF THE PROPOSAL.
PROPOSAL THREE
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Our Board of Directors has selected PricewaterhouseCoopers LLP,
independent auditors, to audit our consolidated financial statements for the
fiscal year ending December 31, 2001, and recommends that the shareholders vote
for ratification of that appointment. Notwithstanding this selection, the Board
of Directors, in its discretion, may direct the appointment of new independent
auditors at any time during the year, if the Board of Directors feels that such
a change would be in the best interest of Eclipse and our shareholders. If there
is a negative vote on ratification, our Board of Directors will reconsider its
selection.
PricewaterhouseCoopers LLP has audited our financial statements
annually since 1989. Representatives of PricewaterhouseCoopers LLP are expected
to be present at the 2001 Annual Meeting with the opportunity to make a
statement if they desire to do so. They are also expected to be available to
respond to appropriate questions.
Audit Fees
For the year ended December 31, 2000, PricewaterhouseCoopers LLP,
Eclipse's independent public accountants, will charge Eclipse approximately an
aggregate of $111,335 for professional services rendered for the audit of
Eclipse's financial statements for such period and the review of the financial
statements included in Eclipse's Quarterly Reports on Form 10-Q during such
period.
Financial Information Systems Design and Implementation Fees
PricewaterhouseCoopers LLP did not render professional services
relating to financial information systems design and implementation for the
fiscal year ended December 31, 2000.
5
All Other Fees
For the year ended December 31, 2000, PricewaterhouseCoopers LLP billed
Eclipse an aggregate of $36,500 for all other services not described above under
the caption "Audit Fees" during such period.
Vote Required
The affirmative vote of a majority of the votes cast is required to
ratify the Board of Director's selection. In addition, the affirmative votes
must represent at least a majority of the required quorum. If the shareholders
reject the nomination, our Board of Directors will reconsider its selection.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT AUDITORS.
PROPOSAL FOUR
AMENDMENT TO THE STOCK OPTION PLAN TO INCREASE THE NUMBER OF
SHARES OF COMMON STOCK RESERVED FOR ISSUANCE BY
500,000 SHARES
Increase of 500,000 Shares of Common Stock
The Stock Option Plan of Eclipse, as amended and restated in April 1996
(the "Option Plan"), was approved by the Board of Directors and the shareholders
in April 1996. A total of 5,100,000 shares of Common Stock are currently
reserved for issuance under the Option Plan. In March 2001, the Board of
Directors approved a further increase of 500,000 shares of Common Stock issuable
under the Option Plan, which, if approved, by the shareholders would increase
the total shares of Common Stock reserved for issuance under the Option Plan
since its inception to 5,600,000 shares. The Option Plan terminates on March 31,
2006. A summary of the principal terms of the Option Plan is located in Appendix
A to this Proxy Statement.
The Board of Directors believes the requested increase in the shares of
Common Stock reserved for issuance under the Option Plan is in the best
interests of Eclipse. The Board of Directors believes that the increase will
provide an adequate reserve of shares of Common Stock available for issuance
under the Option Plan, which is necessary to enable Eclipse to compete
successfully with other companies in attracting and retaining valuable employees
and to expand its operations.
As of March 31, 2001, options to purchase 3,469,104 shares of Common
Stock were unexercised and outstanding under the Option Plan. As of March 31,
2001, 1,221,808 shares of Common Stock remained available for future option
grants under the Option Plan, excluding the proposed increase of 500,000 shares.
The aggregate market value of the unexercised and outstanding options to
purchase 3,469,104 shares of Common Stock under the Option Plan at March 31,
2001 was $3,795,200 based on a closing price of $1.094 on the Nasdaq National
Market on that date. See the section entitled "Amended and New Plan Benefits"
below for certain information with respect to options granted under the Option
Plan in 2000.
Vote Required
The affirmative vote of a majority of the shares of the Common Stock
present or represented and entitled to vote at the 2001 Annual Meeting is
required for approval of this Proposal.
Recommendation
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE
AMENDMENT TO THE OPTION PLAN TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK
RESERVED FOR ISSUANCE THEREUNDER BY 500,000 SHARES.
6
PROPOSAL FIVE
AMENDMENT TO THE 1996 EMPLOYEE STOCK PURCHASE PLAN TO INCREASE
THE NUMBER OF SHARES OF COMMON STOCK RESERVED FOR ISSUANCE BY
300,000 SHARES
Increase of 300,000 Shares of Common Stock
The 1996 Employee Stock Purchase Plan of Eclipse (the "Purchase Plan")
was approved by the Board of Directors and by the shareholders in April 1996. A
total of 400,000 shares of Common Stock are currently reserved for issuance
under the Purchase Plan. In March 2001, the Board of Directors approved a
further increase of 300,000 shares of Common Stock issuable under the Purchase
Plan, which, if approved by the shareholders, would increase the total shares
reserved for issuance under the Purchase Plan since its inception to 700,000
shares. The Purchase Plan terminates in April 2006. A summary of the principal
terms of the Purchase Plan is located in Appendix B to this Proxy Statement.
The Purchase Plan, which is intended to qualify under Section 423 of
the Code, permits eligible employees to purchase Common Stock through payroll
deductions at a price equal to 85% of the fair market value of the Common Stock
at the beginning or at the end of each offering period, whichever is lower.
Qualified employees are eligible to participate at the beginning of the first
day of an offering period after their first full calendar month of full time
employment. As of March 31, 2001, a total of 328,133 shares of Common Stock had
been purchased under the Purchase Plan and 71,867 shares remained available for
future purchase under the Purchase Plan.. See "Amended and New Plan Benefits"
below for certain information with respect to participation in the Purchase Plan
in 2000.
The Purchase Plan is voluntary and encourages and motivates employees
to participate in Eclipse's future through direct stock ownership. The Board of
Directors believes that the availability of sufficient number of shares
available for issuance under the Purchase Plan is integral to attract, retain
and motivate qualified employees fundamental to the success of Eclipse. Subject
to shareholder approval, the Board of Directors has amended the Purchase Plan to
increase the number of shares of Common Stock reserved for issuance under the
Purchase Plan from 400,000 shares to 700,000 shares.
Vote Required
The affirmative vote of a majority of the shares of the Common Stock
present or represented and entitled to vote at the 2001 Annual Meeting is
required for approval of this Proposal.
Recommendation
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE
AMENDMENT TO THE 1996 EMPLOYEE STOCK PURCHASE PLAN TO INCREASE THE NUMBER OF
SHARES OF COMMON STOCK RESERVED FOR ISSUANCE UNDER THE PURCHASE PLAN BY 300,000
SHARES.
7
SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth as of March 31, 2001 (except as noted in
the footnotes) certain information with respect to the beneficial ownership of
our Common Stock by (i) each person known by us to own beneficially more than 5%
of our outstanding shares of Common Stock; (ii) each of our directors; (iii)
each of our current Named Executive Officers; and (iv) all directors and
executive officers as a group. Except as indicated in the footnotes to this
table, the persons and entities named in the table have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property laws where applicable.
Shares of Common Stock
Beneficially Owned(1)
-------------------------
Percentage
Name of Beneficial Owner Number Ownership
------------------------------------------------- ----------- -----------
5% Shareholders:
Douglas Murphy-Chutorian, M.D(2) ................ 3,370,921 10.6%
c/o MD DataDirect, Inc.
724 Oak Grove Avenue, Suite 120,
Menlo Park, CA 94025
Brown Capital Management, Inc. (3) .............. 2,708,073 8.5%
1201North Calvert Street
Baltimore, MD 21202
State of Wisconsin Investment Board (4) ......... 4,088,000 12.9%
120 East Wilson Street
Madison, WI 53703
Directors:
Jack M. Gill, Ph.D.(5) .......................... 1,201,325 3.8%
Alan L. Kaganov, Sc.D(6) ........................ 365,000 1.2%
Robert L. Mortensen(7) .......................... 95,196 *
Robert C. Strauss(8) ............................ 24,190 *
Named Executive Officers:
Michael J. Quinn (9)(10) ........................ 166,110 *
Darrell F. Eckstein ............................. -- *
Ian A. Johnston (11) ............................ 37,805 *
Thomas L. Kinder (12) ........................... 1,389 *
Richard P. Lanigan (13) ......................... 79,273 *
All directors and officers as a group
(9 persons)(14) ................................ 1,970,288 6.2%
----------------
* Less than 1%.
(1) Percentage ownership is based on 31,696,061 shares of Common Stock
outstanding as of March 31, 2001.
(2) The number of shares of Common Stock beneficially owned or of record has
been determined solely from information provided to Eclipse from Douglas
Murphy-Chutorian as of April 26, 2001. Includes an aggregate of 413,274
shares of Common Stock held by Leslie Murphy-Chutorian, the wife of Dr.
Murphy-Chutorian, as custodian for Blair Murphy-Chutorian, UTMA California,
an aggregate of 413,274 shares of Common Stock held by Leslie
Murphy-Chutorian as custodian for Dana Murphy-Chutorian, UTMA California.
Also includes an aggregate of 1,719,973 shares of Common Stock held by
Leslie Murphy-Chutorian and Dr. Murphy-Chutorian as Trustees of The
Murphy-Chutorian Family Trust UDT dated 1-13-97. Also includes 12,000
shares of Common Stock held by The Murphy Chutorian Family Foundation. Also
includes 49,998 shares of Common Stock subject to stock options held by Dr.
Murphy-Chutorian that are exercisable within 60 days of March 31, 2001.
8
(3) The number of shares of Common Stock beneficially owned or of record has
been determined solely from information reported on a Schedule 13G as of
December 31, 2000.
(4) The number of shares of Common Stock beneficially owned or of record has
been determined solely from information provided to Eclipse from the State
of Wisconsin Investment Board as of April 12, 2001.
(5) Includes 23,507 shares of Common Stock subject to stock options held by Dr.
Gill that are exercisable within 60 days of March 31, 2001.
(6) Includes 365,000 shares of Common Stock subject to stock options held by
Mr. Kaganov that are exercisable within 60 days of March 31, 2001.
(7) Includes 95,196 shares of Common Stock subject to stock options held by Mr.
Mortensen that are exercisable within 60 days of March 31, 2001.
(8) Includes 24,190 shares of Common Stock subject to stock options held by Mr.
Strauss that are exercisable within 60 days of March 31, 2001.
(9) Michael J. Quinn is both a member of the Board of Directors and a Named
Executive Officer in his positions as Eclipse's Chief Executive Officer,
President and Chairman of the Board.
(10) Includes 136,110 shares of Common Stock subject to stock options held by
Mr. Quinn that are exercisable within 60 days of March 31, 2001.
(11) Includes 37,805 shares of Common Stock subject to stock options held by Mr.
Johnston that are exercisable within 60 days of March 31, 2001.
(12) Includes 1,389 shares of Common Stock subject to stock options held by Mr.
Kinder that are exercisable within 60 days of March 31, 2001.
(13) Includes 79,273 shares of Common Stock subject to stock options held by Mr.
Lanigan that are exercisable within 60 days of March 31, 2001.
(14) Includes options to purchase an aggregate of 762,470 shares of Common Stock
held by all officers and directors as a group exercisable within 60 days of
March 31, 2001.
MANAGEMENT
Executive Officers
The following table and discussion set forth certain information with
regards to Eclipse's current executive officers (the "Current Executive
Officers").
Name Age Position
--------------------- ----- --------------------------------------------------
Michael J. Quinn 56 Chief Executive Officer, President and Chairman
of the Board
Darrell F. Eckstein 43 Vice President of Operations
Ian A. Johnston 46 Vice President of Finance and Treasurer
Thomas L. Kinder 38 Vice President of Worldwide Sales and Service
Richard P. Lanigan 42 Vice President of Governmental Affairs and
Business Development
Biographical information for Michael J. Quinn is set forth above under
Proposal One for the Election of Directors.
Darrell F. Eckstein has served as our Vice President of Operations
since December 2000. From 1996 to 2000 he served as Vice President and General
Manager of the Surgical Products Division of Imagyn Medical Technologies, a
manufacturer of minimally invasive surgical specialty products. From 1995 to
1996, Mr. Eckstein was Vice President of Finance, Chief Financial Officer and an
Executive Committee member of Richard-Allen Medical Industries Inc., a medical
devices company. From 1991 to 1995, Mr. Eckstein was Vice President of Finance,
Chief Financial Officer and an Executive Committee member of National Emergency
Services, Inc., a health care services company that provides physician contract
9
management, medical billing and insurance services. Prior to 1991, Mr. Eckstein
worked for Deloitte & Touche LLP, most recently as a Senior Audit Manager, for
eleven years. He received his Bachelor of Science degree in Accounting from
Indiana University.
Ian A. Johnston has been our Vice President of Finance since July 2000
and Corporate Controller since March 1999. From 1998 to 1999, Mr. Johnston was
Controller of CardioGenesis Corporation. From 1989 to 1998, Mr. Johnston served
in a variety of financial positions (most recently as Controller) at Toshiba
America MRI, Inc., a medical imaging company. From 1985 to 1989, Mr. Johnston
was an auditor with Arthur Andersen & Co. Mr. Johnston has a Masters in Business
Administration and a Bachelor of Arts in Economics from the University of
California Berkeley and is a member of the American Institute of Certified
Public Accountants.
Thomas L. Kinder has served as our Vice President of Worldwide Sales
and Service since March 2001 and as General Manager, West Area since November
2000. Prior to Eclipse, Mr. Kinder held senior sales positions at the level of
Vice President, General Manager and National Sales Director at healthcare
companies including Karl Storz Endoscopy, and Imagyn Medical Technologies and
Microsurge, Inc. Mr. Kinder began his medical device sales career with United
States Surgical Corporation.
Richard P. Lanigan has been our Vice President of Government Affairs
and Business Development since March 2001, Vice President of Sales and Marketing
since March 2000 and Director of Marketing since 1997. From 1992 to 1997, Mr.
Lanigan served in various positions, most recently Marketing Manager, at Stryker
Endoscopy. From 1987 to 1992, Mr. Lanigan served in Manufacturing and Operations
management at Raychem Corporation. From 1981 to 1987, he served in the U.S. Navy
where he completed six years of service as Lieutenant in the Supply Corps. Mr.
Lanigan has a Bachelors of Arts in Finance from Notre Dame and a Masters degree
in Systems Management from the University of Southern California.
EXECUTIVE COMPENSATION AND OTHER MATTERS
Employment Contracts of Executive Officers
Michael J. Quinn entered into a letter employment agreement with
Eclipse effective October 16, 2000. The agreement provides for an annual salary
of $330,000, subject to annual review and increase at the discretion of the
Board of Directors and options to acquire 700,000 shares of Eclipse's Common
Stock at an exercise price equal to $1.688 per share, which is the price of
Eclipse's Common Stock on the date the option was granted. Mr. Quinn may also be
entitled to receive (i) an annual bonus, the amount of which shall be determined
by the Board of Directors and (ii) options or other rights to acquire Eclipse's
Common Stock, under terms and conditions determined by the Compensation
Committee of the Board of Directors. Mr. Quinn's letter employment agreement
provides that his employment is "at will" at the discretion of Eclipse, and that
he may be terminated at any time with or without notice and with or without
cause.
Darrell F. Eckstein entered into a letter employment agreement with
Eclipse effective December 19, 2000. The agreement provides for an annual salary
of $225,000, subject to annual review and increase at the discretion of the
Board of Directors and options to acquire 100,000 shares of Eclipse's Common
Stock at an exercise price equal to $0.563 per share, which is the price of
Eclipse's Common Stock on the date the option was granted. Mr. Eckstein may also
be entitled to receive (i) an annual bonus, the amount of which shall be
determined by the Board of Directors and (ii) options or other rights to acquire
Eclipse's Common Stock, under terms and conditions determined by the
Compensation Committee of the Board of Directors. Mr. Eckstein's letter
employment agreement provides that his employment is "at will" at the discretion
of Eclipse, and that he may be terminated at any time with or without notice and
with or without cause.
Executive Officer Compensation
The following table sets forth certain information concerning the
annual and long-term compensation for services rendered in all capacities to
Eclipse for the fiscal year 2000 by (i) all individuals who served
10
at one point during 2000 as Eclipse's Chief Executive Officer, (ii) the four
most highly compensated executive officers having compensation of $100,000 or
more serving at the end of the fiscal year 2000, and (iii) two additional
individuals who served as executive officers for Eclipse during the fiscal year
2000 but were not employed as executive officers at the end of the fiscal year
2000 (collectively, the "Named Executive Officers".
SUMMARY COMPENSATION TABLE
Long Term
Compensation
Awards
--------------
Annual Compensation Other Annual Securities
---------------------- ----------------- Underlying
Fiscal Options/SAR All Other
Name and Principal Position Year Salary($) Bonus($) Compensation($) (#) Compensation($)
-------------------------------- -------- ----------- ---------- ----------------- -------------- ----------------
Michael J. Quinn(1) ............ 2000 $ 66,000 -- $ 15,217(2) 700,000 --
Chief Executive Officer 1999 -- -- -- -- --
1998 -- -- -- -- --
Alan L. Kaganov(1)(3) .......... 2000 -- -- -- 107,500 $ 7,500
Former Chief Executive Officer 1999 -- -- -- 157,500 15,000
1998 -- -- -- 7,500 19,000
Janet K. Castaneda(4) .......... 2000 170,000 $26,300 -- 25,000 --
Former Vice President of 1999 140,425 -- -- 40,001 --
Legal Affairs 1998 132,500 12,825 -- 9,999 --
Ian A. Johnston ................ 2000 137,000 -- -- 30,000 --
Vice President of Finance 1999 105,594 20,000 -- 30,000 --
1998 -- -- -- -- --
Richard P. Lanigan(5) .......... 2000 170,000 24,600 -- 50,000 --
Vice President of Sales and 1999 134,458 -- -- 33,000 --
Marketing 1998 105,528 10,398 -- 15,500 --
Nancy Lince(4) ................. 2000 162,000 34,800 -- 30,000 --
Former Vice President of 1999 105,398 20,000 -- 44,500 --
Regulatory and Clinical Affairs 1998 85,728 7,716 -- -- --
William E. Picht(6) ............ 2000 135,088 32,700 -- -- --
Former Vice President of 1999 204,909 -- -- 30,000 --
Operations 1998 181,500 16,335 -- 15,000 --
Richard P. Powers(7) ........... 2000 170,000 34,800 -- -- --
Former Executive Vice 1999 219,248 36,765 -- 79,280 --
President of Administration 1998 -- -- -- -- --
and Chief Financial Officer
----------------
(1) Effective as of October 16, 2000, Mr. Kaganov resigned as Eclipse's Chief
Executive Officer and Mr. Quinn became our Chief Executive Officer,
President and Chairman of the Board.
(2) Housing allowance and health insurance premiums.
(3) Dr. Kaganov received no salary as the Chief Executive Officer, but was paid
for his services as one of our directors in 1998, 1999 and 2000.
(4) Ms. Castaneda and Ms. Lince are no longer employees of Eclipse.
(5) Effective March 2001, Mr. Lanigan became Vice President of Government
Affairs and Business Development.
(6) Mr. Picht resigned on August 25, 2000.
(7) Mr. Powers resigned on July 18, 2000.
11
Option Grants in Fiscal Year 2000
The following tables set forth information regarding stock options
granted to and exercised by the Named Executive Officers during our fiscal year
ended December 31, 2000.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS(1)
Potential Realizable Value at
Number of Annual Rates of Stock Price
Securities % of Total Appreciation for Option
Underlying Options Granted to Exercise Term(2)
Options Employees in Price per Expiration -------------------------
Name Granted Fiscal Year Share Date 5% 10%
----------------------------------- ------------ -------------------- ----------- ------------ ----------- -------------
Michael J. Quinn .................. 700,000 45.04% $ 1.688 10/17/10 $743,102 $1,883,166
Alan L. Kaganov, Sc.D.(3) ......... 100,000 6.43% $ 4.063 7/28/10 255,520 647,538
Janet K. Castaneda ................ 25,000 1.61% $ 1.375 11/28/10 21,618 54,785
Ian A. Johnston ................... 5,000 0.32% $ 4.00 7/11/10 12,578 31,875
25,000 1.61% $ 1.375 11/28/10 21,618 54,785
Richard P. Lanigan ................ 25,000 1.61% $ 6.563 4/11/10 57,373 188,544
25,000 1.61% $ 1.375 11/28/10 21,618 54,785
Nancy Lince ....................... 5,000 0.32% $ 4.00 7/11/10 12,578 31,875
25,000 1.61% $ 1.375 11/28/10 21,618 31,875
William E. Picht .................. -- -- -- -- -- --
Richard P. Powers ................. -- -- -- -- -- --
----------------
(1) These options were granted pursuant to our Stock Option Plan. A total of
1,554,150 shares of Common Stock issuable upon exercise of options were
granted to our employees in the year ended December 31, 2000.
(2) In accordance with the rules of the Securities and Exchange Commission,
shown are the hypothetical gains or "option spreads" that would exist for
the respective options. These gains are based on assumed rates of annual
compounded stock price appreciation of 5% and 10% from the date the option
was granted over the full option term. The 5% and 10% assumed rates of
appreciation are mandated by the rules of the SEC and do not represent our
estimate or projection of future increases in the price of our Common
Stock.
(3) Dr. Kaganov was also granted 7,500 stock options pursuant to our Director
Stock Option Plan during the year ended December 31, 2000.
12
Options Outstanding in Fiscal Year 2000
The following table sets forth certain information for the year ended
December 31, 2000 concerning exercised, exercisable and unexercisable stock
options held by each of the Named Executive Officers.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options at In-the-Money Options at
Acquired Fiscal Year-End (#): Fiscal Year-End ($) (1) :
on Value ------------------------------- ------------------------------
Exercise(#) Realized Exercisable Unexercisable Exercisable Unexercisable
------------- ---------- ------------- --------------- ------------- --------------
Michael J. Quinn .............. -- -- 38,889 661,111 -- --
Alan L. Kaganov, Sc.D ......... -- -- 372,500 -- -- --
Janet K. Castaneda ............ -- -- 58,053 46,947 -- --
Ian A. Johnston ............... -- -- 27,386 52,614 -- --
Richard P. Lanigan ............ -- -- 40,957 65,043 -- --
Nancy Lince ................... -- -- 20,305 54,487 -- --
William E. Picht .............. -- -- -- -- -- --
Richard P. Powers ............. -- -- 186,653 43,346 -- --
----------------
(1) The value for an "in the money" option represents the difference between
the exercise price of such option as determined by Eclipse's Board of
Directors and the closing price of Eclipse's Common Stock on December 31,
2000 ($0.844), multiplied by the total number of shares subject to the
option.
Amended and New Plan Benefits
The following table sets forth, as to the executive officers named
under "Executive Compensation Summary Compensation Table" above as well as each
of the Current Executive Officers individually, all Current Executive Officers
as of March 31, 2001 as a group, all directors as of March 31, 2001 who are not
executive officers as a group and all other employees as of March 31, 2001 as a
group the following information regarding benefits received or allocated to the
persons and groups set forth below for the last completed fiscal year: (a) with
respect to the Option Plan: (i) the market value of the shares of Common Stock
underlying such options as of March 31, 2001 based on a closing price of $1.094
on the Nasdaq National Market on that date, minus the exercise price of such
shares; and (ii) the number of shares of Eclipse's Common Stock subject to
options granted during the fiscal year ended December 31, 2000 under the Option
Plan; (b) with respect to the Purchase Plan: (i) the market value of the shares
of Common Stock issued as of March 31, 2001 based on a closing price of $1.094
on the Nasdaq National Market on that date, minus the purchase price of such
shares; and (ii) the number of shares of Eclipse's Common Stock issued under the
Purchase Plan during the fiscal year ended December 31, 2000; and (c) with
respect to the Director Plan: (i) the market value of the shares of Common Stock
underlying such options as of March 31, 2001 based on a closing price of $1.094
on the Nasdaq National Market on that date, minus the exercise price of such
shares; and (ii) the number of shares of Eclipse's Common Stock subject to
options granted under the Director Plan during fiscal year ended December 31,
2000.
13
Stock
Option Plan
-------------------------------
Number of
Name of Individual Shares Subject
or Identity of Dollar To Options
Group or Position Values($)(1) Granted(#)
----------------------------------------------- -------------- ----------------
Michael J. Quinn .............................. -- 700,000
Chief Executive Officer,
President and Chairman of the Board
Janet K. Castaneda (2) ........................ -- 25,000
Former Vice President of Legal Affairs
Darrell F. Eckstein ........................... $53,100 100,000
Vice President of Operations
Ian A. Johnston ............................... -- 30,000
Vice President of Finance and Treasurer
Thomas L. Kinder .............................. -- 25,000
Vice President of Worldwide Sales and
Service
Richard P. Lanigan ............................ -- 50,000
Vice President of Government Affairs
and Business Development
Nancy Lince (2) ............................... -- 30,000
Former Vice President of Regulatory
and Clinical Affairs
William E. Picht(2) ........................... -- --
Former Vice President of Operations
Richard P. Powers(2) .......................... -- --
Former Executive Vice President
of Administration and
Chief Financial Officer
Jack M. Gill Ph.D. ............................ -- --
Director
Alan L. Kaganov, Sc.D. ........................ -- --
Director
Robert L. Mortensen ........................... -- --
Director
Robert C. Strauss ............................. -- --
Director
All Current Executive Officers as a group ..... $53,100 905,000
All current directors who are not executive
officers as a group .......................... -- --
All other employees as a group ................ $ 55 641,150
1996 Employee Directors
Stock Purchase Plan Stock Option Plan
-------------------------- ------------------------------
Number of
Name of Individual Number of Shares Subject
or Identity of Dollar Shares Dollar to Options
Group or Position Values($)(1) Issued(#) Values($)(1) Granted(#)
----------------------------------------------- -------------- ----------- -------------- ---------------
Michael J. Quinn .............................. -- -- -- --
Chief Executive Officer,
President and Chairman of the Board
Janet K. Castaneda (2) ........................ -- -- -- --
Former Vice President of Legal Affairs
Darrell F. Eckstein ........................... -- -- -- --
Vice President of Operations
Ian A. Johnston ............................... -- -- -- --
Vice President of Finance and Treasurer
Thomas L. Kinder .............................. -- -- -- --
Vice President of Worldwide Sales and
Service
Richard P. Lanigan ............................ -- 3,985 -- --
Vice President of Government Affairs
and Business Development
Nancy Lince (2) ............................... -- -- -- --
Former Vice President of Regulatory
and Clinical Affairs
William E. Picht(2) ........................... -- -- -- --
Former Vice President of Operations
Richard P. Powers(2) .......................... -- 2,009 -- --
Former Executive Vice President
of Administration and
Chief Financial Officer
Jack M. Gill Ph.D. ............................ -- -- -- 7,500
Director
Alan L. Kaganov, Sc.D. ........................ -- -- -- 7,500
Director
Robert L. Mortensen ........................... -- -- -- 7,500
Director
Robert C. Strauss ............................. -- -- -- 7,500
Director
All Current Executive Officers as a group ..... -- -- -- --
All current directors who are not executive
officers as a group .......................... -- -- -- 30,000
All other employees as a group ................ -- -- -- --
----------------
(1) If no value is listed, stock options granted under the Stock Option Plan,
Directors Option Plan or Employee Stock Purchase Plan are of no value
because the exercise price of the stock options is above the current
trading price of Eclipse's Common Stock on March 31, 2001.
(2) No longer employees as of March 31, 2001 and not included as Current
Executive Officers.
Certain Transactions with Management
In November 2000, Eclipse exercised warrants in MicroHeart Holdings,
Inc. ("MicroHeart"), a Delaware company previously formed by U.S. Ventures and
Venrock Associates, in exchange for common stock. This transaction resulted in
an increase in Eclipse's ownership in MicroHeart to 32.1%. Mr. Alan Kaganov,
former Chief Executive Officer and a current director of Eclipse is also a
director of MicroHeart. Mr. Kaganov is also a Venture Partner of U.S. Venture
Partners.
14
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our
executive officers and directors, and persons who own more than ten percent of a
registered class of our equity securities to file reports of ownership and
changes in ownership with the Securities and Exchange Commission and the
National Association of Securities Dealers, Inc. Executive officers, directors
and greater-than-ten-percent shareholders are required by SEC regulation to
furnish us with copies of all Section 16(a) forms they file. Based solely on our
review of the copies of such forms received by us or written representations
from certain reporting persons, we believe that, with respect to 2000, all of
our executive officers, directors and ten percent shareholders complied with all
applicable filing requirements, except for the following: Michael J. Quinn,
Chief Executive Officer, filed a Form 3 twelve days late.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee reviews Eclipse's financial reporting process on
behalf of the Board of Directors. Management has the primary responsibility for
the financial statements and the reporting process. Eclipse's independent
auditors are responsible for expressing an opinion on the conformity of our
audited financial statements to generally accepted accounting principles.
In this context, the Audit Committee has reviewed and discussed with
management and the independent auditors the audited financial statements. The
Audit Committee has discussed with the independent auditors the matters required
to be discussed by Statement on Auditing Standards No. 61 (Communication with
Audit Committees). The Audit Committee, also, received from the independent
auditors the written disclosures required by Independence Standards Board No. 1
(Independence Discussions with Audit Committees) and discussed with them their
independence from Eclipse and its management. Additionally, the Audit Committee
did consider the independent auditors provision of non-audit related tax work
and found it not to be incompatible with the independent accountants
independence.
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors, and the Board approved, that
the audited financial statements for the fiscal year ended December 31, 2000 be
included in Eclipse's Annual Report on Form 10-K for filing with the Securities
and Exchange Commission.
Audit Committee
Robert L. Mortensen
Robert C. Strauss
The above report of the Audit Committee shall not be deemed
incorporated by reference by any general statement incorporating by reference
this Proxy Statement into any filing under the Securities Act of 1933, as
amended, or under the Securities Exchange Act of 1934, as amended, except to the
extent that Eclipse specifically incorporates this information by reference, and
shall not be deemed filed under such Acts.
15
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The following is the Report of the Eclipse Compensation Committee,
describing the compensation policies and rationale applicable to our executive
officers with respect to the compensation paid to such executive officers for
the year ended December 31, 2000. The information contained in the report shall
not be deemed to be "soliciting material" or to be "filed" with the Securities
and Exchange Commission, nor shall such information be incorporated by reference
into any future filing under the Securities Act of 1933, as amended or the
Securities Exchange Act of 1934, as amended, except to the extent that we
specifically incorporate it by reference into such filing.
TO: Board of Directors
The Compensation Committee (the "Committee") of the Board of Directors
reviews and approves Eclipse's executive compensation policies. The Committee
administers Eclipse's various incentive plans, including the Stock Option Plan
and the Employee Stock Purchase Plan, sets compensation policies applicable to
Eclipse's executive officers and evaluates the performance of Eclipse's
executive officers. The following is a report of the Committee describing
compensation policies and rationale applicable with respect to the compensation
paid to Eclipse's executive officers for the fiscal year ended December 31,
2000.
Two non-employee members of Eclipse's Board of Directors, Robert L.
Mortensen and Robert C. Strauss, served as the Compensation Committee of the
Board of Directors during 2000.
Compensation Philosophy
Eclipse's executive compensation programs are designed to attract,
motivate and retain executives who will contribute significantly to the
long-term success of Eclipse and the enhancement of stockholder value. In
addition to base salary, certain elements of total compensation are payable in
the form of variable incentive plans tied to the performance of Eclipse and the
individual, and in the equity-based plans designed to closely align executive
and stockholder interests.
Base Salary
Base salary for executives, including that of the chief executive
officer, is set according to the responsibilities of the position, the specific
skills and experience of the individual and the competitive market for executive
talent. In order to evaluate the competitive position of Eclipse's salary
structure, the Committee makes reference to publicly available compensation
information and informal compensation surveys obtained by management with
respect to cash compensation and stock option grants to offiers of comparable
companies in the high-technology sector, Eclipse's industry and its geographic
location. Executive salary levels are set to approximate average rates, with the
intent that superior performance under incentive bonus plans will enable the
executive to elevate his total cash compensation levels that are above average
of comparable companies. The Committee reviews salaries annually and adjusts
them as appropriate to reflect changes in market conditions and individual
performance and responsibilities.
Compensation to Chief Executive Officer in 2000
Pursuant to an employment agreement effective October 16, 2000, Mr.
Michael Quinn, Eclipse's Chief Executive Officer, received base compensation of
$330,000 during 2000.
Mr. Quinn's base salary was initially established by the Board of
Directors. It was based on the Board's assessment that Mr. Quinn was uniquely
qualified to lead Eclipse with his strong operational experience and history of
accomplishments in the marketing and sales of products. The Board determined
that his vision for Eclipse and his proven record of successful team building,
would be pivotal to realizing the full potential of Eclipse.
Stock Option Plan
The Committee believes that Eclipse's Stock Option Plan is an essential
tool to link the long-term interests of stockholders and employees, especially
executive management, and serves to motivate executives to make decisions that
will, in the long run, give the best returns to stockholders. Stock options
16
are generally granted when an executive joins Eclipse, with subsequent grants
also taking into account the individual's performance and the vesting status of
previously granted options. These options typically vest over a three year
period and are granted at an exercise price equal to the fair market value of
Eclipse's Common Stock at the date of grant. The size of initial option grants
is based upon the position, responsibilities and expected contribution of the
individual. This approach is designed to maximize stockholder value over a long
term, as no benefit is realized from the option grant unless the price of
Eclipse's Common Stock has increased over a number of years.
In addition to the Stock Option Plan, executive officers are eligible
to participate in Eclipse's Employee Stock Purchase Plan. This plan allows
employees to purchase Eclipse's Common Stock at a price equal to 85% of the
lower of the fair market value at the beginning of the offering period or the
fair market value at the end of the purchase period.
Other elements of executive compensation include life and long-term
disability insurance, medical benefits and a 401(k) deferred compensation plan
with no employer matching contribution for the fiscal year ended December 31,
2000. All such benefits are available to all regular, full-time employees of
Eclipse.
The foregoing report has been furnished by the Compensation Committee
of the Board of Directors of Eclipse.
Compensation Commitee
Robert L. Mortensen
Robert C. Strauss
17
STOCK PERFORMANCE GRAPH
The Stock Performance Graph below shall not be deemed "soliciting
material" or to be "filed" with the Securities and Exchange Commission, nor
shall such information be incorporated by reference in any general statement
incorporating by reference this proxy statement into any filing under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended, except to the extent that we specifically incorporate this information
by reference.
The following Graph sets forth Eclipse's total cumulative shareholder
return as compared to the Nasdaq Stock Market - Total Return Index (the "Nasdaq
Total Return Index") and the Nasdaq Stock Market - Medical Devices, Instruments
and Supplies, Manufacturers and Distributors Total Return Index (the "Nasdaq
Medical Devices Index") from May 31, 1996 through December 31, 2000.
Total shareholder return assumes $100 was invested at the beginning of
the period in the Common Stock of Eclipse, the stocks represented in the Nasdaq
Total Return Index and the stocks represented in the Nasdaq Medical Devices
Index, respectively. Total return also assumes reinvestment of dividends.
Eclipse has paid no dividends on its Common Stock.
Historical stock price performance should not be relied upon as
indicative of future stock price performance.
Eclipse Surgical Technologies, Inc.
Nasdaq Stock Market -- Total Return Index
Nasdaq Stock Market -- Medical Devices Index
[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T]
5/31/96 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00
------- -------- -------- -------- -------- --------
Eclipse Surgical Technologies, Inc. $100.00 $ 53.03 $ 35.61 $ 44.32 $ 44.70 $ 5.12
NASDAQ Total Return Index 100.00 103.23 126.06 174.29 321.20 196.46
NASDAQ Medical Devices Index 100.00 86.65 99.19 111.12 134.40 138.46
18
OTHER MATTERS
Eclipse knows of no other matters to be submitted at the 2001 Annual
Meeting. If any other matters properly come before the meeting, it is the
intention of the persons named in the enclosed form of Proxy to vote the shares
they represent as the Board of Directors may recommend.
By Order of the Board of Directors
Dated: May 16, 2001
/s/ Ian A. Johnston
Ian A. Johnston
Secretary
19
APPENDIX A
Description of the Stock Option Plan
Generally: Eclipse's Stock Option Plan, as amended and restated (the
"Option Plan") was approved by the Board of Directors and the shareholders in
April 1996. The total number of shares currently reserved for issuance under the
Option Plan is 5,100,000 shares. In March 2001, the Board of Directors approved
a further increase of 500,000 shares issuable under the Option Plan, which, if
approved by the shareholders, would increase the total shares reserved for
issuance under the Option Plan since its inception to 5,600,000 shares. The
Option Plan terminates in March 2006.
Options granted under the Option Plan may be either "incentive stock
options" (ISOs), as defined in Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code") or nonstatutory options (NSOs).
The Option Plan is not qualified under Section 401(a) of the Code and
is not subject to the Employee Retirement Income Security Act of 1974 ("ERISA").
Purpose of the Option Plan: The purposes of the Option Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to employees and consultants of
Eclipse and to promote the success of Eclipse's business.
Administration of the Option Plan: The Option Plan may be administered
by the Board of Directors of Eclipse or by one or more Committees appointed by
the Board of Directors (the "Administrator"). The Administrator has full power
to select the individuals to whom Options will be granted from among the
officers, directors, consultants or other employees eligible for grants, to make
any combination of grants to any participant and to determine the specific terms
of each grant, subject to the provisions of the Option Plan. The interpretation
of any provision of the Option Plan by the Administrator shall be final and
conclusive. Members of the Board of Directors or its Committee receive no
additional compensation for their services as Administrator of the Option Plan.
Eligibility: The Option Plan provides that Options may be granted to
employees and consultants (including employees, consultants and directors of
Eclipse and its majority-owned subsidiaries). Outside directors are excluded
from participation in the Option Plan.
Stock Options: The Option Plan permits the granting of stock options
that are intended to qualify as either ISOs or NSOs. In the case of ISOs, the
option exercise price for each share shall not be less than 100% of fair market
value of a share of Common Stock on the date of grant of such option. In the
case of NSOs, the option exercise price for each share covered shall be
determined by the Administrator. The fair market value of the Common Stock shall
be the closing price as of the date prior to the date of grant as reported by
the NASDAQ National Market System or other stock exchange. The term of each
option will be fixed by the Administrator but may not exceed ten years from the
date of grant for ISOs. The Administrator will determine the time or times that
each option may be exercised. No employee may be granted an Option for more than
300,000 Shares in any fiscal year; provided however that in connection with
initial employment an employee may be granted up to 600,000 additional shares.
The exercise price of Options granted under the Option Plan must be
paid in full by cash, check, shares of Eclipse (which, in the case of shares
acquired upon exercise of an Option either have been owned by the Optionee for
more than six months on the date of surrender or were not acquired, directly or
indirectly, from Eclipse and which have a fair market value on the exercise date
equal to the aggregate exercise price of the shares as to which said Option
shall be exercised) or promissory note. The Administrator may authorize as
payment the retention of shares having a fair market value on the date of
exercise equal to the exercise price for the total number of shares as to which
the Option is exercised or it may authorize delivery of a properly executed
exercise notice together with irrevocable instructions to a broker to promptly
deliver to Eclipse the amount of sale or loan proceeds required to pay the
exercise price. The Administrator may also authorize payment by any combination
of the foregoing methods, as well as tax withholding with stock. For any ISO,
the form of payment permitted will be stated on the notice of grant of the
Option.
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In the event of termination of employment or of an Optionee's
consultancy for any reason, including retirement, an Option may thereafter be
exercised (to the extent it was exercisable), for a period of ninety days,
subject to the stated term of the Option. If an Optionee's employment or
consultancy is terminated by reason of the Optionee's death or disability, the
Option will in general be exercisable for twelve (12) months following death,
subject to the stated term of the Option.
To qualify as ISOs, Options must meet additional federal income tax
requirements. Under current law these requirements include limits on the value
of ISOs that may become first exercisable annually with respect to any Optionee,
and a shorter exercise period and a higher minimum exercise price in the case of
certain large shareholders.
Stock Purchase Rights: The Option Plan permits Eclipse to grant stock
purchase rights to purchase Common Stock of Eclipse ("Stock Purchase Rights")
either alone, in addition to, or in tandem with other awards under the Option
Plan and/or cash awards made outside the Option Plan. Upon the granting of a
Stock Purchase Right under the Option Plan, the offeree shall be advised in
writing of the terms, conditions, and restrictions related to the offer,
including the number of shares of Common Stock that the offeree shall be
entitled to purchase, the price to be paid (which in no case shall be less than
85% of fair market value) and the time within which the offeree must accept such
offer (which shall in no event exceed six (6) months from the date upon which
the Administrators made the determination to grant the Stock Purchase Right),
the offer shall be acceptable by execution of a restricted stock purchase
agreement between Eclipse and the offeree.
Unless the Administrator of the Option Plan determines otherwise, the
restricted stock purchase agreement shall grant Eclipse a repurchase option
exercisable upon the voluntary or involuntary termination of the purchaser's
employment or consulting relationship with Eclipse for any reason (including
death or disability). The purchase price for shares repurchased pursuant to the
restricted restricted stock purchase agreement shall be the original price paid
by the purchaser and may be paid by cancellation of any indebtedness of the
purchase to Eclipse. The repurchase option shall lapse at such rate as the
Administrator may determine. The restricted stock purchase agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Option Plan as may be determined by the Administrator, and such provisions need
not be the same with respect to each purchaser. Upon exercise of a Stock
Purchase Right, the purchaser shall have rights equivalent to those of a
shareholder of Eclipse. As of the date of this proxy statement, no Stock
Purchase Rights have been granted under the Option Plan.
Adjustments for Stock Dividends, Mergers etc.: The Administrator is
authorized to make appropriate adjustments in connection with outstanding
Options or Stock Purchase Rights to reflect stock dividends, stock splits and
similar events. In the event of a merger, liquidation or similar event, the
Administrator in its discretion may provide for substitution or adjustments in,
or may accelerate or adjust such Options or Stock Purchase Rights.
Amendment and Termination: The Board of Directors may amend, alter,
suspend or discontinue the Option Plan at any time, but such amendment,
alteration, suspension or discontinuation shall not impair any Options or Stock
Purchase Rights then outstanding under the Option Plan without the participant's
consent.
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APPENDIX B
Description of the 1996 Employee Stock Purchase Plan
Generally: In April 1996 the Board of Directors of Eclipse adopted, and
the shareholders subsequently approved, the 1996 Employee Stock Purchase Plan
(the "Purchase Plan") and the reservation of 400,000 shares for issuance under
the Purchase Plan. The Board of Directors has approved and the shareholders are
being requested to approve an amendment to the Purchase Plan to increase the
number of shares reserved for issuance under the Purchase Plan by 300,000 for a
total of 700,000 shares.
The Purchase Plan is intended to qualify under Sections 421 and 423 of
the Internal Revenue Code of 1986, as amended (the "Code"). The Purchase Plan is
not qualified under Section 401(a) of the Code and is not subject to the
Employee Retirement Income Security Act of 1974 ("ERISA").
Purpose: The purpose of the Purchase Plan is to provide employees of
Eclipse and it's majority-owned subsidiaries with an opportunity to purchase
Common Stock of Eclipse through payroll deductions. At this time, all of
Eclipse's subsidiaries are Designated Subsidiaries for purposes of participation
in the Purchase Plan.
Administration: The Purchase Plan is administered by the Board of
Directors or a committee of the Board of Directors. The interpretation of any
provision of the Purchase Plan by the Administrator shall be final and
conclusive. Members of the Board of Directors or its Committee receive no
additional compensation for their services in administering the Stock Purchase
Plan.
Eligibility: Employees who are employed by Eclipse or a Designated
Subsidiary for at least 20 hours per week and five months per calendar year are
eligible to participant in the Purchase Plan, provided that such employees are
employed by Eclipse on both the enrollment date and the exercise date of an
Offering Period. Eligibility is subject to certain limitations imposed by
Section 423(b) of the Code and limitations on stock ownership as defined in the
Purchase Plan.
Offering Dates: The Purchase Plan generally will be implemented by
consecutive six month Offering Periods that begin every six months on May 16 and
November 16 of each year. The Board of Directors has the power to change the
duration of Offering Periods with respect to future offerings without
shareholder approval if such change is announced at least five days prior to the
scheduled beginning of the first Offering Period to be affected.
Participation in the Plan: Eligible employees become participants in
the Purchase Plan by filing with the employer's payroll office a subscription
agreement authorizing payroll deductions. An eligible employee who wishes to
become a participant in an offering must file a subscription agreement with the
payroll office prior to the commencement of such Offering Period. An employee
who becomes eligible to participate in the Purchase Plan after the commencement
of an offering may participate in the first Offering Period that starts after
the filing by such employee of a subscription agreement.
Purchase Price: Subject to certain amendments in response to accounting
changes as described below, the purchase price per share at which shares are
sold to participating employees under the Purchase Plan is the lower of (i) 85%
of the fair market value per share of the Common Stock on the first day of the
Offering Period (the "Offering Date") or (ii) 85% of the fair market value per
share of the Common Stock on the last day of an Offering Period (the "Exercise
Date"). The fair market value of the Common Stock shall be the closing price as
of such date as reported by the NASDAQ National Market System or other stock
exchange.
Payment of Purchase Price; Payroll Deductions: The purchase price of
the shares to be acquired under the Purchase Plan is accumulated by payroll
deductions over each six-month Offering Period. The deductions may not exceed
15% of a participant's compensation. A participant may discontinue or decrease
his participation in the Purchase Plan, but may not increase the rate of payroll
deductions at any time during the Offering Period. Payroll deductions for a
participant shall commence on the first pay day following the Offering Date and
shall continue at the same rate until the end of the Offering Period unless
sooner terminated as provided in the Purchase Plan.
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All payroll deductions made for a participant are credited to his
account under the Purchase Plan and are deposited with the general funds of
Eclipse. All payroll deductions received or held by Eclipse under the Purchase
Plan may be used by Eclipse for any corporate purpose, and Eclipse shall not be
obligated to segregate such payroll deductions. No charges for administrative or
other costs may be made by Eclipse against the payroll deductions of a
participant in the Purchase Plan.
Purchase of Stock; Exercise of Option: By executing a subscription
agreement to participate in the Purchase Plan, the employee is entitled to have
shares placed under option to him. The maximum number of shares placed under
option to a participant in an Offering Period is the number determined by
dividing the total amount of his compensation which is to be withheld for the
Offering Period by 85% of the fair market value of the Common Stock on the
Offering Date. Unless the employee's participation is discontinued, his option
for the purchase of shares will be exercised automatically on the Exercise Date
at the applicable price.
Notwithstanding the preceding paragraph, no employee shall be permitted
to subscribe for shares under the Purchase plan if, immediately after the grant
of the option, the employee would own 5% or more of the voting stock or value of
all classes of stock of Eclipse or its majority-owned subsidiaries, nor shall
any employee be granted an option which would permit him to purchase more than
$25,000 worth of stock (determined at the time the option is granted) under all
employee stock purchase plans of Eclipse in any calendar year.
Withdrawal from the Purchase Plan: A participant's interest in a given
Offering Period may be terminated in whole, but not in part, by signing and
delivering to Eclipse a notice of withdrawal from the Purchase Plan. Such
withdrawal may be elected by a participant at any time prior to an Exercise
Date. A participant's withdrawal from an Offering Period does not have any
effect upon his eligibility to participate in subsequent Offering Periods under
the Purchase Plan.
Termination of Employment: Termination of a participant's employment
for any reason, including retirement or death, or the failure of the participant
to satisfy the requirements for eligibility, cancels his participation in the
Purchase Plan immediately. In such event, payroll deductions credited to the
participant's account will be returned to him, or in the case of death, to the
person or person entitled thereto as provided in the Purchase Plan.
Adjustments for Stock Dividends, Mergers etc.: The Board of Directors
is authorized to make appropriate adjustments in connection with outstanding
options to reflect stock dividends, stock splits and similar events. In the
event of a merger, liquidation or similar event, the Board of Directors in its
discretion may provide for substitution or adjustments of the options, or may
shorten the current Offering Period(s) to provide for an earlier Exercise Date.
Amendment and Termination of the Plan: The Board of Directors may at
any time amend or terminate the Purchase Plan, except that (subject to special
amendments in response to accounting changes) such termination cannot adversely
affect the rights of any participant.
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APPENDIX C
AUDIT COMMITTEE CHARTER
Purpose
The primary purpose of the Audit Committee (the "Committee") is to
assist the Board of Directors (the "Board") in fulfilling its responsibility to
oversee management's conduct of Eclipse Surgical Technologies, Inc.'s (the
"Company") financial reporting process, including by reviewing the financial
reports and other financial information provided by the Company to its
shareholders, the Company's systems of internal accounting and financial
controls and the annual independent audit of the Company's financial statements.
In discharging its oversight role, the Committee is empowered to
investigate any matter brought to its attention with full access to all books,
records, facilities and personnel of the Company and the power to retain outside
counsel, auditors or other experts for this purpose. The Board and the Committee
are in place to represent the Company's shareholders; accordingly, the outside
auditor is ultimately accountable to the Board and the Committee.
The Committee shall review the adequacy of this Charter on an annual
basis.
Membership and Meetings
The Committee shall be comprised of not less than three non-employee
members of the Board. The Board shall designate a chairman of the Committee. The
Committee's composition will meet the requirements of the Audit Committee Policy
of the NASDAQ.
Accordingly, all of the members will be directors who:
o Have no relationship to the Company that may interfere with the
exercise of their independence from management and the Company; and
o Are financially literate or who become financially literate within a
reasonable period of time after appointment to the Committee. In
addition, at least one member of the Committee will have accounting or
related financial management expertise.
The Committee shall meet as frequently as the committee may deem appropriate.
Key Responsibilities
The Committee's job is one of oversight and it recognizes that the
Company's management is responsible for preparing the Company's financial
statements and that the independent auditors are responsible for auditing those
financial statements. Additionally, the Committee recognizes that financial
management including any internal audit staff, as well as the outside auditors,
have more time, knowledge and more detailed information about the Company than
do Committee members; consequently, in carrying out its oversight
responsibilities, the Committee is not providing any expert or special assurance
as to the Company's financial statements or any professional certification as to
the outside auditor's work.
The following functions shall be the common recurring activities of the
Committee in carrying out its oversight function. These functions are set forth
as a guide with the understanding that the Committee may diverge from this guide
as appropriate given the circumstances.
o Review and discuss with management and the independent auditors the
audited financial statements to be included in the Company's Annual
Report on Form 10-K (or the Annual Report to Shareholders if
distributed prior to the filing of Form 10-K), and review and consider
with the outside auditors the matters required to be discussed by
Statement of Auditing Standards ("SAS") No. 61, as amended.
o The Committee or the Chairman of the Committee shall review with
management and the outside auditors the Company's interim financial
results to be included in the Company's quarterly reports
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to be filed with Securities and Exchange Commission and any matters
required to be discussed by SAS No. 61; this review will occur prior to
the Company's filing of the Form 10-Q.
o Discuss with management and the outside auditors the quality and
adequacy of the Company's internal controls.
o The audit committee shall review the independence and performance of
the auditors. With respect to the independence of the independent
auditors, the Committee shall:
-- Request from the outside auditors annually, a formal written
statement delineating all relationships between the auditor
and the Company consistent with Independence Standards Board
Standard Number 1;
-- Discuss with the outside auditors any such disclosed
relationships and their impact on the outside auditor's
independence; and
-- Recommend that the Board take appropriate action to oversee
the independence of the outside auditor.
o The Committee, subject to any action that may be taken by the full
Board, shall have the ultimate authority and responsibility to select
(or nominate for shareholder approval), evaluate and, where
appropriate, replace the outside auditor.
Other Matters
The Committee shall prepare such reports as are required by the
Securities and Exchange Commission for inclusion in the Company's annual proxy
statement and maintain minutes of its meetings.
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