<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
HEARTPORT, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which 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:
------------------------------------------------------------------------
<PAGE>
[LOGO]
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 7, 1998
------------------------
To Our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders of
HEARTPORT, INC. (the "Company") which will be held at the Stanford Park Hotel,
100 El Camino Real, Menlo Park, California, at 2:00 p.m. on May 7, 1998, for the
following purposes:
1. To elect two directors to serve for the ensuing three year term or until
their successors are elected and qualified;
2. To ratify the selection of Ernst & Young LLP as independent auditors for
the Company for the fiscal year ending December 31, 1998; and
3. To act upon such other business as may properly come before the meeting
or at any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on March 20, 1998, as
the record date for determining those stockholders who will be entitled to vote
at the meeting. The stock transfer books will not be closed between the record
date and the date of the meeting.
Representation of at least a majority of all outstanding shares of Common
Stock of Heartport, Inc. is required to constitute a quorum. Accordingly, it is
important that your shares be represented at the meeting. WHETHER OR NOT YOU
PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY
CARD AND RETURN IT IN THE ENCLOSED ENVELOPE. You may revoke your proxy at any
time prior to the time it is voted. If you attend the Annual Meeting and vote by
ballot, your proxy will be revoked automatically and only your vote at the
Annual Meeting will be counted.
Sincerely,
/s/ Wesley D. Sterman, M.D.
Wesley D. Sterman, M.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Redwood City, California
April 7, 1998
<PAGE>
STOCKHOLDERS SHOULD READ THE ENTIRE PROXY STATEMENT
CAREFULLY PRIOR TO RETURNING THEIR PROXIES
------------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS OF
HEARTPORT, INC.
TO BE HELD MAY 7, 1998
------------------------
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of HEARTPORT, INC. ("Heartport" or the "Company") of proxies
to be voted at the Annual Meeting of Stockholders which will be held at 2:00
p.m. on May 7, 1998, at the Stanford Park Hotel, 100 El Camino Real, Menlo Park,
California, or at any adjournments or postponements thereof, for the purposes
set forth in the accompanying Notice of Annual Meeting of Stockholders. This
Proxy Statement and the proxy card were first mailed to stockholders on or about
April 7, 1998.
VOTING RIGHTS AND SOLICITATION
The close of business on March 20, 1998, was the record date for
stockholders entitled to notice of and to vote at the Annual Meeting. As of that
date, Heartport had 24,967,117 shares of common stock, $.001 par value per share
(the "Common Stock"), issued and outstanding, exclusive of treasury stock. All
of the shares of Common Stock outstanding on the record date are entitled to
vote at the Annual Meeting, and stockholders of record entitled to vote at the
meeting will have one (1) vote for each share so held on the matters to be voted
upon.
Shares of Common Stock represented by proxies in the accompanying form that
are properly executed and returned to Heartport will be voted at the Annual
Meeting of Stockholders in accordance with the stockholders' instructions
contained therein. In the absence of contrary instructions, shares represented
by such proxies will be voted FOR the election of each of the directors as
described herein under "Proposal 1--Election of Directors" and FOR ratification
of the selection of accountants as described herein under "Proposal
2--Ratification of Selection of Independent Auditors." Management does not know
of any matters to be presented at this Annual Meeting other than those set forth
in this Proxy Statement and in the Notice accompanying this Proxy Statement. If
other matters should properly come before the meeting, the proxy holders will
vote on such matters in accordance with their best judgment. Any stockholder has
the right to revoke his or her proxy at any time before it is voted.
The entire cost of soliciting proxies will be borne by Heartport. Proxies
will be solicited principally through the use of the mails, but, if deemed
desirable, may be solicited personally or by telephone, telegraph or special
letter by officers and regular Heartport employees for no additional
compensation. The Company has engaged The First National Bank of Boston ("Bank
of Boston") to provide routine advice and services for proxy solicitation in
addition to other services. Bank of Boston will receive approximately $11,400
from the Company per annum for such advice and services. Arrangements may be
made with brokerage houses and other custodians, nominees and fiduciaries to
send proxies and proxy material to the beneficial owners of Common Stock, and
such persons may be reimbursed for their expenses.
VOTES REQUIRED
PROPOSAL 1. Directors are elected by a plurality of the affirmative votes
cast by those shares present in person, or represented by proxy, and entitled to
vote at the Annual Meeting. The two nominees for director receiving the highest
number of affirmative votes will be elected. Abstentions and broker non-votes
will not be counted toward a nominee's total. Stockholders may not cumulate
votes in the election of directors.
<PAGE>
PROPOSAL 2. Ratification of the appointment of Ernst & Young LLP as the
Company's independent auditors for the fiscal year ending December 31, 1998,
requires the affirmative vote of a majority of those shares present in person,
or represented by proxy, and cast either affirmatively or negatively at the
Annual Meeting. Abstentions and broker non-votes will not be counted as having
been voted on the proposal.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be considered at the 1999 Annual Meeting
of Stockholders must be received by Heartport no later than December 2, 1998 and
not prior to November 1, 1998 in order to be included. The proposal must be
mailed to the Company's principal executive offices, 200 Chesapeake Drive,
Redwood City, California 94063, Attention: Corporate Secretary. Such proposals
may be included in next year's proxy statement if they comply with certain rules
and regulations promulgated by the Securities and Exchange Commission ("SEC")
and certain provisions contained in the Company's Bylaws.
MATTERS TO BE CONSIDERED AT ANNUAL MEETING
PROPOSAL 1
ELECTION OF DIRECTORS
The Company currently has authorized seven directors. In accordance with the
terms of the Company's Certificate of Incorporation, the Board of Directors is
divided into three classes: Class I, whose term will expire at the 2000 Annual
Meeting; Class II, whose term will expire at the 1998 Annual Meeting; and Class
III, whose term will expire at the 1999 Annual Meeting. At the 1998 Annual
Meeting, two directors will be elected to serve until the Annual Meeting to be
held in 2001 or until their respective successors are elected and qualified. The
Board of Directors has selected two nominees as the nominees for Class II. The
nominees for the Board of Directors are both currently directors of the Company
and are set forth below. The proxy holders intend to vote all proxies received
by them in the accompanying form for the nominees for director listed below. In
the event any nominee is unable or declines to serve as a director at the time
of the Annual Meeting, the proxies will be voted for any nominee who shall be
designated by the present Board of Directors to fill the vacancy. In the event
that additional persons are nominated for election as directors, the proxy
holders intend to vote all proxies received by them for the nominees listed
below. As of the date of this Proxy Statement, the Board of Directors is not
aware of any nominee who is unable or will decline to serve as a director.
NOMINEES FOR TERM ENDING IN 2001
Set forth below is information regarding the nominees, including their ages,
the period during which they have served as directors, and information furnished
by them as to principal occupations and directorships held by them in
corporations whose shares are publicly registered.
<TABLE>
<CAPTION>
DIRECTOR
NAME SINCE AGE
- --------------------------------------------------------------------------- -------- ---
<S> <C> <C>
Joseph S. Lacob............................................................ 1992 42
John H. Stevens, M.D....................................................... 1991 37
</TABLE>
JOSEPH S. LACOB has been a director of the Company since April, 1992. Mr.
Lacob is a general partner of Kleiner Perkins Caufield & Byers ("Kleiner
Perkins"), a venture capital firm he joined in 1987. Prior to joining Kleiner
Perkins, he was Marketing Manager for Cetus Corporation, a biotechnology
company. Mr. Lacob serves as Chairman of the Board of Directors of CellPro,
Inc., and is a director of Cardima, Inc., Corixa Corporation, Microcide
Pharmaceuticals, Inc., Pharmacyclics, Inc. and five privately held companies.
Mr. Lacob holds a B.S. in Biochemistry from the University of California at
Irvine, a Masters in Public Health from the University of California at Los
Angeles, and an M.B.A. from the Graduate School of Business at Stanford
University.
2
<PAGE>
JOHN H. STEVENS, M.D. founded the Company with Dr. Sterman in May, 1991, and
has been a director of the Company since that time. Dr. Stevens joined Heartport
as Chief Technology Officer in July, 1997 and has been Consulting Assistant
Professor of Cardiothoracic Surgery at Stanford University School of Medicine
since that time. From August, 1996 until he joined the Company, Dr. Stevens was
Assistant Professor of Cardiothoracic Surgery at Stanford and prior to that he
served as Chief Resident of the Department of Cardiothoracic Surgery at Stanford
and as Senior Registrar in Cardiothoracic Surgery at the Great Ormond Street
Hospital for Sick Children in London, England from July, 1995 to March, 1996.
Dr. Stevens earned B.U.S. and B.S. degrees in Communications and Psychology from
the University of Utah and an M.D. from Stanford University. See "Certain
Transactions--Transactions with Directors."
CONTINUING DIRECTORS
Set forth below is information regarding the continuing directors of the
Company, including their ages, the period in which they have served as
directors, and information furnished by them as to principal occupations and
directorships held by them in corporations whose shares are publicly registered.
<TABLE>
<CAPTION>
DIRECTOR
NAME SINCE AGE
- --------------------------------------------------------------------------- -------- ---
<S> <C> <C>
Robert V. Gunderson, Jr.................................................... 1995 46
Wesley D. Sterman, M.D..................................................... 1991 37
Petri T. Vainio, M.D., Ph.D................................................ 1992 38
Steven C. Wheelwright, Ph.D................................................ 1995 54
</TABLE>
WESLEY D. STERMAN, M.D. founded the Company with Dr. Stevens in May, 1991,
and has served as director and the Company's President and Chief Executive
Officer since that time. Prior to founding the Company, Dr. Sterman was founder,
President and Chief Executive Officer of EndoVascular Technologies, Inc., a
medical device manufacturer, from July, 1989 to September, 1991. Dr. Sterman has
B.S. degrees both in Biology and in Chemistry from Stanford University. Dr.
Sterman received an M.D. from the Stanford University School of Medicine and an
M.B.A. from the Graduate School of Business at Stanford University, where he was
an Arjay Miller Scholar.
ROBERT V. GUNDERSON, JR. has been a director of the Company since May, 1995.
Mr. Gunderson has been a partner of the law firm of Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP, since its formation in September, 1995.
From May, 1988, until September, 1995, Mr. Gunderson was a partner of the law
firm of Brobeck, Phleger & Harrison, LLP. Mr. Gunderson holds an M.A. from
Stanford University, an M.B.A. in finance from the Wharton School, University of
Pennsylvania, and a J.D. from the University of Chicago.
PETRI T. VAINIO, M.D., PH.D. has been a director of the Company since April,
1992. Dr. Vainio is a general partner of Sierra Ventures, a venture capital firm
he joined in 1988. He currently serves on the Board of Directors of Symphonix
Devices, Inc., a medical device company, and six privately held companies. Dr.
Vainio holds M.D. and Ph.D. degrees from the University of Helsinki, Finland,
and an M.B.A. from the Graduate School of Business at Stanford University.
STEVEN C. WHEELWRIGHT, PH.D. has been a director of the Company since
January, 1995. Dr. Wheelwright currently serves as a senior associate dean at
the Graduate School of Business, Harvard University, where he has been a
professor since July, 1988. Dr. Wheelwright also served as a professor at the
Graduate School of Business, Harvard University, from August, 1985 to August,
1986. From August, 1986 to August, 1988, Dr. Wheelwright served as a professor
at the Graduate School of Business at Stanford University. Dr. Wheelwright is
also a member of the Board of Directors of Quantum Corporation, a mass storage
device company, T.J. International Corporation, an engineered wood products
company, and Franklin Covey, an organizational tools company.
3
<PAGE>
BOARD MEETINGS AND COMMITTEES
During the fiscal year ended December 31, 1997, the Board of Directors of
the Company held a total of seven (7) meetings. During this period, each
director attended or participated in at least 75% of the aggregate of (i) the
total number of meetings of the Board and (ii) the total number of meetings held
by all committees of the Board on which he was a member.
The Board of Directors has an Audit Committee and a Compensation Committee.
There is no nominating committee or committee performing the functions of such
committee.
The Audit Committee meets with the Company's financial management and its
independent accountants at various times during each year and reviews internal
control conditions, audit plans and results, and financial reporting procedures.
This Committee, consisting of Messrs. Gunderson, Lacob and Wheelwright, held
four (4) meetings during fiscal 1997.
The Compensation Committee reviews and approves the Company's compensation
arrangements for management. This Committee, consisting of Drs. Vainio and
Wheelwright, held seven (7) meetings during fiscal 1997.
DIRECTOR COMPENSATION
The Company's directors receive no cash compensation for any meetings that
they attend. However, each of the Company's directors, in exchange for his
services as a director, was granted stock options to purchase shares of Common
Stock. The Company's directors were granted the following options to purchase
shares of Common Stock in April, 1995, at an exercise price of $0.375 per share:
Dr. Wesley D. Sterman and Dr. John H. Stevens were granted options to purchase
640,000 shares and 192,000 shares, respectively; each of the options are
immediately exercisable and the shares vest monthly over a five year period
beginning from the fifth anniversary of the date of hire or the date the
individual became a director, as applicable. Each of the Company's outside
directors was granted options to purchase 80,000 shares on April 1, 1995 at an
exercise price of $0.375 per share. Each director except Joseph S. Lacob has
exercised in full his respective option grants. All of the foregoing options
granted to the directors are immediately exercisable and the director vests in
the shares monthly over a five year period. In addition, the Company's 1996
Stock Option Plan provides for automatic grants to non-employee directors. On
May 28, 1997, the date of the Company's 1997 Annual Meeting of Stockholders,
each of the Company's directors, except for Dr. Sterman, was automatically
granted a non-statutory stock option to purchase 6,400 shares of Common Stock at
an exercise price of $24.00 per share, all of which become exercisable upon
completion of five continuous years of service. On May 7, 1998, the date of the
Company's 1998 Annual Meeting of Stockholders, each of the Company's directors,
except for Drs. Sterman and Stevens, will automatically be granted a
non-statutory stock option to purchase 6,400 shares of Common Stock at an
exercise price per share equal to the fair market value on that date. For
additional information concerning amounts paid to directors, see "Certain
Transactions."
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders vote FOR the
election of each of the above nominees.
4
<PAGE>
PROPOSAL 2
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The firm of Ernst & Young LLP served as independent auditors for the Company
for the fiscal year ended December 31, 1997. The Board of Directors desires the
firm to continue in this capacity for the current fiscal year. Accordingly, a
resolution will be presented to the meeting to ratify the selection of Ernst &
Young LLP by the Board of Directors as the Company's independent auditors to
audit the accounts and records of the Company for the fiscal year ending
December 31, 1998, and to perform other appropriate services. In the event that
stockholders fail to ratify the selection of Ernst & Young LLP, the Board of
Directors would reconsider such selection. Even if the selection is ratified,
the Board of Directors in its discretion may direct the appointment of a
different independent auditing firm at any time during the year if the Board of
Directors believes that such a change would be in the best interests of the
Company and its stockholders.
A representative of Ernst & Young LLP will be present at the Annual Meeting
to respond to appropriate questions and to make a statement if such
representative desires to do so.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders vote FOR the
ratification of the selection of Ernst & Young LLP to serve as the Company's
independent auditors for the fiscal year ending December 31, 1998.
5
<PAGE>
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 1997, certain information
with respect to shares beneficially owned by (i) each person who is known by the
Company to be the beneficial owner of more than five percent of the Company's
outstanding shares of Common Stock, (ii) each of the Company's directors and the
executive officers named in the Summary Compensation Table and (iii) all current
directors and executive officers as a group. Beneficial ownership has been
determined in accordance with Rule 13d-3 under the Securities Exchange Act of
1934, as amended. Under this rule, certain shares may be deemed to be
beneficially owned by more than one person (if, for example, persons share the
power to vote or the power to dispose of the shares). In addition, shares are
deemed to be beneficially owned by a person if the person has the right to
acquire shares (for example, upon exercise of an option or warrant) within sixty
(60) days of the date as of which the information is provided; in computing the
percentage ownership of any person, the amount of shares is deemed to include
the amount of shares beneficially owned by such person (and only such person) by
reason of such acquisition rights. As a result, the percentage of outstanding
shares of any person as shown in the following table does not necessarily
reflect the person's actual voting power at any particular date.
<TABLE>
<CAPTION>
APPROXIMATE
SHARES PERCENTAGE
BENEFICIALLY BENEFICIALLY
NAME OWNED OWNED(1)
- ------------------------------------------------------------------ ------------ -------------
<S> <C> <C>
Kleiner Perkins Caufield & Byers (2).............................. 1,820,000 7.31%
2750 Sand Hill Road
Menlo Park, CA 94025
Sierra Ventures (3)............................................... 1,609,999 6.47%
3000 Sand Hill Road
Building Four, Suite 210
Menlo Park, CA 94025
Robert V. Gunderson, Jr........................................... 153,100 *
Joseph S. Lacob (2)(4)............................................ 1,961,438 7.85%
Petri T. Vainio, M.D., Ph.D. (3).................................. 1,802,094 7.24%
Steven C. Wheelwright, Ph.D....................................... 136,785 *
Wesley D. Sterman, M.D............................................ 3,205,492 12.87%
Richard B. Brewer (5)............................................. 572,653 2.25%
John H. Stevens, M.D.............................................. 2,204,550 8.85%
David B. Singer (6)............................................... 112,599 *
Casey M. Tansey................................................... 289,532 1.16%
Bradford J. Shafer (6)............................................ 76,250 *
All current directors and executive officers as a group (17
persons) (7).................................................... 11,609,986 45.02%
</TABLE>
- ------------------------
* Less than 1% of the outstanding shares of Common Stock.
(1) Percentage of ownership is based on 24,901,845 shares of Common Stock
outstanding on December 31, 1997. The number of shares of Common Stock
beneficially owned includes the shares issuable pursuant to stock options
that are exercisable within 60 days of December 31, 1997. Shares issuable
pursuant to stock options are deemed outstanding for computing the
percentage of the person holding such options but are not outstanding for
computing the percentage of any other person. Except as indicated in the
footnotes to this table and pursuant to applicable community property laws,
the
6
<PAGE>
persons named in the table have sole voting and investment power with
respect to all shares of Common Stock. To the Company's knowledge, the
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.
(2) Includes 1,820,000 shares of Common Stock owned by Kleiner Perkins Caufield
& Byers VI, L.P. ("KPCB VI"). Mr. Lacob, a director of the Company, is a
general partner of Kleiner Perkins Caufield & Byers VI Associates, L.P.
("KPCB VI Associates"), which is a general partner of KPCB VI. Mr. Lacob
disclaims beneficial ownership of shares held by KPCB VI and KPCB VI
Associates, except for his pecuniary interest therein.
(3) Includes 1,548,095 shares of Common Stock owned by Sierra Ventures IV, L.P.
("Sierra IV") and 61,904 shares held by Sierra Ventures IV International,
L.P. Dr. Vainio, a director of the Company, is a general partner of SV
Associates IV, which is the general partner of Sierra IV. Dr. Vainio
disclaims beneficial ownership of shares held by Sierra IV or Sierra
Ventures IV International, L.P., except for his pecuniary interest therein.
(4) Includes options immediately exercisable for 80,000 shares of Common Stock.
(5) Includes options immediately exercisable for 560,000 shares of Common Stock.
(6) Includes options exercisable within 60 days of December 31, 1997.
(7) Includes options immediately exercisable, or exercisable within 60 days of
December 31, 1997, for 889,015 shares of Common Stock.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors, executive officers and persons who own more than ten
percent of a registered class of the Company's equity securities, to file with
the Securities and Exchange Commission (the "SEC") initial reports of ownership
and reports of changes in ownership of Common Stock and other equity securities
of the Company. Officers, directors and greater-than-ten-percent beneficial
owners are required by SEC regulations to furnish the Company with copies of all
Section 16(a) reports they file.
Based solely upon review of the copies of such reports furnished to the
Company and written representations that no other reports were required, the
Company believes that there was compliance for the fiscal year ended December
31, 1997, with all Section 16(a) filing requirements applicable to the Company's
officers, directors and greater-than-ten-percent beneficial owners, except that
Hanson S. Gifford, III, the Company's Vice President of Research and
Development, filed late two reports each showing one transaction.
7
<PAGE>
EXECUTIVE COMPENSATION AND RELATED INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the compensation earned for services rendered
in all capacities to the Company and its subsidiaries for the three fiscal years
ended December 31, 1997 by the Company's Chief Executive Officer and each of the
Company's five other highest-paid executive officers (determined as of the end
of the last fiscal year) (the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS(2)
ANNUAL COMPENSATION ------------
--------------------- SECURITIES
FISCAL SALARY BONUS UNDERLYING
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($) OPTIONS (#)
- ---------------------------------------- ----------- ---------- -------- ------------
<S> <C> <C> <C> <C>
Wesley D. Sterman, M.D. ................ 1997 240,096 40,000 0
President, Chief Executive 1996 216,033 32,405 0
Officer and Director 1995 196,667 13,767 640,000
Richard B. Brewer ...................... 1997 220,000 50,000 0
Chief Operating Officer 1996 175,128 26,269 560,000
1995 0 0 0
John H. Stevens, M.D. .................. 1997 100,962 17,692 308,000
Chief Technology Officer and 1996 0 0 0
Director 1995 0 0 0
David B. Singer ........................ 1997 200,609 25,366 0
Senior Vice President and 1996 100,000 7,000 429,000
Chief Financial Officer 1995 0 0 0
Casey M. Tansey ........................ 1997 197,101 55,492 0
Senior Vice President, Sales 1996 175,557 26,250 0
and Marketing 1995 7,778 544 328,000
Bradford J. Shafer ..................... 1997 199,199 25,195 0
General Counsel and Secretary 1996 85,641 5,995 350,000
1995 0 0 0
</TABLE>
- ------------------------
(1) Salary includes amounts deferred under the Company's 401(k) Plan.
(2) No restricted stock grants were made to the Named Officers during the fiscal
year.
8
<PAGE>
STOCK OPTIONS
The following table contains information concerning the stock option grants
made to each of the Named Officers for the year ended December 31, 1997:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------ ANNUAL RATES OF STOCK
NUMBER OF % OF TOTAL PRICE APPRECIATION FOR
SECURITIES OPTIONS GRANTED EXERCISE OR OPTION TERM(3)
UNDERLYING OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION ----------------------
NAME GRANTED (#)(1) FISCAL YEAR ($/SH)(2) DATE 5%($) 10%($)
- -------------------------------------- ------------------ --------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Wesley D. Sterman, M.D. 0 - - - - -
Richard B. Brewer 0 - - - - -
John H. Stevens, M.D. 6,400(4) * 24.00 5/27/07 58,860 184,707
151,600(5) 8.5% 17.31 7/27/07 2,408,450 5,389,451
150,000(6) 8.4% 17.31 7/27/07 2,383,031 5,332,571
David B. Singer 0 - - - - -
Casey M. Tansey 0 - - - - -
Bradford J. Shafer 0 - - - - -
</TABLE>
- ------------------------
* Less than 1%.
(1) The option will become fully exercisable and any unvested option shares will
vest immediately upon an acquisition of the Company by merger or asset sale
unless assumed or replaced by the acquiring entity. Any options which are
assumed or replaced in the transaction and do not otherwise accelerate at
that time shall automatically accelerate (and any unvested option shares
which do not otherwise vest at that time shall automatically vest) in the
event the optionee's service terminates by reason of an involuntary or
constructive termination within 12 months following the transaction. Each
option has a maximum term of ten years, subject to earlier termination in
the event of the optionee's cessation of employment with the Company.
(2) The exercise price may be paid in cash, in shares of Common Stock valued at
fair market value on the exercise date, or through a cashless exercise
procedure involving a same-day sale of the purchased shares.
(3) 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 assurance provided to any executive officer or any other holder of the
Company's securities that the actual stock price appreciation over the ten
year 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 made to
the executive officers.
(4) The option becomes exercisable upon completion of five continuous years of
service.
(5) The option becomes exercisable as to 20% of the option shares upon
completion of one year of service and the balance in a series of equal
monthly installments over the next forty-eight months of service.
(6) The option becomes exercisable in 60 equal monthly installments beginning
from the fifth anniversary of date of hire.
9
<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table sets forth information concerning option holdings for
the year ended December 31, 1997, with respect to each of the Named Officers. No
options were exercised by the Named Officers during the 1997 fiscal year. No
stock appreciation rights were exercised during such year or were outstanding at
the end of that year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FY-END(#) OPTIONS AT FY-END($)(1)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Wesley D. Sterman, M.D. 0 0 0 0
Richard B. Brewer 560,000(2) 0 7,212,800 0
John H. Stevens, M.D. 0 308,000 0 925,912
David B. Singer 96,466 332,534 18,882 32,638
Casey M. Tansey 0 0 0 0
Bradford J. Shafer 63,750 286,250 0 0
</TABLE>
- ------------------------
(1) Based on the fair market value of the Common Stock at year end ($20.38 per
share) less the exercise price payable for such shares.
(2) The option is immediately exercisable, but any shares purchased under the
option will be subject to a repurchase option in favor of the Company at the
original exercise price per share upon the optionee's cessation of service.
The repurchase right has lapsed as to 146,666 shares as of December 31,
1997. The holder of purchased shares, whether or not subject to the
Company's repurchase option, is entitled to vote all such shares.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board of Directors was formed in
February, 1996, and the members of the Compensation Committee are Dr.
Wheelwright and Dr. Vainio. None of these individuals was at any time during the
year ended December 31, 1997, or at any other time, an officer or employee of
the Company. No member of the Compensation Committee of the Company serves as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers serving as a member of the Company's Board of
Directors or Compensation Committee.
EMPLOYMENT AGREEMENTS
The Company presently has employment agreements with Mr. Brewer, Mr. Singer,
and Dr. Siegel as described below.
On February 8, 1996, the Company entered into an employment agreement with
Richard B. Brewer, the Company's Chief Operating Officer. The agreement provides
for acceleration of vesting of his option shares as if his service continued for
an additional twelve months should there be (1) an involuntary termination of
his employment without cause during the twelve month period following certain
changes in control involving the Company or the three month period preceding the
change in control if his termination were directly or indirectly directed by the
acquiring entity or (2) a change in his reporting relationship such that he no
longer reports to the Company's Chief Executive Officer.
On May 29, 1996, the Company entered into an employment agreement with David
B. Singer, the Company's Senior Vice President and Chief Financial Officer. The
agreement provides for nine months of
10
<PAGE>
salary continuation and vesting of his stock options as if his service continued
for an additional nine months should there be an involuntary termination of his
employment without cause other than in connection with a change in control. The
agreement also provides for acceleration of his option shares as if his service
continued for an additional thirty months should there be an involuntary
termination of his employment without cause during the eighteen month period
following certain changes in control involving the Company or the three month
period preceding the change in control if his termination were directly or
indirectly directed by the acquiring entity.
On September 18, 1996, the Company entered into an employment agreement with
Dr. Lawrence C. Siegel, the Company's Vice President of Clinical Affairs,
pursuant to which the Company agreed to assist Dr. Siegel in continuing or
substituting a real property loan obtained by Dr. Siegel from Stanford
University. The agreement also provides for severance payments of twelve months
of salary and vesting of his stock options as if his service continued for an
additional twelve months should there be an involuntary termination of his
employment without cause.
CHANGE IN CONTROL ARRANGEMENTS
Each of the executive officers of the Company is eligible to participate in
the Company's Change in Control Severance Plan. To the extent that any of the
executive officers has other severance arrangements with the Company, such
executive officers shall be paid the benefits provided under the Severance Plan
or their existing severance arrangements, whichever provides a greater benefit.
Under the Change in Control Severance Plan, in the event that an officer is
involuntarily terminated within twenty-four months following certain changes in
control, such officer shall receive severance benefits equal to twenty-four
months of salary plus a bonus equal to 200% of such officer's target bonus.
On March 12, 1997, the Compensation Committee agreed to amend outstanding
options, granted prior to the date of the initial public offering, to provide
that the exercisability of each such option will accelerate upon a Corporate
Transaction unless the option is assumed in connection with certain change of
control situations (a "Corporate Transaction"). The Compensation Committee
action also amended unvested shares purchased or purchasable under options
granted prior to the initial public offering, including shares held by Dr.
Sterman, and Messrs. Brewer and Tansey, to provide that the vesting of the
shares will accelerate upon a Corporate Transaction unless the Company's
repurchase right is assigned in connection with the Corporate Transaction. In
addition, upon an involuntary termination of the optionee's service within
twelve months following a Corporate Transaction, the exercisability of the
option and the vesting of shares will accelerate with respect to that number of
shares as if the optionee's service continued for an additional twelve months
following the involuntary termination, unless otherwise provided in the
individual's employment agreement.
The Compensation Committee has the authority under the 1996 Stock Option
Plan to provide for the acceleration of vesting of the shares of Common Stock
subject to the outstanding options held by the Chief Executive Officer and the
Company's other executive officers under that Plan at any time, including in
connection with Corporate Transactions or a hostile take-over of the Company,
whether effected through a successful tender offer for more than 50% of the
Company's outstanding Common Stock or through a change in the majority of the
Board as a result of one or more contested elections for Board membership, which
may or may not be conditioned on their employment being terminated (whether
involuntarily or through a forced resignation).
11
<PAGE>
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Company's Board of Directors (the
"Committee") is responsible for establishing policies and programs for
compensating Heartport's executive officers. Each year, the Committee determines
the base salary payable to the Chief Executive Officer ("CEO") and all other
executive officers, and approves the incentive bonus program for the CEO and
other executive officers. In addition, the Committee administers the Company's
1996 Stock Option Plan and Employee Stock Purchase Plan. The Committee has the
exclusive authority to grant stock options to the Company's officers. For fiscal
1997, the Committee considered both qualitative and quantitative factors in
determining executive officer compensation levels, including
commercially-prepared surveys of comparable companies and input from outside
compensation consultants.
COMPENSATION POLICY AND PHILOSOPHY
The Committee's policy is to develop executive compensation packages that
attract, retain and motivate highly effective executives. Compensation programs
are designed to reward the achievement of both short-term and long-term
objectives of the Company and to align the executives' interests with those of
the Company's stockholders. It is the Committee's objective to have a
substantial portion of each officer's compensation contingent upon the Company's
performance, as well as upon his or her own level of performance. Accordingly,
each executive officer's compensation package consists of three major
components: (i) base salary, (ii) annual cash incentive compensation, and (iii)
long-term stock-based incentive awards.
BASE SALARY
The base salary for each executive officer is set by reviewing the pay
practices of companies that compete with the Company for executive talent, and
by evaluating each individual's performance and contribution. The Committee
believes that the Company's most direct competitors for executive talent are not
necessarily all of the companies that the Company would use in a comparison of
stockholder returns. Therefore, the compensation comparison group is not the
same as the industry group in the index used in the Stock Performance Graph,
below.
ANNUAL CASH INCENTIVE COMPENSATION
Each executive officer has an annual bonus target. The total bonus pool for
executive officers is determined based on the Company's achievement of goals
established at the start of the fiscal year. For fiscal 1997, the
corporate-level goals were comprised primarily of the following equally-weighted
components: (i) revenue growth, (ii) training cardiac surgical teams in the use
of the Company's products, (iii) building manufacturing capacity, (iv) improving
existing products, and (v) product innovation. The Company achieved
substantially all of its performance targets in 1997. Actual bonuses paid
reflect both the achievement of corporate goals and the individual's specific
functional objectives, with greater weight being given to the achievement of
corporate goals. The weighting of corporate goals vs. individual objectives was
consistent among all executive officers. Actual bonuses for the Named Officers
are listed in the Summary Compensation Table.
LONG-TERM STOCK-BASED INCENTIVE AWARDS
During fiscal 1997, the Committee made significant option grants to Dr.
Stevens in connection with recruiting him to work as an employee of the Company.
No option grants were made to Dr. Sterman or Messrs. Brewer, Shafer, Singer or
Tansey in 1997 because significant option grants were made to such individuals
during the previous two years. Generally, a significant grant is made in the
year that an executive officer commences employment. The size of each grant is
set at a level that the Committee
12
<PAGE>
deems appropriate to create a meaningful opportunity for stock ownership based
upon the individual's position and responsibilities with the Company.
Each grant allows the officer to acquire shares of Common Stock at a fixed
price per share (the market price on the grant date) over a specified period of
time. Generally, two options are granted to executive officers when hired: (i)
an option which vests in periodic installments over the individual's first five
years of employment, and (ii) an option which vests in periodic installments
over the individual's sixth through tenth years of employment. The vesting
schedules are designed to encourage the executives to remain with the Company
and to focus on longer-term results. An option will provide a return to the
executive officer only if he or she remains in the Company's employ, and then
only if the market price of Common Stock appreciates over the option term.
CEO COMPENSATION
The annual base salary for Dr. Sterman, the Company's President and CEO, was
established by the Committee in March, 1997. To determine Dr. Sterman's 1997
base salary, the Committee evaluated the achievement of the Company's goals and
Dr. Sterman's performance of his duties over the past twelve months, and
considered the base salaries paid to chief executive officers in comparable
companies. Dr. Sterman received an incentive bonus determined on the same basis
as the incentive bonuses for other executive officers. Such compensation is
entirely dependent on corporate and individual performance and is not
guaranteed. No option grants were made to Dr. Sterman in 1997 because a
significant option grant was made to him in 1995.
TAX LIMITATION
Under the Federal tax laws, a publicly-held company such as the Company is
not allowed a Federal income tax deduction for compensation paid to certain
executive officers to the extent that compensation exceeds $1 million per
officer in any year. In order to qualify option grants under the Company's 1996
Stock Option Plan ("1996 Plan") for an exemption available to performance-based
compensation, the stockholders have approved certain provisions of the 1996
Plan, including a limit on the maximum number of shares of Common Stock for
which any one participant may be granted stock options each calendar year over
the term of the 1996 Plan. Accordingly, any compensation deemed paid to an
executive officer when he exercises an outstanding option under the 1996 Plan
with an exercise price equal to the fair market value of the option shares on
the grant date will qualify as performance-based compensation that will not be
subject to the $1 million limitation. Since it is not expected that the cash
compensation to be paid to the Company's executive officers for the 1998 fiscal
year will exceed the $1 million limit per officer, the Committee will defer any
decision on whether to limit the dollar amount of the cash compensation payable
to the Company's executive officers to the $1 million limit.
Compensation Committee
Petri T. Vainio, M.D., Ph.D.
Steven C. Wheelwright, Ph.D.
13
<PAGE>
STOCK PERFORMANCE GRAPH
The graph set forth below compares the cumulative total stockholder return
on the Company's Common Stock between April 25, 1996 (the date the Company's
initial public offering commenced) and December 31, 1997 with the cumulative
total return of (i) the CRSP Total Return Index for the Nasdaq Stock Market
(U.S. Companies) (the "Nasdaq Stock Market-U.S. Index") and (ii) the Hambrecht
and Quist Healthcare Index (the "H&Q Healthcare Index"), over the same period.
This graph assumes the investment of $100.00 on April 25, 1996 in the Company's
Common Stock, the Nasdaq Stock Market-U.S. Index and the H&Q Healthcare Index,
and assumes the reinvestment of dividends, if any.
The comparisons shown in the graph below are based upon historical data. The
Company cautions that the stock price performance shown in the graph below is
not indicative of, nor intended to forecast, the potential future performance of
the Company's Common Stock. Information used in the graph was obtained from
Hambrecht & Quist LLC, a source believed to be reliable, but the Company is not
responsible for any errors or omissions in such information.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG HEARTPORT, INC.,
THE NASDAQ STOCK MARKET-U.S. INDEX, AND THE H&Q HEALTHCARE INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DOLLARS HEARTPORT, INC. NASDAQ STOCK MARKET (U.S.) H & Q HEALTHCARE
<S> <C> <C> <C>
4/25/96 100 100 100
12/31/96 109 109 103
12/31/97 97 134 119
</TABLE>
Notwithstanding anything to the contrary set forth in any of the Company's
previous or future filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate this Proxy
Statement or future filings made by the Company under those statutes, the
Compensation Committee Report and Stock Performance Graph shall not be deemed
filed with the Securities and Exchange Commission and shall not be deemed
incorporated by reference into any of those prior filings or into any future
filings made by the Company under those statutes.
CERTAIN TRANSACTIONS
TRANSACTIONS WITH DIRECTORS
Dr. Stevens received $102,084 for consulting services in 1997, prior to
joining the Company as Chief Technology Officer in July, 1997.
INDEMNIFICATION
The Company's Certificate of Incorporation limits the liability of its
directors for monetary damages arising from a breach of their fiduciary duty as
directors, except to the extent otherwise required by the
14
<PAGE>
Delaware General Corporation Law. Such limitation of liability does not affect
the availability of equitable remedies such as injunctive relief or rescission.
The Company's Bylaws provide that the Company shall indemnify its directors
and officers to the fullest extent permitted by Delaware law, including in
circumstances in which indemnification is otherwise discretionary under Delaware
law. The Company has also entered into indemnification agreements with its
officers and directors containing provisions that may require the Company, among
other things, to indemnify such officers and directors against certain
liabilities that may arise by reason of their status or
service as directors or officers (other than liabilities arising from willful
misconduct of a culpable nature), to advance their expenses incurred as a result
of any proceeding against them as to which they could be indemnified, and to
obtain directors' and officers' insurance if available on reasonable terms.
LOANS TO EMPLOYEES
In connection with the acquisition of shares of Common Stock from the
Company pursuant to the exercise of options previously granted to such
individuals, the Company on September 1, 1995, extended loans to certain of its
executive officers. Each of the loans is full recourse and is secured by the
shares of Common Stock purchased with the proceeds of the loans. In addition,
loans were extended on other dates for stock purchases and relocation expenses.
The following table sets forth information with respect to loans extended to the
officers by the Company in excess of $60,000.
<TABLE>
<CAPTION>
NO. OF SHARES PER SHARE INDEBTEDNESS AS INTEREST MATURITY
NAME PURCHASED PRICE PRINCIPAL OF 12/31/97* RATE DATE
- ----------------------------------- ------------- --------- --------- --------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Wesley D. Sterman, M.D............. 2,540,000 $0.004 $ 10,000(1) $ 14,637 7.00% 03/01/97
20,000 0.062 1,250(1) 1,578 6.00 03/01/99
640,000 0.375 240,000 276,484 6.18 02/28/02
John H. Stevens, M.D............... 192,000 0.375 72,000 82,945 6.18 03/31/02
20,000 0.062 1,250(2) 1,578 6.00 03/01/99
Robert J. Chin, Ph.D............... 136,000 0.375 51,000(3) 58,484 6.18 11/09/97
10,000(3) 10,000 0.00 12/31/99
Hanson S. Gifford, III............. 176,000 0.375 66,000 76,033 6.18 07/20/03
Steven E. Johnson.................. 192,000 0.375 72,000 82,945 6.18 08/23/99
176,000 0.375 66,000 76,033 6.18 08/23/04
Lawrence C. Siegel, M.D............ 160,000 0.062 10,000(4) 13,439 6.00 12/02/97
24,000 0.375 9,000(4) 11,041 7.05 08/29/99
Casey M. Tansey.................... 208,000 0.781 162,500(5) 184,499 6.02 12/11/00
120,000 0.781 93,750(5) 106,441 6.45 12/11/05
</TABLE>
- ------------------------
* The amount of indebtedness disclosed in this column also represents the
largest aggregate indebtedness outstanding at any time during the fiscal
year, except with respect to the loans repaid during the year by Drs.
Sterman, Chin and Siegel as set forth below.
(1) The Company loaned $10,000 to Dr. Sterman on March 1, 1992 to purchase
2,540,000 shares of Common Stock and $1,250 on March 1, 1994 to purchase
20,000 shares of Common Stock. Dr. Sterman repaid the $10,000 loan plus
accrued interest of $4,637 on December 2, 1997.
(2) The Company loaned $1,250 to Dr. Stevens on March 1, 1994 to purchase 20,000
shares of Common Stock.
15
<PAGE>
(3) On June 5, 1995, the Company made a $10,000 unsecured loan to Dr. Chin at no
interest for relocation expenses. Dr. Chin repaid the $51,000 loan plus
accrued interest of $7,484 on December 4, 1997.
(4) The Company loaned $10,000 to Dr. Siegel on December 2, 1992, to purchase
160,000 shares of Common Stock and $9,000 on August 29, 1994, to purchase
24,000 shares of Common Stock. Dr. Siegel repaid the $10,000 loan plus
accrued interest of $3,439 on December 1, 1997.
(5) The loans from the Company to Mr. Tansey were made on December 28, 1995.
ANNUAL REPORT
A copy of the Annual Report of the Company for the fiscal year ended
December 31, 1997, has been mailed concurrently with this Proxy Statement to all
stockholders entitled to notice of and to vote at the Annual Meeting.
FORM 10-K
The Company filed an Annual Report on Form 10-K with the SEC. Stockholders
may obtain a copy of this report, as amended, without charge, by writing to the
Company's executive offices at 200 Chesapeake Drive, Redwood City, California
94063, Attention: Investor Relations.
OTHER MATTERS
Management does not know of any matters to be presented at this Annual
Meeting other than those set forth herein and in the Notice accompanying this
Proxy Statement.
THE BOARD OF DIRECTORS
OF HEARTPORT, INC.
April 7, 1998
Redwood City, California
16
<PAGE>
HEARTPORT, INC.
PROXY
ANNUAL MEETING OF STOCKHOLDERS
MAY 7, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints WESLEY D. STERMAN, M.D. and RICHARD B.
BREWER, and each or either of them, as Proxies of the undersigned, with full
power of substitution, and hereby authorizes them to represent and to vote,
as designated below, all of the shares of Common Stock of HEARTPORT, INC.,
held of record by the undersigned on March 20, 1998, at the Annual Meeting of
Stockholders of Heartport, Inc. to be held May 7, 1998, or at any adjournment
or postponement thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL NOS. 1 AND 2.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS SPECIFIED ON THE REVERSE
SIDE. THIS PROXY WILL BE VOTED FOR PROPOSAL NOS. 1 AND 2 IF NO SPECIFICATION
IS MADE.
- ------------------------------------------------------------------------------
1. ELECTION OF DIRECTORS
/ / FOR all nominees / / WITHHOLD AUTHORITY / / EXCEPTIONS
listed below to vote for all nominees
INSTRUCTION: To withhold authority to vote for any individual nominee,
mark the "EXCEPTIONS" box and strike a line through the nominee's name in
the list below:
Joseph S. Lacob John H. Stevens, M.D.
2. RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
/ / FOR / / AGAINST / / ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon such other
matters as may properly come before the meeting.
Please sign exactly as your name(s) is (are) shown on the share
certificate to which the Proxy applies. When shares are held by joint
tenants, both should sign. When signing as an attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
DATED:_____________________________, 1998
Signature _______________________________________________________________
_______________________________________________________________
(Additional signature if held jointly)
PLEASE SIGN, DATE, AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE.
